Posts for Tag: valuation

Maybe I was wrong about Facebook's valuation

I've posted before about Facebook and its valuation ... not always in the most optimistic light. I'm reading a post today about rumors that Bebo is being actively shopped by AOL. Now I'm doing some very very rough calculations based on some very very vague assumptions, but I think I might have undervalued Facebook.
My take has always been that Facebook should be valued at about 5 times revenue. I still hold to that value and have said I would revise my numbers should I get more detail into Facebook's real revenues. Well based on the TechCrunch post, Bebo is rumored to be valued at about $200 million which supposedly is two times its current annual revenues (or $100 million). I pulled some traffic numbers from QuantCast for both these guys:

Making a very simple assumption of traffic = revenue, I'll assume that Facebook has 11.47 times the revenue of Bebo or $1.147 billion. Based on that, my new valuation for them is about $5.735 billion. Still a far cry from the $15 billion valuation they raised their last round with but not too shabby. Again, this is a very rough estimate and who knows whether I'm still above or below their true revenue number. My hope is that Facebook is doing well and that they can still grow. We all know the Bay Area could use a big employer nowadays.

Revisiting Facebook's valuation

I wrote a post a while back where I did a back of the envelope calculation of Facebook's valuation - somewhere between $1.5 to $1.75 billion. I based it on revenue numbers of about $300M to $350M (5 times revenue was my rationalization) and if Facebook revenues are higher, I'll revise that estimate up.
I was watching Tech Ticker today where Sarah Lacy was interviewing Paul Kedrosky about Facebook's outlook for 2009. The question of valuation came up and Paul stated his estimate was about $500M to $600M. Though I don't agree with that valuation, I can see how he came up with this number. The online advertising market has contracted since last year so even though Facebook may be growing in revenue, I don't see how it can grow in the most important number of revenue per user. Sarah's response showed she was well on the other side of the fence in her defense of Facebook, which I don't agree with, as well. Her argument that Facebook was still an early stage private company in product development mode and not focusing on revenue is a bit off. Facebook has been around since 2004 and has made a few attempts at monetizing its traffic with no real success. Her other assertion that Facebook was similar to Google and that eventually they'll pull it off is also a stretch. Google did not raise $516M (it raised about $25M) and in its 5th year of operation made almost $1.5B in sales and over $100M in net income. I don't know what Facebook's revenues are like but I doubt it's more than $400M-$500M and they're most certainly not profitable (break-even at best). The fallacy in comparing Facebook with Google is that it costs Google far less to support each user on its system than Facebook AND it generates far more revenue per user than Facebook does. Until Facebook can find the magic bullet, I can't justify giving it a higher valuation.

My thoughts on Facebook's pulled employee stock sale

As reported by the Wall Street Journal, Facebook has pulled its planned employee stock sale. This would have allowed the 800+ employees of Facebook to sell a portion of their stock to private investors - supposedly $900,000 worth or 10% of vested shares, whichever is less. Reasons that some outlets are stating was that Facebook couldn't find any private investors who wanted to buy the stock at a company valuation of $4 billion - a far cry from the $15 billion valuation Microsoft got for its $240 million investment.
I'm not really shocked that there were no takers at $4 billion. At the time of the original Microsoft investment, I thought Facebook's value was somewhere around $7 - $8 billion. Then when Techcrunch got a hold of some internal financials, I did a back of the envelope recalculation and stated that they should be valued at $4.5 - $5.25 billion which is 15 times projected 2008 revenues. Contrast that with Yahoo or Google which are valued at 2.19 and 4.13, respectively. These have gone down some recently but even if you calculate at January 2008 share prices, Yahoo and Google would still only trade at 4.44 and 10.91 times revenue, respectively. You can make the argument that these are more mature, slower growing companies but these are also PROFITABLE companies - in the case of Google, VERY PROFITABLE. Facebook, on the other hand has huge capital expenditures for servers/bandwidth ($200 million according to Techcrunch) and a hard to monetize audience. They may be GAAP profitable or break-even but most definitely not cash flow positive. Given the eventual slowdown in the online advertising market, I don't think it will get easier for them to squeeze more revenue from their users. However, the cost to support their growing legion of users is going to grow as they'll need more servers and bandwidth.
With that said, my new calculation of Facebook's value would only be at best 5 times revenue or $1.5 - $1.75 billion. Of course if they had allowed the employee sale to reset the value of their company, I doubt they'd raise enough through an eventual IPO to cover their growing capital expenditures. The more important question is, how much of the $516 million that they've raised is still there? My guess is that if they can't raise another $100+ million round soon, Facebook could be in for some tough times.

What would you do if you lost $30 billion?

Yahoo! is tanking on yesterday's confirmations from Jerry Yang and Steve Ballmer that the rumors of a new buy-out deal by Microsoft were indeed false. Yahoo!'s currently valued at about $16 billion, a far cry from the $46 billion that Microsoft had offered. The question now is, in this bad economic climate, how long will it take for Yahoo! (if at all) to reach that valuation on its own? 2 years? Maybe 4 years?

The big bet they are making is that YOS is going to blow up. I'm not necessarily sure being a platform translates into significantly higher reveneus/profits. It almost seems as if they want to get more people to interact with them in more of a Facebook style. To my knowledge, Facebook still hasn't found a way to effectively monetize all of its traffic.

I think they should take a page out of Google's book and copy AdSense but make it more open and transparent. As a former AdSense customer, it's a pretty cryptic system. "Just put this script up and trust that we'll pay you something." Yahoo! could improve upon this by treating publishers like partners and not kids. Yahoo! is at the point where they've got nothing to lose so why not try anything and everything?