Jobs' money is closer to real money than some arbitrary (and frankly unbelievable in the realm of fantasy) valuation metric. Steve could (in theory) cash out tomorrow and those 5.5million shares would be worth more or less their face value. Zuckerberg has to actually sell his company.
And to be honest, Facebook would be a really lousy investment at the current valuation (whatever that number happens to be depending on the phase of the moon $14-$100 billion). Even at the conservative end of this ridiculous metric, say $25 billion, it would take about 30 years at current revenue to equal that let alone make any money on it -- that's a shitty investment as bad as buying a house. They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years (a saner metric that most people use when valuing corporate assets, "what's the 5 year revenue expectations of this company?). Sure they're on an exponential growth path right now, how much longer do exponential growth paths last? History shows, "not long".
Their bigger problem is that they pretty much have most of the Internet connected human species with broadband and disposable income already signed up. I don't think any of the analysts understand this. You'd have to drag huge chunks of the population of the planet out of poverty and into middleclassdom to make any meaningful movement upwards in those numbers. FB might be able to squeeze 750 million users this generation out of the planet. But getting more than that will involve bringing world peace to the Earth and feeding and educating all of humanity.
Looking at hard numbers, in markets where FB has about %50 market penetration, their growth rate is ~4% per month. Actually, the ~4% metric works even down to 30% penetration. And you see <10% growth for places with around a 15% penetration. The only places with high growth are current low penetration markets like India and Brazil, with ~14% growth, but <4% penetration. One could reasonably expect that as penetration increases, growth will decrease (yeah yeah every point growth in India is some huge number, but India is not some huge middle-class affluent market waiting for penetration, You're simply not going to sign on 30% of India's population only 7% have any Internet access at all, exactly the same as last year).
Doubling revenue year over year for 5 years is fantasy-land in most cases, not going to happen if you've saturated the market. And unless we make interstellar contact soon, or can expand Facebook into the Dolphin and Chimp populations, it's not going to grow much more. At some point, FB's new signons are going to start tracking global birthrates (and active users will start to decline as the baby boomers start to pass on). The human population growth curves of the planet look bleak for FB.
Don't get me wrong, FB is a valuable company, maybe $5-7 billion, maybe 10 on the very high end. Those are still very impressive numbers. But these valuation numbers that float around are some of the most fantastic multiples of revenue I've seen in ages. Either the models the analysts are using are wrong, or they're simply pulling random numbers out of their asses. I'm guessing the later since I've seen some pretty wild ranges.
So my real question is, Zuckerberg is richer than Jobs, based on what? How many wishes and unicorns Zuck can buy with his fantasy valuation money?
Valuation means nothing until it's turned into real money.
and now they can grow revenue up across the base and increase effective $/user with:
1. More time on site through more features, more facebook connect implementations and more platform support
2. More efficient and targeted advertising with better technology (Google did this very well and are the envy of everybody)
3. Taking a bigger slice of platform revenues by forcing the use of Facebook credits, which means they get 30% of what Zynga et al make (Zynga made more than Facebook in '09)
Your argument assumes that $/user will remain static, when in truth it is very early days for Facebook in that regard. I think their $/user run-rate is good atm considering how shitty their ads are.
Point 3 alone could more than double $/user in the next 12 months. Point 2 is the jackpot that could see them surpass GOOG revenues in due course.
These are excellent points. Basically, FB is going to have to radically change their revenue model in order to make this valuation seem worth it. More ads, more cross licensing deals, bigger cuts of current deals, sell junk direct. I can only imagine the outcry when all that junk starts hitting user's pages. (FWIW, I have yet to see a single advertisement on my FB page)
I was actually having this exact conversation recently with some friends (which is why it's all so fresh for me), and by way of comparison. Google's revenue for 2008 and 2009 is 21.8bil, 23.6bil and looks on track to be just over 24bil for this year. Their exponential growth curve is over, it ended in 2006 but nobody was paying attention because their growth percentages were still really good.
I'm still not sold on FB using Adverts to grow to Google sizes. I just don't see it. Their friend suggests are terrible, I don't think they've suggested anybody I actually know ever, I can't imagine how bad targeted adverts will be. Plus they have a miserable privacy record. On top of that, FB isn't really used in the same way Google is. It's an entirely different usage model, one that I'm not sure lends itself to adverts the same way.
I think #3 is their best bet. Turn FB into a platform for apps, and license access to that platform. Basically an online videogame console with really really good social connectivity.
