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Why is FB 'worth' so much?

Discussion in 'BlackHat Lounge' started by Chronos, Feb 28, 2011.

  1. Chronos

    Chronos Junior Member

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    Hello all,

    As many if you know, Facebook's current market valuation is about 60-70bln dollars.

    Is this over valued, to say the least? I believe so.

    Let me explain:

    Facebook, who claims to have 500 million active users, only generated 800 million in revenues in 2010. While that may seems like alot, Facebook has spent billions on development of Facebook and are by far in the red. But because they are not a public company, we don't have view to that information.

    And at a 70bln dollar valuation, should Facebook have the same valuation as McDonalds? A valuation isn't just what the company is worth, but takes into consideration its future, it's physical assetts, government/laws, it's past financial performances, ability to change within the marketplace.

    We can assume that Facebook won't grow too much anymore, because of technological barriers throughout most of the world.

    So, let's just say that theoretically that 800 million REVENUE was PROFIT, which we know it's not, but at Facebook's current valuation of 70bln, it would take 87.5 years to have its total book value equal its market price/valuation.

    Unless Facebook starts selling your e-mails (oh wait), then I would suggest not to buy this stock when Facebook goes public. It's a "dotcom bubble" in itself and people WILL lose millions when they buy the stock. I promise.


    My honest opinion is it's 10bln dollars at the most.
     
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    Last edited: Feb 28, 2011
  2. RandomPhantom

    RandomPhantom Junior Member

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    I agree, it's absolutely overpriced. The same thing with Twitter.
    How much did M$ pay for Twitter btw? I dont remember but it was a crazy amount of money. Who the fuck use Twitter? (except blackhats spamming their shit)
     
  3. blackheader

    blackheader Jr. VIP Jr. VIP Premium Member

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    Facebook is WAY too over valued...

    Facebook (7 years of age/2000 employees) is nearly as worthy as Boeing (95 years of age/160,000 workers&employees)... so much about the price tag Facebook received from Goldman Sachs.
    There's certainly the potential and possibility for a next bubble to bust...
     
  4. Gradimir Stankovic

    Gradimir Stankovic Power Member

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    Facebook could be monetized much better than right now :)
    But I agree, 60-70 bln is too much...
     
  5. Chronos

    Chronos Junior Member

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    How? I'm not trying to argue but I do not see a single way that Facebook can run itself into the green.

    They are not allowed to sell your e-mails anymore, so that's a nogo. This could change, but with tougher and tougher laws protecting consumers, I doubt it.

    And if you are suggesting video/sound popups/unders/advertisements, then people will start using other services that don't have these annoying advertisements. I believe I can cite MySpace as an example.

    Theres no way that this company will be profitable in the long, or short run. Unless people, for some odd reason, start intentionally clicking on ads.


    I will argue, the only thing that may save Facebook is a Facebook search engine, but that's a very competitive market and usually people like to split control between companies. For instance, like Microsoft FAILING hard at most of there online services like Bing, Live, because consumers already use a Microsoft OS and don't feel like being controlled by a single company.
     
    Last edited: Feb 28, 2011
  6. EmpireQuality

    EmpireQuality Elite Member

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    it doesnt matter how much revenue they generate man. its about knowledge. i believe facebook is a cia operation to know EXACTLY what people are doing and who people are associating with. it makes perfect sense for what is about to come in the future. their little advertising is just some bonus money. do some homework and think about it. knowledge is power.
     
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    Last edited: Feb 28, 2011
  7. KeyzDT

    KeyzDT Power Member

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    all of these social networking sites eventually cap out sooner or later. Twitter, FB, Myspace. They all work on the same general principle of micro-blogging. Maybe they have certain features that make them all stand out but I don't see them going strong for long.

    We all had a myspace page and thats in the past. FB is cleaner an "preppy" (starting in the colleges and all that) but I fail to see the originality leap over myspace. To me at least they are the same.

    I will say though that I see social media only getting more popular in the future. Connecting people to people is the basic premise of the net and doing it in a way that we can show our unique, individual characters makes it engaging. It will continue to grow. Just the formats may change over time.
     
  8. indianbill007

    indianbill007 Jr. VIP Jr. VIP

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    Didn't wanted to step into this argument, but FB is not just YET ANOTHER social networking site like myspace or friendster as some here said and I can challenge that it WONT see its doomsday like they saw.

    Here are my explanations for argument sake -

    .They didn't got sold out early like Myspace did and waited for the product to reach maximum innovation before actually going public.

    . Facebook helped define a real social graph which was not done by earlier so called social networks like myspace. People just used by myspace for fun and networking, no serious business was ever done on Myspace.


    . With Facebook pages, The Graph API, Social Plugins they have been able to attract big brands to engage with users using their social platform. And where do you think these brands will invest their advertisement budget?
    TV/Radio which people hardly connect to or Facebook where they spend most of their time when they are online

    . Facebook PPC is picking up crazily and the ad spending of companies will increase with every passing quarter.

    . With Facebook Credits, they are taking a share of all the apps which use virtual commerce, there is big money lying there too.

    . Social Search - FB has the real data what brands would need to know about how consumers are behaving online(not their emails), there are thousands of other such metrics which FB can use and sell to brands, I highly doubt they are not doing this already in the name of market research data.

    .Application Developers - Zygna makes a billion dollars on facebook every year and spends 100 million dollars on FB ads. I think you can do rest of the math.

    If I go on this list will go to 100's of other factors where FB can or will make big money in days to come.

    So NO Its NOT over valued. Its actually a valuable company.
     
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  9. unknownassailant

    unknownassailant Newbie

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    Facebook's value is the information it gathers from its users.
     
