Valuations

Hi

I was having a conversation recently and we go round to valuations of businesses.

Now recently facebook has been valued at $10bn

Quote:

More than 40 million people use Facebook to set up personal web pages and communicate with each other. The company expects to make a profit of $30m this year so on conventional valuations a $10bn price tag would look expensive.

Can anyone explain how they have come to this! and not just on the fact that MS are willing to pay $500M for 5%.

and lets not forget the fickleness of the users..

Quote:

Since December, Facebook’s British audience has grown by 541 per cent, compared to 20 per cent for MySpace, which is owned by News Corporation, parent company of Times Online. However, in a development that points to the fickleness of social network users, Facebook is no longer the fastest growing social network in the UK, according to NetRatings. That achievement now ascribed to Perfspot.com, which achieved 274,000 users last month. Alex Burmaster, of NetRatings, said: “MySpace has managed to maintain more than six million visitors in each of the last six months – it will be interesting to see if Facebook can achieve this level of audience retention.” MySpace, with some 200 million worldwide members still eclipses Facebook's total of 40 million users.

and added to the fact that facebook and myspace et all are top of the blocked sites from many enterprise sites. You only need to look at the recent Neath council sacking for "ebay" use.

Perhaps someone can shed some light on these valuations and then compare them against the valuations of "hard" companies

Ian

Quote:

Can anyone explain how they have come to this! and not just on the fact that MS are willing to pay $500M for 5%.

As with any valuation, that's exactly the basis for it. It's how much someone (or group) is prepared to pay. It's a loose paper valuation of course, MS would be part paying in MS stock, and that's not to say that other buyers would pay that premium.

MS are a special buyer. For them it's all about advertising revenue. Google stole the internet show when they launched Adwords back in 2001, and it's a piece of that market that Microsoft want. Facebook = lots of eyeballs + extensive data on the users who are viewing it.

That enables very targetted advertising. That's worth a lot of money to Microsoft, and they need to get in there before Google do.

Sometimes leapfrogging a competitor requires making a silly offer that you know the recipient can't refuse.