One thing to think about, my group of FB friends is almost entirely different from my group of linkedin friends is almost entirely different from my group of steam friends. I know I'm an anecdote, but other anecdotal evidence from people I know with the same type of disjoint friends and associates across different sites seems to support this data point.
Facebook and Google have a similar reach, but Facebook has much higher pageview counts (pageviews are redundant today anyway) and much more time on site (I will dig up the numbers again).
The problem that Google has is that it is a doorway to other sites - they have spent 10 years now trying to find ways to keep this userbase on their site further with different applications. I think it is fair to say that Gmail is probably their only success in this regard - and even that hasn't solved their problem of diversifying revenue.
I think much of the current GOOG valuation is predicated on both the revenue growth they were seeing (as you point out, though investors should have seen the flat line coming) and a bet on the ability for Google to utilize their place on the web to build out a 'platform' of sorts with applications and other services. They have failed at both tasks, and it is only a matter of time that the market wises up to this and brings the value of the stock back to a PE more in line with that of a traditional media company (as that is what Google is at its core with this revenue model).
Watching Facebook grow must be really painful for Google, a real punch in the face and a bruised ego. At some point, I wonder, when will they take a step back and admit failure and re-evaluate their entire management structure.
I have the numbers somewhere, but Google's eCPM rate is just insane. I imagine that Facebook atm would be lucky to achieve a penny - so there is some room for improvement but I do agree with you that their primary business model will come from platform.
I think if FB are game, they could try in-stream advertising. A scenario would be a new movie being launched. The marketers for the movie could throw away their traditional website and go to the FB sales team, setup a custom page and then specify who they want targetted - say, 18-30 year old males in the US. Facebook could carve out this demographic, and then run an exclusive in-stream pop-in for a 24 hour period for millions of dollars. The users might react, but they could just make the ad clear. This is much more powerful than what Google offers - since they can only target a users attention, while Facebook is the only website with a global reach where users can be targeted directly.
I think in 2-3 years time that $3-5B from advertising is possible. Add another $3-5 from platform, and you are at $6-10B, with a lot of room to grow and a potential $60-150B valuation.
Also as an aside, won't Facebook be forced to go public at some point due to SEC regulations? I know they have placated employees by offering a sanctioned second market, but at some point they have to bite the bullet and list. It could be possible that they are waiting to book 12 months of platform revenue and a full year of those results for the prospectus (which will make the filing look a lot better - 2 major sources of revenue and strong growth).
Overall a very interesting topic. If you had a chance to today, would you buy Facebook stock at $20B? or $10B? :)
This is really a great piece of analysis. I don't have anything to add at all.
Basically, becoming a platform is where both companies need to go, and start monetizing that platform. But unfortunately for Google, they are much further away from being that than FB is.
I would go so far as to say that Google has utterly failed to figure out a good diversification strategy -- at this point, they just dump something out there and slap some targeted ads on it. But outside of search and gmail, they don't really have much of interest they can monetize on.
Google Apps might be their next billion dollar product line,
if they can turn it into something decent. Enterprises are where lots of money is at, but their enterprise offerings are really rather lousy.
I'm actually sometimes flabberghasted at how much wasted potential Google has in terms of obvious monetize-able offerings they have in their basket, but all of them are treated like incomplete one-off projects done on employee's 20%...with vast stretches of time between obvious enhancements and/or some necessary things never getting built at all.
FB, on the other hand, has the platform but isn't doing anything with it that's readily monetize-able, and they can manage to keep people at the site, but there's really not a whole heck of a lot for people to actually spend money on. Once again, I don't understand why something like Ping or Pandora/last.fm isn't a central part of FB's strategy. It's like a videogame console with only 1 or 2 games.
For big, hyped-up tech companies, I don't think 5x becomes the norm any more, though 30x is still definitely pretty unheard-of since the bubble-1.0 days. But the last tech IPO that I think hits Facebook levels of investor interest was Google, and they IPO'd for $23 billion in 2004. Depending on how you count, that was a 7x-15x multiple on revenues (their fiscal-2003 revenues, the last complete ones at the time of the IPO, were $1.5b; their fiscal-2004 revenues ended up being $3.2b).
I agree. But with some of the FB valuations, we're talking 30x or 50x valuations -- which are not just hype, these are cocaine and ecstasy fueled hooker party numbers.
Even if, given their current revenue model, they tripled revenue tomorrow. They're still only a marginal investment with either a 10 to a 50 year payout depending. Those are U.S. federal securities time periods. If I had $40 billion I had to dump for 10 years, I'd put it into bonds before I'd put it into FB.
