Is Facebook really worth $100 billion?
As a financial journalist in a former life I'd like to think I know quite a bit about stocks and shares, derivatives, pensions and hedge funds. Working in the City both before and after the credit crunch hit I saw for myself the shady trading practices which were to lead to the global economic turmoil we’re still feeling today.
With that in mind, the recent speculation that Facebook is to float on the stock exchange next year made me sit up and take notice. Analysts have predicted that the social network, which now claims more than 800 million members after seven years of phenomenal growth could set its valuation at $100 billion. “Here we go again!” I thought to myself. “Another dot.com bubble on the way…"
But is Facebook simply too big to fail?
When it comes to valuing on a company it's a bit like pin the tail on the donkey. A whole host of factors need to be taken into account – from using earnings multiples to calculating how much it would cost to create a similar business.
Putting it bluntly, Facebook is simply unique in what it offers. On average, users spend around 23 minutes a day on the site, sharing photos, updating their status and chatting with friends. As such Facebook knows a hell of a lot about its members, given that they reveal so much basic personal information. It also has an exclusive hold on all this data, and this can be used for targeted advertising purposes.
Many businesses are now shunning their own websites in favour of a presence on Facebook too. Take Coca Cola (36 million ‘likes’ to date) Starbucks (26 million) and McDonalds (12 million) and you can see why it’s such a popular marketing tool. Forget TV ad breaks and billboards – they’re in your home and on your news stream the moment you turn on your PC.
Given that there’s nothing else quite like Facebook out there, it’s then worth looking at how much other top companies are worth. According to a recent ZDNet report, a $100 billion valuation would rank Facebook ahead of Amazon ($88.3 billion) and Disney ($61 billion), but well behind Microsoft ($209 billion) and Google ($190 billion).
Should it go ahead, Facebook’s float would break new ground as the biggest consumer technology public offering in history. Yet it seems that in the grand scheme of things, $100 billion is not as eye-watering as I first thought.