We've certainly entered the silly season of Silicon Valley tech valuations, but one company strikes me as not richly valued enough: Facebook. You can argue about the company's privacy policies, its data hoarding policies, its choice of that ugly blue but one thing seems beyond doubt: Facebook is worth at least as much as Google …
Pretty sure it's the latter taking the previous articles into account
Has el Reg
Hired all of the morons recently booted out of NoW??
re:Facebook is too well established to go anywhere now
Remember MySpace? Altavista? FriendsReunited? All were household names, all collapsed as users switched to Google and FaceBook.
FaceBook might seem to big to die out, and it would be a big upset, but it does happen.
An Open Letter to President Obama
1) Seize Facebook using Executive Prerogative or some similar Nazi B.S. If needed, Mr. Koh can finagle a justification.
2) Sell at 1'000'000'000'000 USD (1 TRILLION US DOLLAR)
4) Reduce national debt by 1/14! (or have the cash ready for next year's military expenditures)
That gives a Price/Earnings ratio of c 3333 to 1.
Now obviously the price figure is just what a *current* FB stockholder would *like* it to be.
And the earnings figure is leaked by someone who'd like to talk FB (expected) stock price down.
P/E ratio says if you bought this stock and the company dished out *all* its earnings (and presumably kept on doing so) how long would it take to get what you paid for the stock (assuming the earnings stay the same) back.
In this case about 3 1/2 Millenia.
Of course if profits are 10x bigger and opening price is 10x smaller that's a P/E of 33 years.
If you can get in early talk the price up *higher* and offload your shares not a bad deal (not quite as good as that of the founders of course).
But an actual sensible *investment*?
facebook is not about facebook, it is about a book of faces (que theremin)
I don't think the point of facebook has to do with the 'social' interaction. That is the crispy coating on what FB is really going after, namely to become the dominant hub of digital ID's on the web.
Case in point: I can log on to the Register using my FB account.
With the current appification of the web, the storing, enabling, leveraging digital ID's is the prize being fought over and is also why Google + is such a threat to FB.
But back to TFA: is FB worth 1 Trillion? Nope; is it worth a lot? If they can consolidate their hold on ID's: yes. If users move to Google + and other contenders AND (have to) take their ID's with them then no. Too early to tell methinks.
Go high with the the Facebook Balloon...
I'm looking forward to the day it pops. So too, I think, is everyone overvaluing a company which simply cannot create profit to justify that valuation. These valuations are all based on the most optimistic hot air I've ever seen (such as this article), not levels of investment or a proven business model: a $1tn valuation on a $1bn sales figure would be a pathetic investment. Facebook is only worth as much as Google when Facebook's ads are equally prolific.
The reality is Facebook's ads exist only on Facebook, and Facebook has no profile at all outside Europe and the English-speaking territories. Google, on the other hand...
Usage data badly skewed
It's very common for folks who play Zynga games to have at least a dozen facebook accounts each. This is in order to progress in the game without badgering real friends or spending money. proper facebook gamers have up to 80.
Each account requires an obscene number of full 'page views' in order to respond to fake friend requests. These folks are amongst the heaviest users and appear to be in large numbers.
I'm sure you've all seen other apps that are desperate for you and all your friends to join and waste as much time as possible for little gain.
While there is no doubt these people need taken out back and shot, it suggests you'd have to be nuts to invest with such wishy washy figures. How about quoting the number of facebook users active at a time and their ad click rate? Just a hunch but my guess is its potential far below its current valuation.
This title bar bugs me.
So it's "beyond doubt" that Facebook is worth more because "its potential is arguably bigger"?
Bubbles come and bubbles go, but it's profit which determines a company's long-term stable value. Annoying though it's model is, Google's long-term stable profitability looks pretty sound at this stage. Facebook's is still very much open to question.
When I see how much obviously bright tech gurus think they know about company valuation I can fully understand why the dot com bubble happened in the first place.
But what type of users?
A lot of people who go to google are going there to look for ads, so the potential for ad revenue is that much greater than with facebook where they are going to chat with their friends.
Once upon a time in AOL Europe...
...we stood around in "strategy meetings" discussing exponential growth rates and how different values of €/user would make the difference between a Porsche and a Ferrari when the IPO came. And here I am all these years later, still driving a Citroen.
