Let's say that they have quadrupled that, so $3.2 B revenue, and that they have greatly reduced their operating expenses (new servers, etc.) - so let's say they are making 50% net income, which would be almost impossible - that is still at best-case scenario $1.6 B a year, which hardly justifies $50B .
Even the most optimistic growth targets are going to bump up against hard limits: people can't spend more than x hours a day online, there are maybe 5 billion users worldwide as a potential market.
Unless the CIA is going to pay them a couple billion a year for data mining access (CIA's VC arm was an early investor) since we have all so nicely classified ourselves and our social graphs for "TIA" purposes, I can't see the valuation sticking.
It's a scam of the pump-and-dump variety, plain and simple. Look forward a few investors and investment banks making out like bandits and the rest getting screwed.
The user base is growing at something like 200% a year. In five years, they'll have over 32 billion users. Just figure out a way to make one or two dollars off each user...that can't be so hard, right?
Unfortunately there's a hard cap on the number of potential users in the world. There's about 7 billion people in the world right now, even if we're generous and suggest that 50% of the population are potential users you're limited to a 3 billionish maximum. They currently claim over 500 million active users, which means they're already at 1/6 of their maximum. Furthermore, the law of diminishing returns suggests that their growth will slow as they get close to their population limit. So unless they can figure out how to monetize those users in some significant way I can't see the potential for revenue being close to what the current evaluations are suggesting.
You're right! I'm so terribly sorry for getting my words all confused. It's a great thing that HN has such sharp and savvy editors like you to set shmucks like me straight.
My place of employment currently allows users to surf Facebook, though it blocks many other sites. I wonder if the guys upstairs will one day pull the plug on FB when firing people is no longer an option to boost productivity. I wonder how much of a risk this scenario is to FB. There are a lot of un/der employed folks out there though.....
That's like saying that because Fry's and The Olive Garden both accept cash that they are in the same business.
Just because Facebook and Google both make money by selling advertisements doesn't mean they are in the same market.
For example, Google makes so much money from advertising because they can show users ads pertinent to their search query at the point they are often making a buying decision.
However, Facebook users are on the site because they bored or communicating and not even considering buying something. Not to mention that a large portion of Facebook users have very little discretionary spending money or ability to purchase online anyway.
The market and motivation involved between the two companies is completely different and not comparable.
Bingo! I purchase a lot of online ads, and I can tell you, I give nearly all my ad budget to Google. I tried Facebook for a while, with the exact same ads and the exact same product, and the result was shocking. Nearly 10x less conversions than with Google. I think the reason is simple. Google users were already searching for me, facebook users were just bored looky-loos. When people start to realize this about fb it could be the short of the century.
Correct me if I'm wrong, but it looks like you're using (rumored) 2009 income numbers with the Jan. 2011 valuation in your calculation. Income surely would have changed since then.
Even the most optimistic growth targets are going to bump up against hard limits: people can't spend more than x hours a day online, there are maybe 5 billion users worldwide as a potential market.
Unless the CIA is going to pay them a couple billion a year for data mining access (CIA's VC arm was an early investor) since we have all so nicely classified ourselves and our social graphs for "TIA" purposes, I can't see the valuation sticking.