Facebook Valuation: We Dont Know What We Dont Know – Forbes

Some detailed figure on FB valuation. I would not bet on its high value, mainly because it’s gonna slow down in the number of MAUs (monthly active users) in the US and non-China world. It is unlikely to achieve high market cap in China, if it finally manages to enter that country. For example, its market share cannot be higher than Google in China. 

But even in US and western world, it faces competitors like Pinterest. Other issues like privacy and finding new business models in addition to relying on advertisers and third party platforms like Zynga. The last is a real issue. They should have done something already by now on that. 

Total valuation estimates have hovered in the $75-$100 billion range, but these numbers carry huge uncertainties.

Facebook and similar social networking companies are squarely positioned in the high-growth quadrant. The rationale is that Facebook, LinkedIn and Twitter exhibit characteristics of a Blue Ocean strategy. This includes rapid scalability, high degree of customer ‘stickiness,’ and creating and capturing user demand in near real time, resulting in a competitive differentiation that is very difficult to replicate.

We all know about the 800 million-plus users, the grab of 28% of the on-line display advertising market (a 30% jump over 2010), the 18% increase in average pricing paid by advertisers, and the fact that ads make up 85% of the company’s revenue.

In addition, we learned that Zynga, which leverages Facebook’s platform, contributed 12% to its revenue in 2011, up from 2010. This is encouraging because in the future more third party non-advertising revenue will be needed to sustain the outsized expectations of this company

First, what the filing did not discuss is Facebook’s challenges to improve its click-through rate of 0.05%, which trails the industry average of 0.1%.  it is still a good value considering that on Facebook the cost of ‘acquiring a fan’ for a brand is about $1 (much lower than the cost software for brands), and that ads have more stickiness on account of the ‘like’ feature among friends

The staying power of ads on Facebook is three times that on other sites, because customers stay longer on the site on account of the increasing functionality built in the platform. This is why social networks account for 60% of the CTR market, a much higher fraction than blogs or e-mail.

The company’s poor penetration in China (0.0%) and India (3.5%), the world’s most populous markets

Given these revenue risks, what is Facebook worth then? As with many businesses, we tend to extrapolate the revenue growth in the U.S. to the rest of the world, and forget that Facebook will need to become a distributed social network, serving a highly scalable, but fragmented global market.

 

via Facebook Valuation: We Dont Know What We Dont Know – Forbes.

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