There seems to be a fundamental human drive to believe in fantastic things, but sooner or later the smoke runs out and the mirrors crack.
Facebook is an unremarkable web app with a large number of very fickle users who pay nothing.
Comparisons with Google are ridiculous. I imagine the only reason that Google hasn't built a better Facebook is that it's populated with engineers who share the same pitiful scorn towards Facebook users as every other engineer I've met, and so they can't be bothered.
What a load of trollfodder
Matt, have you ever heard of the PE ratio? How about the Robert Shiller PE 10?* A PE of 20 is already above the historical average and you are suggesting a PE of over 1000.
All pre-IPO stocks are overvalued at the moment as with nearly zero interest rates there are lots of freshly printed dollars chasing returns. But valuations are not values which is why such trends are called bubbles.
"Matt, have you ever heard of the PE ratio?"
guess not, think he is relying on other economic measures such as swivel-eyed fanboyism and "way-to-go!!" quotients.
It's the dot con bust all over again
There are a lot of facebook users who don't click on ads (or block them) and don't use the crappy apps (I'm one of them) - they won't be able to monetize them at all.
Just my tuppence worth
From a friendly search to a useful map system, which works on both mobile and computer, plus can be a gps route tool in its mobile form, I use Google daily. In fact, I don't think there has been a day I've not Googled something.
I used Facebook a few times when people from work invited me to be a "friend". The spam ratio is horrendous. I've not been on FB in over a month, maybe more.
In short, in my life, I need Google. I have no need for Facebook...
FB is how kids communicate...
...hence the valuations. It's not about FB's current advertising revenue, or how they don't happen own *your* ass, or how few of *your* friends post.
It's about a couple of generations, a lot younger than you, having FB as their "digital ID's on the web" (as one poster said).
It's about 14-21-y-o's spending a couple of hours, on average, on FB, each day. (They truly do. They don't go down the park for a kickaround anymore, folks.)
I appreciate that those of you who have procreated provide uber-tech-guidance to your teens. Meantime the rest of the world, the 90% of normal people, continue on, with all their kids living through FB.
- True, something could conceivably come along that makes all these happy teens jump ship. Good luck designing that.
- True, youngsters spend an inordinate amount of time sharing and showing off, and that diminishes through adulthood. Yes.
FB's domination is not guaranteed. But it could very easily become 90% of "the internet experience" for several generations of younger (non-techie) people.
Hence the valuations. (I think it sucks, personally, but that's of no relevance.)
Just one small problem
Kids have no money. So what are they buying for Facebook to be worth $1tn?
"- True, something could conceivably come along that makes all these happy teens jump ship. Good luck designing that."
Er, I think it is called "life" and it doesn't need designing. It will just happen once these kids grow up. Oh, and you can't monetize it, so don't waste time trying.
I'm not pretending to be superior to these people. Looking back, I wasted a horrific amount of time in my childhood. But I grew up. Other things seemed more interesting or more urgent. The same will happen to current FB users. And to echo someone else's remarks, just at the point where these people start to have their own money, they'll start to drift away from FB.
a brand of acne medicine ?
Facebook .. is that a brand of acne medicine for readers ?
One glaring omission.
The author hasn't declared whether he owns or plans on purchasing any facebook shares or not.
Considering the obvious facebook hype I think it's something he should have mentioned.
Why do you keep rejecting this comment? As if I couldn't guess.
Re: One glaring omission.
OK, you want a serious answer?
The only outsiders who own shares in FB are gazillionaires.
Discussion of the valuation of FB could not be construed as share ramping - the company is privately held and there are no plans published for an IPO.
Lastly, I refer you to 6+7 of comment guidelines.
Oh, how far El Reg has fallen! *swoon*
Drewc: Ok, I agree I with very nearly all of your points in this forum post (not the article, mind you, but that's irrelevant to this post). But what I want to know is this:
When did the Register develop a thin skin about being referred to as company shills, etc.? I still remember the days when the standard response to such an accusation was to refer people to the "price sheet" for favorable articles, snickering the whole time...
Joke alert because this /is/ meant to be funny, but it could just as easily be a sad frown for the lost "good old days."
That wasn't an answer.
