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Why is Facebook worth $104bn?

Why is Facebook worth $104bn?

Why is Facebook worth $104bn?

The Facebook IPO has valued it at $104bn or $38 per share. With revenue this year expected to be in the $5bn ball park why is the company worth $100bn? Users don't pay to use Facebook, and it's splashed across their frontpage that they never will; most of the revenue comes from advertising and some from Facebook credits. Quite simply they have a database like no-one else. Tesco's Clubcard database knows exactly what groceries millions of people buy each week but the Facebook database contains so much more. It knows who you know, what you like, what you are doing, who you talk to and so much more. At a valuation of $104bn Facebook's shareholders are going to demand a return on investment which is going to entail a big increase on their revenues. $5bn is going to have to turn in to $30bn to $50bn. At present that revenue works out at just over $5 per user and $1 of profit per year. You can see how much you are worth to Facebook here. Most people are going to be worth more than the $5 they contribute. They therefore either need to massively increase the number of users or massively increase the revenue per user. If you live in Europe or North America and aren't on Facebook then chances are you don't want to be (or can't). There are areas of the world they can grow like China but chances are they are going to have grow most of the revenue from the existing users. Interestingly we're noticing a decrease in traffic to Facebook, there's a step up at the new year and then a step down at Easter. True, a large percentage of the traffic is going to be over the mobile networks, especially if people are out more but the trend on Twitter isn't as pronounced at Easter. MySpace only registers. But what if the mobile networks haven't seen that step down balance out, are people spending less time on Facebook? Some interesting stats from Alexa says the number of search engine searches for Facebook, and the time on site per user is decreasing slightly. That's going to mean more targeted adverts, more emphasis on mobile revenue and more chargeable content. They will have to exploit their database in more ways to maximise the value of those targeted adverts. For example, if you "like" Dell and post on your status that your laptop has been stolen, you can imagine the adverts they are likely to serve up. Or if you have Netflix feeding in that you like lots of Arnie films, what advert will you get when his new movie comes out? Will the advertisers be willing to pay for these premium targeted ads and will the users put up with more ads and will they pay for the extra content? GM have already walked away from a $40m advertising spend saying it hasn't worked for them. Will Instagram's $1bn purchase help? We shall see. Ten years ago everyone flocked to Friends Reunited, then MySpace, but where are these services today? Facebook won't want to be another footnote in the dotcom world and that certainly won't be what the shareholders want, but there's always a danger that if you try and over monitise your customer base they will leave. A business with $5bn on revenues and a billion in profit after 8 years is an amazing success story. But having to turn that into $40bn will be interesting. Dave Tomlinson Plusnet Product Team About the author: Dave Tomlinson has worked in the ISP industry for over 12 years, the last 9 at Plusnet. This blog represents a personal opinion and does not necessarily reflect the views of Plusnet.

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Why anyone would want to share their private /confidential life details for FREE, to this dangerous world of mad people is amazing. I would not go up to a single unknown person and share my private family details and photo,s with them so why share it with the world VERY WEIRD. FACE BOOK or as I call it DISGRACE BOOK.--A big business storing your life on their data base and giving this information to strangers or security services to do as they please. This DISGRACE BOOK is big business and people will one day wake up and wished they never subscribed to such a information gathering service. A BIG BROTHER SITE that your family and kids have freely created. YOUR LIFE HISTORY IN THEIR HANDS. I wonder if you know what you have done to your life.
Newbie
Not sure that Facebook is worth $104bn rather than some think its worth a bet that it going to be worth an awful lot more. Not sure I believe it can be without becoming something else such as a shop front for media or other sales. The rulers of search (Google) have significantly higher revenue (~$38bn) doing what they do best. If you are best at search you are probably best at targeting adds. One problem for Facebook as I see it is that so much of the data people give is false. They don't like being forced to declare the truth in order to join the party. If the data is polluted and divided between multiple accounts in an effort to try and maintain anonymity then there is some limit to the value of that data. Has Facebook 'peaked'?
Seasoned Pro
A lot of investors have lost money. Price substantially down after one day. I believe share price / earnings (P/E) exceeds 100? So a long way to fall in the next few weeks.
Newbie
Now the lawyers are getting interested. Its alleged that some early investors may have known more than others. http://tinyurl.com/d5s2o2c
Dabbler
Answer was: It wasn't... The clue should have really been in all the pro facbook and anti-Google+ hype that was swirrling around before launch... Facebook is worth 1/10th of it's IPO valuation personally.