Facebook shares on Second Market recently reached a price of $28.26 per share, giving Facebook a $70 billion valuation. Everyone knows Facebook is a social networking powerhouse – but a $70 billion powerhouse?
Facebook has reported that it has 500 million active users. Facebook’s $70 billion valuation means that each user essentially has a lifetime value of $140.
Remember, while about half of these users login to Facebook daily, the other half only have to login once per month to be considered an active user. So, not all Facebook users are created equal, and many accounts login to Facebook only a few times per month.
This $140 per user valuation doesn’t even factor in the expenses Facebook will incur with its quickly growing head count and plan to take over Sun Microsystems headquarters.
Facebook can target ads to users based on their interests, but these users generally are not looking for or seeking out the advertisement at the time it is displayed. Just because a Facebook user is a Yankees fan doesn’t mean that when he logs into Facebook he is interested in buying Yankees tickets. This is in direct contrast to Google, which targets ads to a user at the time they are seeking a given product or service.
The revenue per visit generated on Facebook won’t come close to what Google generates. Most Facebook users aren’t looking for a product or service. Instead, they are online to share pictures and stories with friends. Plus, even when Facebook users are wanting a product, Facebook generally won’t know it at that
instant because the ads aren’t targeted based on a search query. For Facebook to make $140 per user is going to be a challenge.
Remember, Google makes its revenue from online advertisements and Facebook does the same. Google’s current valuation sits at $195 billion, which basically means that based on Facebook’s recent valuation, Google is only 2.8 times more valueable than Facebook.
Google and Facebook have similar traffic figures. However, as mentioned before, Google has users that it can target with ads directly when they are seeking a product or service. Facebook can have all of the interests and demographic information of a given user, but it still can’t monetise like Google.
In terms of syndication, Facebook has installed its “Like” buttons on other websites, but Google has actual advertisements on other websites. Google’s revolutionary Adsense product has worked wonders for publishers. This in turn has generated substantial income for Google.
While Google and Facebook may have similar traffic totals, when you add up all of the traffic from Google’s content partners Google traffic is significantly larger than Facebook traffic. Plus there is search syndication on search engines such as Ask.com and AOL which display Google ads above their results. This search traffic is the most valueable ad inventory on the web, and Google makes money off of it on several major search engines which Google competes with.
Facebook has said that it plans to make an impact on search with a social search engine. They believe that they will be able to provide a quality search experience because it will know what your friends like – so that way – it can better tell you what you will like. However, search is extremely broad and there are so many unique types of searches that can be performed.
I don’t see how Facebook could ever offer a search experience which is comparable to Google. Google provides the best experience and no one has been able to displace it after all of this time. If Facebook could grab even 15% or 20% of the search marketplace – than this $70 billion valuation may be realistic – but I don’t think that is likely to happen.
We are all excited about Facebook – and they have done an amazing job to grow and remain the clear market leader in social networking. However, a social network isn’t going to monetise anywhere near how well the leading search engine and syndication network monetizes. And, at this time, to put a
$70 billion valuation on Facebook, which gives Facebook a market cap which is 36% of what Google’s is, seems like a pretty big leap of faith.