If he plans on buying shares (should they become available) then this article is nothing more than wishfuil thinking.
If not then ihe's a blatant troll.
Trolling the commentards?
Either that or it's April 1st in whatever part of the universe the author is from.
I was going to +1 this article, but there isn't a button, only a legacy "like" button
Come on Reg, get with the programme. This isn't 2010 you know.
Always remeber that FB *customers" are its advertisers
It's real *product* are the people who have accounts on it.
I'm sort of hoping that some massive data breach will happen and the kiddies will go "But, but I thought Facebook was my *friend* and didn't do bad stuff like spying on me and stuff."
And they all migrate to Google's version, like good little Eloi should.
That is all.
Bubble (Your other opinions now equal suspect).
Take a day off.
You need to get some perspective.
one trick pony
FB is a site where people with too much time on their hands post a few photos and comments to try to make their friends think their lives are more interesting than they are. It's a slickly designed site, and has some nice tech, but in the end it's a place for a certain section of the population to hang out. Starbucks if you will.
But Google has much more. Everyone uses Google search. And that business is lucrative because you've got people looking for things, and advertisers of those things will pay to be there. And they've got a fantastic mail offering. And online document systems which could well be the future direction things go. They're ensuring they're in front of people on mobile devices and the desktop with strategic investments in Android and the Chrome browser. And they own YouTube which could well corner the TV market in the future. They are Wallmart and Tesco's rolled into one and they have branched into various directions that all look promising whereas FB is just focusing on social networking.
It's not just a website
It's a resource that holds data about practically everyone which can be used by marketers to market to them effectively. They don't even need to do it via traditional banner ads but it can include incentives i.e. anything from getting free credits in a game if you "suggest" it to 10 friends etc. or many other forms of marketing which is much more cost effective too.
Infact using this model the user doesn't even have to be on the Facebook website but simply using an application/game that has uses the Facebook APIs.
This is where mobile games is heading (which I work in) and some of the valuations (Plus+/Ngmoco : 400m) for small social networks where also ridiculous but if that's what they where bought for then Facebook with it's potential it many magnitudes bigger and covers everything.
There's a real land grab going on at the moment but the problem is Facebook has already grabbed it all, and as Sean Parker said. To get someone to change their social network doesn't just require them but most of their friends and their friends etc. Once the masses started using it the game was over.
Personally I think a lot of these valuations going around are a joke but don't be surprised if Facebook isn't one of them.
What an utter load of drivel. I suggest Matt Asay buys a book about valuing companies, available at just about any high street bookshop.
They won't do it...
Please float your company.
Then you will have to publicly disclose your value, people will wake up and realise that there is not as much up for grabs as they thought, they will turn their back on you one by one and you will fade away as quickly as you came, another sad casualty of interwebs fashion oblivious to the lessons of the 90's.
Or you can stay a private company, keep your value a secret, keep people hyped up because they think there will be free money up for grabs when you float, hype up your user data, people think they are missing out on something so they create an account, other companies integrate little facebook buttons into their sites and electronic devices beause they too want a piece of the potential IPO pie, so facebook grow a bit more and hype the figures a bit more, get more users in etc etc.
Staying private will mean quicker self-perpetuation, a higher peak and a longer life for facebook, so please go public.
It would be funny watching all those pissed off investors on the 2nd day of trading too.
It will be Monday in a few hours and then we can all jump onto the next big thing...
Step back a bit
I don't particularly like Facebook - I have an account that I log into once every few months just to have a quick look at what old friends are getting up to, but that's it.
That being said, I feel some are being a little harsh in the way they are expressing their opinion of the author for this article. It was not the author suggesting a $1tn valuation, rather citing a WSJ interview article regarding valuations and the 'tech bubble'.
One cannot rule out entirely that Facebook will not be as successful as Google in terms of revenue and worth, however personally I don't see it. Then again, if I could, I would probably be raking in the cash myself working for them.
My gut feeling, though, is that eventually Facebook will be superceded by the next best thing, whatever that may be.
How many people have several FB id's ?
I can't be the only one to have more than 1 FB account? Last time I checked, I had 5 FB identies. Work, family & friends which should always be kept well apart - more so, if you're working for a shite company. The others are disposable and great for trolling.
