Is Facebook worth $50Bn?

Is the Goldman Sachs valuation of $50Bn for Facebook reasonable? Here is what we know about Facebook:

• > 500 Mio active users
• 50% of active users log on to Facebook in any given day
• The average user has 130 friends
• People spend 700 billion minutes per month on Facebook

Sanity check:

According to the Goldman Sachs valuation

• each active user is worth $100
• Considering a lifetime of Facebook of T years*
  • for T=1: one useryear is worth $100
  • for T=5: one useryear is worth $20
  • for T=10: one useryear is worth $10

• each minute/month spent on Facebook is worth 50/700 = $0.0714
• Considering a lifetime of Facebook of T years*
  • for T=1: each minute is worth $0.0059
  • for T=5: each minute is worth $0.0012
  • for T=10: each minute is worth $0.0006

Let’s say, Facebook will be around for another 10 years with a stable user base. Is it reasonable to spend $10 per useryear, or 0.06 cents per userminute, respectively?

What are major sources of Facebook’s revenue?

• Facebook made $2Bn revenue in 2010
• 1 trillion display ads/year
• Facebook gets 30% of third party revenues via Facebook Credits
• Facebook game giant Zynga made $500-$800M revenue in 2010

Crunching numbers:

• 8 minutes spent on Facebook equals 1 ad impression
• Every year, the average user consumes 2000 ad impressions via Facebook
• The current CPM for Facebook ads is max $2 (1tr * $2/1000 = $2Bn)
• Considering a reasonable average CPM of $3, this makes a potential future revenue of $6 per user per year
• Every year, the average user spends $1-$1.6 on Zynga’s virtual goods and ads, out of which Facebook gets $0.3-$0.5

This rough calculation shows that Goldman might actually be right with their Facebook valuation. Time will show.

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