MySpace and Facebook: Let’s Go to the Calculators

A Knowledge@Wharton article today dissects recent MySpace and Facebook valuation attempts, mapping out RBC Capital analyst Jordan Rohan’s $15 billion MySpace prediction and Facebook’s reported $900 million offer from Yahoo. As a starting point, Google’s $120 billion market cap is 55 times as large as its earnings. With that yardstick, the MySpace valuation requires $270 million in profit this year and the Facebook valuation $16 million. Those numbers are closer to the estimated revenue (not profit) of the two companies, though Facebook’s back-of-the-envelope looks a little more realistic.

The article points out that Google is an established profitable business and market leader, while MySpace and Facebook are breaking newer ground. “[T]hese social network sites are the Wild West. This is an area where it has been notoriously fickle,” says Wharton marketing professor Peter Fader. “It’s not like search engines, where you can really compare them on objective criteria.” Let’s not forget Google closed at $415.70 today…

Wharton, in all its authoritative splendor, ends up without conclusions about whether or not the valuations are justified. The point seems to be: in bubbly times, fuzzy math is the best we’re gonna get.

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