My daughter used to spend hours on the bloody thing, she's not been near FB for months and when she last checked, neither had a lot of her 'friends'.
The author of this nonsense needs to learn there's no money in Socialism - unless your name is Blair.
This makes no sense at all. There are no published accounts I can find for Facebook, but Wikipedia (may or may not be correct) gives it a $2bn income. Google has (same source) an $8bn PROFIT.
Company valuation is difficult, that's the problem. As a user above notes P/E ratios are a good measure, we don't know Facebook's E though. Just assuming (wrongly) it converts all that income into earnings, $1Trillion would be a P/E of 500. If the user above stating a $300M profit is right, that jumps to an eye-watering 3,333 (as another notes). That's a bit meaningless, so let's look at Google's, which is about 14 (future) or 20 (trailing) per Yahoo Finance, which is very close to the mean of a traded company.
At $1T value, and a half-sensible P/E ratio (say 20) it's "profit" of $50Bn PER YEAR. That's $8 for every man woman and child on the planet. Most of whom don't have that much to spend in total. It's 1.5 times ExxonMobil - a company with lots of assets and pretty much a product the world cannot function without.
Still looking sensible at $1 trillion? Even at $75bn it's a P/E ratio of over 200. Feels wrong to me.
When you look at Facebook's revenue - it's banner ads and games (I don't know how the latter works). It's click through rates are very poor compared to Google. That's key - I go on Google and search for "laptop" that's because I want a laptop. If I see "laptop" alongside my Facebook page (harvested from some data of mine) I may well ignore it.
Facebook's user base may well be about as big as it gets, I think it has started to fall, even though Zuch has said he doesn't care (recent Reg article). Its demographic is, I understand, kids. Kids don't have much cash, even though they may click on ads. If you go subscription, they go too.
The article says the success and value is due to it being open source, I think, I may have missed the point somewhere I was laughing so much at the valuation, and that had encouraged developers, which drives the value. Developers seem to help out at that famous open source outfit Apple (see the App store) and another one, say Microsoft.
In short - it's not worth $1 trillion. It's not valuable because of open source.
The value is jumped up by some self interested traders who have sunk billions into it, and want to get the cash back when (if) it IPOs. They must hope The Next Big Thing does not appear before that happens.
@yet Another Commentard
"Company valuation is difficult, that's the problem. As a user above notes P/E ratios are a good measure, we don't know Facebook's E though. Just assuming (wrongly) it converts all that income into earnings, $1Trillion would be a P/E of 500. If the user above stating a $300M profit is right, that jumps to an eye-watering 3,333 (as another notes). "
I used the only figures I was aware of and stated all assumptions I am aware of in the process to demonstrate how crazy this valuation looks to me. I just went where the numbers lead me and had no idea of what constitutes a "realistic" P/E ratio. IRL a company's management which turned all its profit into earnings for it's stockholders (and kept on doing it) would be viewed as insane.
"The value is jumped up by some self interested traders who have sunk billions into it, and want to get the cash back when (if) it IPOs. They must hope The Next Big Thing does not appear before that happens."
Pretty much view of things.
"Matt Asay is senior vice president of business development at Strobe"
If I were on the board at Strobe I would be having serious worries about his judgement and suitability in the role of business development.
Wrong about the 'first $1tn business'. It's happened at least twice already...
Citigroup, 2002, PetroChina, 2007.
First tech-based $1tn business will be a UK company that you probably haven't heard of yet.
I'd pay $100 Trillion for Facebook!
Here's my payment: http://tinyurl.com/100TFacebook
Nice. The only note you will *ever* need to carry.
Goldman Sachs Pump and Dump Scam
Wake up an smell the coffee people
Cisco claimed to be the world's first trillion dollar company back in 2000! They even ran adverts on UK Tv!
Good ol' lame, stupid pump-and-dump play by Wall St crooks...
...as always, nothing else.
My fav in this recent BS-train is Zynga, the king of junk copycat games running on FB - valued at $10B...!
That means Activision + EA = Zynga - this unabashed copycat king, let by one of the most disgusting lowlifes of the thief industry, Pincus, is worth more than the two biggest game publishing giants, with ACTUAL games, with ACTUAL portfolios of ORIGINAL franchises.
