Valuing Facebook
The Internet was abuzz last week amid rumors that Microsoft would bid approximately $500 million for a 5% share of social networking platform Facebook. That would suggest a valuation of $10 billion for the company.
The $10 billion figure dwarfs the $1 billion rumored to have been offered last year by Yahoo and would be a substantial multiple for a company whose 2007 revenues are projected to be in the $150-million range.
RBC Capital Markets looked at the potential value of Facebook in a recent research report, Facebook: Why Is It Worth So Much to Google and Microsoft? RBC analyst Jordan Rohan describes why they believe that the market has mischaracterized Facebook and, therefore, may undervalue it.
As with Google, Rohan views Facebook as a technology platform and not simply a media company. To understand that, they look at Facebook’s ambitions:
There is a social graph in the world, which is made up of people’s real connections. Facebook’s goal is to map out those connections and build a model of the real world social graph, so it can expose that to applications through its technology platform and enable the most efficient sharing of the world’s information.
According to RBC, Facebook is currently focused on three primary areas:
- Continued evolution of the technology platform (released less than four months ago) to cultivate and support an ecosystem of third party developers;
- Monetization of the platform, but not in a flashy television way
- Translation to languages other than English
Meanwhile, Microsoft CEO Steve Ballmer was interviewed by the Times of London regarding Facebook. While he would not confirm or deny the rumors of a potential Facebook investment, he warned that the interest in Facebook could simply be a fad:
I think these things [social networks] are going to have some legs, and yet there’s a faddishness, a faddish nature about anything that basically appeals to younger people.
The RBC report is available for purchase here.
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