As I was attempting to point out, no matter the hype, once you saturate the market, you can't hype away the math. Right now at the lower end valuations, they are a 30 year investment. I don't think anybody in their right mind would take on those odds considering the population growth curve of the human species.
FB is going to have to adopt a seriously different revenue model in order to try and keep their revenue growth curve up and bring down these insane valuation multiples on their revenue -- they simply can't keep relying on new signups and ads. I have a feeling anything they do will be intrusive and along lines that won't be what people like (first 10 friends are free! $5/friend after that!).
Thanks! dunno why you ended up downvoted. I'm totally the wrong person to look at Twitter I think. I can find almost no value at all in the entire platform (wheras I do find lots of value in FB). But I know many people here who think it's the bee's knees. Here's a nice look at their revenue model http://www.goospoos.com/2010/01/twitter-revenue-model/
I know the article I linked to ends on a fuzzy note, I'd have ended it quite down. Basically, they have no idea how to revenue their service. And they're really only reaching <20million people anyways (in theory, word on the street is that only a fraction stay as active users).
Thanks, what I see is that the users invented what twitter is, and in my perspective they are filling the gap the web left: having a distributed social graph (e.g.: FOAF, etc).
Now, about revenue? it seems more related to social analytics, since using the API (with its limitations) it's difficult to do big scale analysis.
Do you have some inside knowledge of what Facebook's revenues are? What makes you think you know more about their valuation than investors who actually know these numbers?
Actually, I'm using a fairly recent $800m/yr revenue estimate figure (which btw has been downgraded from just over $1bil for 2010 (though I saw estimates earlier this year betting the farm that they'd break $2bil) ).
> They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years.
That's not so ridiculous for an internet company dominant in a developing space. Minecraft seems to have doubled its revenue stream every single month for the last few months.
I'm aware of these concepts, but they don't defeat my objection. The question is still open whether Facebook is in that region or in the "grow by a factor of ten in the next year" region. Hard to predict the answer to that question.
Google was able to maintain growth doubling until 2006. Then the curve started to flatten out. Assuming FB is where Google was in 2003, they can grow. FB right now claims 500million users, but only about Google's 2003 revenue figures. In 2004, Google boasted they had 60million unique visitors. I'll leave the rest of the math up to the reader.
And to be honest, Facebook would be a really lousy investment at the current valuation (whatever that number happens to be depending on the phase of the moon $14-$100 billion). Even at the conservative end of this ridiculous metric, say $25 billion, it would take about 30 years at current revenue to equal that let alone make any money on it -- that's a shitty investment as bad as buying a house. They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years (a saner metric that most people use when valuing corporate assets, "what's the 5 year revenue expectations of this company?). Sure they're on an exponential growth path right now, how much longer do exponential growth paths last? History shows, "not long".
Their bigger problem is that they pretty much have most of the Internet connected human species with broadband and disposable income already signed up. I don't think any of the analysts understand this. You'd have to drag huge chunks of the population of the planet out of poverty and into middleclassdom to make any meaningful movement upwards in those numbers. FB might be able to squeeze 750 million users this generation out of the planet. But getting more than that will involve bringing world peace to the Earth and feeding and educating all of humanity.
Looking at hard numbers, in markets where FB has about %50 market penetration, their growth rate is ~4% per month. Actually, the ~4% metric works even down to 30% penetration. And you see <10% growth for places with around a 15% penetration. The only places with high growth are current low penetration markets like India and Brazil, with ~14% growth, but <4% penetration. One could reasonably expect that as penetration increases, growth will decrease (yeah yeah every point growth in India is some huge number, but India is not some huge middle-class affluent market waiting for penetration, You're simply not going to sign on 30% of India's population only 7% have any Internet access at all, exactly the same as last year).
Doubling revenue year over year for 5 years is fantasy-land in most cases, not going to happen if you've saturated the market. And unless we make interstellar contact soon, or can expand Facebook into the Dolphin and Chimp populations, it's not going to grow much more. At some point, FB's new signons are going to start tracking global birthrates (and active users will start to decline as the baby boomers start to pass on). The human population growth curves of the planet look bleak for FB.
Don't get me wrong, FB is a valuable company, maybe $5-7 billion, maybe 10 on the very high end. Those are still very impressive numbers. But these valuation numbers that float around are some of the most fantastic multiples of revenue I've seen in ages. Either the models the analysts are using are wrong, or they're simply pulling random numbers out of their asses. I'm guessing the later since I've seen some pretty wild ranges.
So my real question is, Zuckerberg is richer than Jobs, based on what? How many wishes and unicorns Zuck can buy with his fantasy valuation money?
Valuation means nothing until it's turned into real money.