Somebody please help me understand

[ksmith]

...why Facebook is considered to be worth $42 billion?

Facebook's latest valuation, according to trading on SharesPost Inc., an online marketplace that trades in shares of private companies, is greater than that for Internet giants EBay Inc. or Yahoo Inc.

"Over the years people have paid premiums for the companies best positioned for long-term growth and margin expansion. For good reason, Facebook is perceived of as one of those companies," Standard & Poor's analyst Scott Kessler said. "Whether or not at this point in its life cycle it deserves to demand a valuation that essentially makes it the second- or third-most valuable Internet company on the planet is an open question."

I understand that companies use Facebook as an advertising site, a way to hook up with potential and current customers. Writers, musicians, etc use it as a way to connect with fans and promote themselves. A lot of people use Facebook. Is that what makes it worth $42 billion? Has anyone tried to estimate total business earnings as a result of presence on Facebook, assuming that's even possible?

So far, I have friended/fanned pages of some companies I already have done business with. Sometimes I click through newspaper or magazine links that interest me. Is that where the worth comes in?

Comments

[e-moon60.livejournal.com]

Personally, I think it's a bubble.

I could be wrong, since I have the financial instinct of a slime mold.

[kristine-smith.livejournal.com]

I was wondering about bubbles. Given that FB doesn't want to go public if they can avoid it, I would hope that damage would be minimal if they did crash and burn. But things like that tend to have ripple effects.

[e-moon60.livejournal.com]

The damage would be to those who've stored their stuff at Facebook and made connections there, I think, whether FB went public or not. People count on Facebook now (I don't, but that's me.)

I'm listening to Horowitz play Scarlatti, Beethoven, and Chopin on a CD that's taken from recordings made from 1928 to 1959. Needle hiss, but the playing is so glorious I just don't care. Like Glenn Gould, Horowitz had a unique musical gift. He conveyed great emotional passion paired with crystalline, clean sound. Scarlatti, like Mozart, can have many-many-many notes in a short time, but Horowitz manages to make them sound as natural as a ripple of water running down a pebbled slope. No strain at all. I realize this isn't your musical taste, but...had to say it.

And now...back to work. My eyes are burning, every joint hurts, but I can see the finish line now.

[kristine-smith.livejournal.com]

I realize this isn't your musical taste, but...had to say it.

Do you mean the artists, or classical in general? Because I'm listening to WFMT, the Chicago-area classical station, as I type. Sometimes I prefer current stuff, but my tastes really are all over the lot.

As far as classical is concerned, I do greatly prefer the Baroque period and earlier. I love Renaissance music. Praetorius brings out the holiday spirit in me more than any modern carol.

[daveamongus.livejournal.com]

Like a lot of things in the investment marketplace, it's based purely on potential, and in this case, I think it's the potential of ubiquity. There seems to be a lot of hunger for what's going to be the next big indispensable thing, the thing that shapes the internet, like e-mail or Google.

[kristine-smith.livejournal.com]

In that respect--Next Big Thing--I think they've already been overtaken by Twitter. Twitter's more flexible--you can tweet from a phone--and more importantly imo, it's compact. You can add links to photos or websites, but the primary info transfer is very small and quick. It's like texting for folks like me who don't text.

I may not follow someone's blog or visit their website or FB page, but I will follow their tweets. It isn't as much of a time commitment, and it's a lot less messy.

[daveamongus.livejournal.com]

It has, and it hasn't, I think. It certainly has surpassed it in terms of a messaging medium, but Facebook is more about tying your real life to an online presence--maintaining connections, playing games, all those things that so many other services have tried to be, but failed at.

Facebook has also succeeded at inveigling itself into much more of the online world, in a more meaningful way. There are dozens of websites I go to now that have information on them about who I know that liked or recommended particular pages and such. Facebook is, or at least wants to be, an online hub. Kind of like AOL for the 2010s.

The problem, of course, is whether or not that's a gain that they can hold onto. I know some folks who go to Facebook on a regular basis, but it seems it's already waned and passed on for the technorati. The question is whether the technorati are still going to blaze trails and keep opening the next new thing, or whether the profitable majority (which is what that $42bn is based on) is going to stand pat on FB and Farmville and such, and camp there for a generation.

[technomage.livejournal.com]

It's really difficult to say. FB is still held on the private market; it has not yet done an IPO (http://www.allfacebook.com/facebook-may-have-reached-all-time-high-value-of-50-billion-2010-11). At that point the value is largely untested. Once (if?) they finally open the stock up to free trade it will be much easier to set a valuation. The recent movie about the company touches lightly on this subject.