  10. sunbros

    sunbros Regular Member

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    Twitter > Facebook
     
  11. dragondani

    dragondani Junior Member

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    Some people think taht internet is the future of commerce, the net would increase 2 or three times greater that is today(as the "poor" countries are developed) so is really great posibilities to get bigger.

    Facebook is the only company that could compit with Google to obtain the control e e-commerce and I thing that soon will be a great war between them.

    Facebook is a great idea and have an incredible success, as you said perhaps tomorrow they could broke down simply because the users abandon them or appear a better idea, but by now, investors things it could be profitable.

    The value of a company it'0s not only their real value it's the value could be, and Faceebook have a brilliant future...or perhaps not!
     
  12. zebrahat

    zebrahat Elite Member

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    I love two things about FB---one, that it competes with Google and doesn't share its data with it (that's at least one huge chunk of cyberspace that Google can't co-opt), and two, it has a PPC scheme that provides a viable alternative to Google Adwords, and it's never ending control freak demands over the look of sites and landing pages. FB has spared us (at least for now) from total G monopolization of the internet community.
     
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  13. Chronos

    Chronos Junior Member

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    As I'm argueing, keep in mind this is for observations sake. I'm not going to do any personal attacks or anything like that. And I expect that to be reciprocal. I'll also try to counterpoint every arguement in order.

    - Facebook itself. I do not believe that Facebook will ever be "phased" out like its counterparts Friendster and MySpace. It is here to stay. I'm just saying to be valued at 70 billion is outright crazy.

    - Facebook pages. Alot of companies are starting to use Facebook as "free" advertisements in sorts, so that fans can "like" them. I emphasize free because a company doesn't have to pay a penny to create a Facebook group, so there is no income going to Facebook here.

    - Facebook PPC. Let's be honest, when is the last time you clicked an advert because it was interesting? You can lie to yourself and say "Well I don't but other people do." While this is true, there are just not enough people that are genuinely internested in the products that the advertisements have to offer, at least not on a mass (profitable) scale.

    - Facebook credits. 5$ can buy you 1,000 poker chips on Facebook, say. Eventually, those people/kids will discover sites like fulltiltpoker.com where the GUI is 10x better and it's completely free. Profit here is minimum and I can't see where they are going to make a "ton" of money in relative terms to there market value.

    - Social Search. But how much money can you really make selling data? Nielsen Holdings, who does metrics on consumers, and has been for many years are only valued at 10 billion dollars on the open market. And on top of that, they only net profit margin of 3.89% per quarter, so even if Facebook does make 1 billion dollars per year off of this, market average (5%), says only 200 million of that will be profit. Again, that's going to be horrible fiscal data for a 70 billion dollar company.

    - Application Developers. While this is true, and Zynga may have 1 billion in revenue/year, how much of that will actually be going to Facebook? I mean let's just say Facebook takes 50% of that split. So 500M from a dev group that owns 90% of Facebook gaming, so we'll add another 50M in revenue from the smaller apps. So 550M.



    Let's add everything up. I'm even going to overexxagerate these revenues. Lets say Facebook gets 550M in revenue from application developers, another 1 billion from "social search" metrics, and another 500M from advertisements.

    I will give a generous net income of 40% of there revenue, which is unheard of in almost any businss, and that still only adds up to 800M per year profit. So even being very generous on it's earnings, and net income, it will still only generate 800M per year profit and take 85+ years to pay off it's shareholders equity and have an accumulated book value of what the company is "worth"/valued at right now.
     
    Last edited: Feb 28, 2011
  14. Chronos

    Chronos Junior Member

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    And let me use McDonalds financials as comparison of these two companies because they are "worth" by market value, relatively the same.

    McDonalds Yearly Revenue = 23 billion
    Facebook Yearly Revenue = 800 million.

    Granted, McDonalds has a bit more overhead, but the fact is Facebook is valued at the same amount a long-standing company, that can generate 22 billion more in revenue over Facebook, is worth the same as Facebook.

    Again, I'm not saying Facebook can't be profitable to it's shareholders, but not at 70 billion dollars.

    Oh, and McDonalds walked away with 10 billion dollars profit last year. Again, do you think Facebook can even compete with this?
     
    Last edited: Feb 28, 2011
  15. jstover77

    jstover77 Executive VIP Jr. VIP Premium Member

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    I have always wondered this myself. Most businesses are valued at 3 times their annual net within the online space. At least from my experience and I could be wrong. But for arguments sake, let's just say they profited $200 million out of that $800 million. Then their business would be worth $600 million according to my model.

    Now I do know that digital assets are much differently priced. I have seen sites which make little money but sell for big money. So it is obvious to me that traffic equals value, and in Facebook's case they are one of the top traffic sites in the world.

    I would love to hear how these guys come up with a value for a company like FB though.
     
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  16. Chronos

    Chronos Junior Member

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    Investment banks who broker the deals/paperwork for an IPO usually get a small percentage of that IPO for doing the legwork. So, of course, the bank files paperwork claiming it's a way bigger company than it actually is, because they will get more $$$ the higher they value the company. And when an outside company values the company at about the same, it's usually because they are following the paperwork that the investment bank filed/prepared. It's a dirty dog business.
     
    Last edited: Feb 28, 2011
  17. Chronos

    Chronos Junior Member

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    Again, if anybody has any opposing arguements, I'll be more than happy to hear them. I really want to break this down to its core and either A) Change my mind about this over-valuation or B) Reaffirm what I already knew.

    Even if you do agree with me, but for arguements sake have something valid, please, post it on here.