As I always say you have to really-really-really stupid to believe in this - or you have to have a good reason ($$$) to push this BS-train of IPOs.
The bigger problem is when these unscrupulous, rotten crooks of Wall St, parasites of Government Sachs et al will once again pull out and the house of cards will suddenly come down and we will, once again, be forced to pick up the tabs why these scumbags will be planning the next heist.
At the end it's going to hurt us, taxpayers, nobody else, mark my words.
Pile of tosh
Typical Matt Asay "article", with no basis in reality.
Once governments and the public realise Facebook is a US spynetwork
I doubt Facebook's 'valuation' will stand up. Wait for the world wide banning orders after the news spreads that Facebook is being used to monitored anyone who opposes the USA/Israeli government.
Google+ will spike FB valuation at least
I just started using Google+ this weekend. I prefer it to FB so far. No it isn't perfect but the circles concept looks like a winner and there's a bunch of other things to like in it. I expect google will implement integration with many other google services (e.g. reader) and the combo will almost certainly be better than FB. I have no loyalty to FB and will almost certainly leave when (if) enough of my FB contacts have moved across. So far about a quarter of my FB friends are on google plus. Most of them are saying the same
If FB loses 25% of its userbase to google+ then that's going to put a hole in the valuation
End the madness!
It's getting crazier all the time!
Ah, the amusement that comes from Op-Ed pieces...
$1 Trillion? Really? I'm not sure Microsoft's peak value combined with Apple's could quite reach that figure. And this is one of the more poorly informed Op-Ed pieces I've seen in a while. Makes me feel like an expert for some of the commentary I've done on podcasts.
Among other things, there is a developing watershed moment with social networking sites. In April alone, Facebook lost over 6 million users. They didn't even have Google+ to blame for it. They just up and left.
And to claim Google as being a peer to Facebook is preposterous and entirely out of bounds. Facebook and Google+ do clearly compete. But, that's pretty much where the comparison stops. Past that, Facebook requires you have an external email address to create an account; Google GIVES you one. Facebook displays your geographical location with "check in" by way of Bing; Google made their own map and location system. The comparison braking could go on and on.
While, Facebook is worth a large amount of money, it's very conditional. It is dependent upon subscriber uptake and retention. And within that, it's dependent upon those subscribers clicking ads. And a lot of us are using software to block ads and behavioural marketing tracking apps and the like. To that end, Facebook will continue to incrementally lose it's hypothetical value. And as that carries on, it will continue to lose real-world valuation.
In the end, it is extraordinarily unlikely that Facebook has or ever will reach as high a value as the author of this article seems to think.
So many people get carried away with Facebook and think up stupid numbers as you have done.
Page views are meaningless, I can drive 50,000 people to a facebook page as easily as I can respond to this post.
When will you people realise that what matters is PROFIT and multiples thereof, that is the value of a company or the potential therein.
Facebook simple has a different way of trageting (by demographic) but Google gets you at the point of Interest when you are searching for something.
People go on facebook to socialise, yes you can direct them away or use tabs as part of a viral strategy but the conversions vary.
So yes Facebook is valuable, but right now it is still living on borrowed money, it took Google several years to monetise and without venture capital it would have failed, (it built all is own servers and as such was the biggest manufacturer of servers).
Facebook can only hype up the potential price for so long, some think the sweet spot has passed.
Generally this does look like it's shaping up to be dot.com time all over again.
Capitalism without bankruptcy is like religion without hell.
This time *let* the investment gamblers go to the wall.
The last time round it was "Heads I pick up my unfeasibly large bonus, tails you bail me out."
A lot of organisations will discover the assorted financial instruments (that's still going on. Different names, same principles, same lack of oversight) they paid so *much* money for are worth a lot less (might be a 10% loss, might be a 100% loss. There's literally *no* way to know).
Will this affect the *real* economy? Will these losses have *any* more value than the Zimbabwe Trillion dollar note?
Let's look at it in simple terms.
Company A's business has an insatiable appetite for huge amounts of hideously expensive bleedin' edge hardware and makes a shitload of hard cash from flogging advertising.
Company B's business has an insatiable appetite for huge amounts of hideously expensive bleedin' edge hardware and makes a shitload of hype from page views.
Which one is most likely to have its arse on a chair when the music stops.......?