Where does the worth factor come from? A very slight amount of the worth is related directly to corporate income, annual earnings are about $1 billion in 2010. (http://mashable.com/2010/03/02/facebook-could-surpass-1-billion-in-revenue-this-year/) One of the more recent estimates of FB operating expenses pegged it at between $300-400 million. (http://valleywag.gawker.com/5070144/the-facebook-layoffs) If we assume that 2008 figure is still valid then they are profitable. Overall valuation should factor in the sell out value of the Intellectual & Physical Property, along with annual profits for the foreseeable technology threshold. If we take the perspective of the movie and assume FB is nimble and quick to respond to market trends (i.e. it stays fresh and not dated) then I'd predict they have another 5-8 years to go before they're completely passed over by some revolutionary technology (which isn't twitter, but that's a different discussion).

Their IPP is worth roughly $10B today. Their profits for 8 years at best-current rates without increase equal $6.4B. Total is then roughly $17B, which means they're overvalued in today's market. Why? Potential. The people inside the company, and those looking in, feel that the company has the ability to out perform it's current levels. That stretches them to their current valuation of three times actual value (which is excessive based on many business and investment models which only go to 1.5 or 2 times real value). Is it a bubble? Perhaps. But it's not as huge a bubble as the Dot Bomb era gave us and it may be an indicator of things to come in web 2.0 investment world.

[kristine-smith.livejournal.com]

(which isn't twitter, but that's a different discussion).

Do you have any thoughts on what that might be?

I'm seeing a technology that doesn't let you avoid the advertising, and that becomes so intertwined with everyday life that every move you make is monitored and you are constantly pushed to buy or persuade others to buy. Whether you're monitored by implant or by a blanket of external devices? Guess it depends what people are willing/compelled to put up with.

It's a very Gibson/early Stephenson type of world.

[technomage.livejournal.com]

Sorry for the delay in response... the year's end was busy.

What I see is a more accessible version of 2nd Life. Something that mashes up tweets, Facebook, and an avatar-bases pseudo-realism. There have been numerous attempts, all have failed to some degree. The interesting thing is once you suck a person into 2nd Life (that is they've suspended disbelief enough to get hooked) then they actually start to do things like jobs, buy virtual real estate with CASH, develop complex scripts and programs they vend for CASH to others... its a touch surreal. And advertising for in-world events and such is everywhere.

The point is that people have to obtain value from the experience. Some of that can be simple recreation, but that only goes so far. If we can blend more of WoW, FB, OK Cupid and such together so people are engaged in the real world and the virtual world, then we'll have something that is both useful and marketable.

Yes, early Stephenson for certain. Snow Crash sans Crash.

[kristine-smith.livejournal.com]

My main concern would be if/when folks started giving the virtual life priority, which they might do more readily if there's a financial crossover with real life.

I just have this vision of rows of Jabba-people floating in tanks, hooked up to function support--food, waste--living in a dream world, with the difference being that they are also supporting an economy, possibly a family. Opportunities for weirdness abound.

[technomage.livejournal.com]

Weirdness only on certain levels. I'm sure you've seen the stories of the kids who work in Korea and Kansas as World of Warcraft drones. They do boring tasks to accumulated goods in the game, which they then sell for cash. Some of it is even done by "legitimate" businesses. The question is how to monetize WoW.

I could see such a world as you describe, but the support system would be incredibly expensive. You'd have to be very specially skilled to be able to afford such support. Also... kids? Only by artificial insemination. This would return marriage to being more of a financial contract such as nobility used in the feudal period.

[kristine-smith.livejournal.com]

Yeah. Writer brain looks for the dramatic, but in the end, the transition to that sort of world will likely go in stages and seem very humdrum...which is why it will stick.

[barbarienne.livejournal.com]

I have little doubt that FB is mining and aggregating the data of their subscribers and selling that information. (Presumably with the serial numbers filed off, but given their history, I wouldn't bet on it.)

[kristine-smith.livejournal.com]

I think you're right. They show no signs of being reluctant to cross boundaries.

[galeni.livejournal.com]

Part of it is traffic and eyes on pages. Look at google which opened at $85 at its ipo and gone way way up (and down and up and) primarily from eyes on ads.

[kristine-smith.livejournal.com]

I guess that's my issue with the whole thing. How do you quantify that? Or is quantification a thing of the past.