Related to one of our class exercises is the question of how much can these social networking sites be worth?
As a starting point you will notice that all three of the commentators in this article "How much is facebook really worth?" are basing their estimates on multiples of revenue. Of course revenue growth without growth in earnings (and hopefully even residual earnings) tends not to add value in the long-run.
Another point of contention arises between the three authors on the selection of a suitable comparable firm, is it myspace (1st author)? or is it yahoo (last author)? Clearly the assumptions of the value of facebook are widely varied based on the selection of the comparable firm.
Is facebook worth 15 billion?
I do not think that Facebook is worth $15 billion. The author who mentioned the $15 billion said that this point is possible. Sure, most things are possible. After seeing what some business people think is a good idea, a lot of ideas are not terribly far-fetched anymore. He went on to pose the question as whether or not it is probable. That is a different question altogether. While Facebook has a good record so far, it does not guarantee such growth will be stable in the future. Our class has mentioned on numerous occasions that consistent high growth is not sustainable. MySpace was the craze a few years back and has since been pushed back from the light. I am not saying that Facebook will not last more than a few years but there numerous entrepreneurs that are looking for the newest addition to internet socializing networks. The idea behind Facebook is relatively simple and entry to the market is not restricted. This will effect the long term value of Facebook.
ReplyDeleteGiven our discussion on how much 'Petbook' would be worth, it is easy to see why there is so much discrepancy in the predictions. A simple difference in assumptions can have a tremendous effect on the worth of a company. If I had to take a stab at the worth of Facebook right now, I would say between Anders Bylund's value of next to 0 and Rick Aristotle's value of $3 billion. $15 billion right now just seems too high.