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Summary:

Some quick math makes Facebook’s $15 billion valuation look even crazier. Apparently the guys over at Silicon Valley Insider also bothered to crunch the numbers. Bebo sold to AOL this morning for $850 million and have about 40 million users, costing $21.25 per user. In July […]

Some quick math makes Facebook’s $15 billion valuation look even crazier. Apparently the guys over at Silicon Valley Insider also bothered to crunch the numbers.

  • Bebo sold to AOL this morning for $850 million and have about 40 million users, costing $21.25 per user.
  • In July 2005, News Corp. purchased the parent of MySpace for $580 million. At the time, MySpace had about 21 million users, costing $27.62 per user.
  • Those are as direct as we can make it, but let’s say we bring out a crazy deal where the buying company admitted they overpaid. When eBay shelled out $4.1 billion for Skype, it paid about $52 per user.

Admittedly Microsoft has plenty of money and probably didn’t worry too much about the valuation when agreeing to terms with Facebook, so we’ll raise our estimates a bit. Also, Facebook has shown an unwillingness to sell or go public, indicating that it’s building for the long haul, meaning its users could grow in value over time. But at the time of the Microsoft deal, Facebook had about 50 million users who were valued at $300 each. Readers, care to tell me how Facebook users can achieve that value?

Kara Swisher has her own math on the Bebo deal as well.

  1. I don’t know anyone who thinks that Facebook is, or ever has been, worth $15B. I admit that I’ve never gone into an asylum to ask the question, but I am on the web a lot…
    I don’t think that anyone at Microsoft was smoking so much Redmond reefer that they thought it was worth $15B. They bought a significant stake at a price they thought that stake was worth to them. That’s a long way away from considering Facebook to be worth $15B.
    So it’s misleading to suggest that Microsoft paid $300 per Facebook user.

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  2. As far as I can tell, the whole $15B valuation is based solely on an extrapolation of Microsoft’s investment in FB, however Microsoft itself has stated that the amount invested was not simply a purchase of a percentage of ownership, but rather it reflected numerous other factors (placing ads on FB being the biggie).

    With that said, it seems to be a mixture of PR and the ‘next big thing’ that keeps that number floating around. The business press isn’t helping either, with Zuck being called the youngest billionaire based on his guesstimated percentage ownership of a guesstimated valuation :-)

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  3. I was under the impression that Microsoft paid what they paid because they wanted access to be able to place ads on Facebook, not merely to own a small percentage of the company. They were getting a portion of the company AS WELL as, if not more importantly, the ability to serve ads on the network. I felt that the payment was so high because of the access to ads, not the percentage of the company they owned. Silicon Valley then jumped all over it and declared that Facebook was worth $15 Billion. A gross exaggeration by even an asylum resident. I doubt any other company would be allowed to buy a percentage of the company AND place ads after MSFT ran in there.

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  4. Stacey,

    I would say that $300 per user for any media company is an impossible value to achieve historically. I did a media research project about 2 years ago which looked at the historical changes in media due to the impact of new technologies. Valuation of the media companies was a small component of that research, particularly the loss in value of a media type when a new media technology emerged. Of note, none of the media companies had a per user value in the $300 range. In fact, none were very much more than about $130 per user at peak valuation. Unfortunately, I cannot provide a link to the research as it is confidential, however I will note that Facebook’s so called $15 billion dollar valuation is idiocy at best. It has no historical benchmark as validation, nor does Facebook’s revenue growth and run rate (as reported publically by the media) justify such a lofty valuation.

    Just remember GeoCities and TheGlobe.com. Facebook is in good company. ;-)

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  5. Not that I think it’s reasonable by any means, but I can see Facebook being valued somewhat higher because it’s a much more targeted audience (i.e. for ads)…college students and those that just graduated college. And there’s lots of personal information in different forms (text, pictures, etc.) tied to specific users that something like the EBay-Skype deal doesn’t involve.

    All that said, it’s still ridiculous to say any of that makes it even remotely close to $300 a user.

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  6. You Too can make 300 million …… goto fakepaycheckstubs com
    OMG….how funny!!!

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  7. [...] Stacey Higginbotham at GigaOm notes, AOL is acquiring Bebo for $21.25 per user, which is actually a bit less than the $27.62 per user [...]

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  8. Hold on a sec.

    Like some others have said, the money Microsoft invested was for a 1.6% stake in Facebook and for the right to advertise on the site. To figure out the valuation per sub, you have to extract the value of the advertising portion from the overall deal.

    Google paid $900mm for 3 years of exclusive advertising on myspace and got no equity in myspace. At the time, myspace had 100mm users. So that’s about $9 per sub at the time of the deal. Based on the fact that Google is struggling with social networking monetization and myspace is thought to be the chief problem, this was probably too much.

    Microsoft already had the rights to the domestic facebook advetising through an earlier alliance signed. They paid $240mm for exclusive advertising on a global basis with no stated timeframe limitation, though I’m sure there must be one. Let’s give them the benefit of the doubt and say it was a 3 year deal also and lets say it negated their earlier deal on the domestic market. If so, Microsoft paid $240mm for 50mm users… or about $4.80 per sub. AND they walked away with a 1.6% stake in facebook.

    In fact, Microsoft paid far less for facebook advertising rights than google paid for myspace advertising rights. It’s not a $15 billion dollar idiotic move. Admittedly, it’s really a payola move — they’re buying advertising revenues — I don’t love that as a business practice. But if what Microsoft was trying to do was shore up their faltering online business, it’s not the worst thing they could have done to goose the top line.

    Buying Yahoo… that’ll probably be the worst thing they could have done.

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  9. As many have pointed out, Microsoft didn’t invest at a $15 billion valuation. They gave Facebook a payoff and, in addition to advertising concessions, got some stock tossed in as a kicker.

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  10. Stacey Higginbotham Thursday, March 13, 2008

    You guys are right that Microsoft was buying a stake and likely had few cares with regard to valuation. But if Facebook raised additional money at that same valuation (comapnies hate to do down rounds) then someone else is expecting the company to achieve those exalted levels. That’s a big reason why comapnies should aim for a reasonable valuation.

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