Facebook Valuation Reflects Wall Street And Silicon Valley Hucksterism

Facebook’s deal with Goldman Sachs and Russian investor Digital Sky Technologies (Mail.ru. Group) values Facebook at $50 billion. By comparison the market capitalisation for Viacom is $23.3 billion and for CBS is $12.8 billion. The Walt Disney Company’s market cap is $70.2 billion, Time Warner is $35 billion, Comcast’s is $60.1 billion, while Scripps Networks Interactive is a mere $8.7 billion. What exactly is it that Facebook has that is worth $50 billion?

The majority of Facebook’s current revenues are generated by low-end and comparatively cheap online display advertising messages, a category that is forecast to grow 6.25% annually in 2011 and 2012, but then slow to only 3.5% annual growth from 2013 to 2015 and to decline 2.0% annually from 2016 to 2020. (Source: 2020Vision: Myers Media, Advertising and Marketing Economic Health Report 2010- 2020). Thousands of competitors are battling with Facebook for a piece of this dwindling action. Investors are betting that Facebook is extremely well-positioned to be the primary beneficiary of marketers’ escalating commitment to social media marketing, word-of-mouth marketing and conversational marketing. These categories, which generated only an estimated $1.2 billion in revenues in 2010, are projected by Myers to grow to more than $3.5 billion in 2012 and then to increase an average 63% annually from 2013 to 2015 and 25% annually from 2016 to 2020, capturing nearly $50 billion and a 6.1% share of total marketers’ total advertising and communications budgets. (Source: 2020Vision: Myers Media, Advertising and Marketing Economic Health Report 2010- 2020) That’s market share worth fighting for.

However, the missing reality in the comparative valuations of Facebook and content-centric media companies such as CBS, Viacom, Time Warner, NBCU, Disney, Scripps Networks, and even aol with a paltry market cap of only $2.6 billion, is that the majority of social marketing dollars will be invested with content companies – not distribution companies. Facebook has morphed into a distribution company that has no sustainable content assets. Not only will hundreds of companies emerge in the next decade to compete with Facebook, but the equity of established media content brands will attract a significant share of marketers’ social media investments. Facebook adds little to the economy, creates few jobs, owns no sustainable and proprietary content library, and faces significant regulatory challenges over privacy. By comparison, the number of competitors vying for the broadcast and cable network ad spending that will grow an average 5.0% annually throughout this decade (to $65 billion in 2020) is limited and the content assets maintain value for decades ahead.

Facebook certainly has the hype and has successfully managed its third-to-market advantage. But Wall Street has a habit of aligning itself with Silicon Valley hype and hucksterism while misreading Madison Avenue realities. $50 billion may prove to be a conservative estimate and so what if it proves to be exaggerated, but the hopes of DST and Goldman Sachs will require Facebook to quickly and aggressively align itself with established content brands and sustainable proprietary assets.

Jack Myers can be reached at [email protected] . JackMyersThinkTank is free and underwritten, as part of MediaBizBloggers.com, by subscriptions to Jack Myers Media Business Report (www.jackmyers.com) . Subscribe free to all MediaBizBloggers reports at www.mediabizbloggers.com. For Jack Myers Media Business Report subscription information visit www.myersreport.com or contact Jack Myers at [email protected]. Jack Myers and Media Advisory Group provides details on all underwriters and companies in which we have an investment at www.jackmyers.com.

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