Let's Justify Facebook's $300-Per-User Valuation

52 Comments

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.

52 Comments

Jim@ flowering tea

Facebook is definitely a huge platform for advertisements. It’s now getting more PPC than Google these days and the users are increasingly rapidly.

Matt

You say Facebook had 50 million users at the time of the Microsoft deal. They are now at 10x that amount. So whatever method Microsoft used to put a value on the stake they bought, surely they have got a better deal in the long run. Investing is not always about current value but also about speculation. At the present time, I would prefer to have paid $300 per user for Facebook at the time than $21.25 for Bebo because we all know what has happened to that now!! You can’t put a per user value on an investment when the user base is growing so rapidly. In a few months their per user value would have halved. Plus, buying a rock for £10 and a diamond for £100 can hardly be compared.

George

I think the rapid current and future projected growth along with the fact that it is a good platform for advertising revenues is why it is valued differently.

Sean McManus

One way to justify it is to look at the lifetime value of the users. Facebook users tend to be more affluent than MySpace users, with more spending power. It’s also a site that users are less likely to grow out of, although neither site has been around long enough to demonstrate they can keep users throughout all their life changes. With Facebook, Microsoft has plans to actually realise the value of users with advertising, and can do so much more by building collaborative hosted software applications around trusted communities. When MySpace was acquired, there was no clear idea on how to realise the value of the community. The exclusive right to advertise to the Facebook community is a valuable asset for Microsoft, particularly since Microsoft is behind Google in the advertising market. It’s a smart strategic investment for a company with more cash than it knows how to spend.

Mia

I think the number-crunchers are missing the point, this was NOT a $15 billion deal, so comparing it with AOL-Bebo deal is plain wrong. For a fraction of the valuation, Microsoft got exclusive rights to serve ads on the popular social site and it essentially shut out the competition because which idiot would be willing to pay that kind of money for a site that hasn’t even begun monetizing? Very smart move by MS for sure.

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