Amidst all the buzz about $10 billion, $15 billion, and event the legendary no to Yahoo!'s $900 million, I have been thinking, how can we approach a semi-rational valuation of Facebook?
Disclaimer: do I use it? Yes, mainly because I am a lemming and followed some of my friends and family members. It has not changed my life, or even made it slightly more productive. Facebook does provide some entertainment, and reconnected me with some long-lost acquaintances, but they were long lost usually for a reason...
Looking at start-ups all week, we at Jerusalem Capital spend a lot of time asking about business models. And I am VERY tired hearing about advertising. After all, eventually someone needs to actually buy something. If Facebook had been pitched to us, would we have invested? Probably not. Our lives have so much risk, we tend to look for some solidity regarding business model.
Back to Facebook: ok, so maybe there are tens of millions of users, but so far the only "business model" is ads, and here I have some difficulty judging, because I am signing in [most of the time] from Israel. To date there has been one advertiser.One company, on all the pages, same company all the time (they must have unlimited ad budget!). It is an Israeli company helping with finding jobs outside of Israel. Not a helpful ad for me (I think my kids and LPs would be upset if they heard I was clicking on websites for finding a job outside of Israel). So based on my limited sample of me, I have to say that Facebook lacks any of the bells and whistles of the dozens of context based ad platforms I have been pitched. They are serving ads based on IP address only. And they only have one "customer."
Now, could Facebook switch to a subscriber model at this point? Maybe. I wouldn't pay, but maybe my oldest daughter would (yes, as of now that's the same as me paying...sigh). And if they did get a few million people to pay some nominal monthly amount, maybe one could argue the company is worth a few hundred million dollars. But $10 BILLION? I think not.
Google is a different story...they have actually proved they are a cash machine. Still overvalued, but they do have billions of greenbacks in their bank account from running their business.
So yes, I think Facebook is worth far less than the various number being thrown around. I would have taken the $900 million offer from Yahoo!. Only time, and the moves of Facebook management, will tell whether I am right, that with all the buzz, they could be headed for some tough times, as the WOW factor subsides and they need to show a business behind all those annoying notifications that some "friend" just blew her nose [I am sure there is a Facebook app for that already].