Thursday, February 2, 2012

Facebook

Is it just me, but looking at Facebook's market valuation (around $75 billion) its revenues ($3 billion) you wonder what kind of growth is being factored in here.


From Facebooks's S-1:


We had 845 million MAUs {monthly average users} as of December 31, 2011, an increase of 39% as compared to 608 million MAUs as of December 31, 2010.
We had 483 million daily active users (DAUs) on average in December 2011, an increase of 48% as compared to 327 million DAUs in December 2010.
We had more than 425 million MAUs who used Facebook mobile products in December 2011
And 
During the month of December 2011, we had on average 360 million users who were active with Facebook on at least six out of the last seven days, providing perspective on the number of people for whom Facebook is essentially an everyday activity



Think about these numbers for a minute in terms of total world population!  Lets say there are 7 billion humans on earth, that means that 12% have a Facebook account, and that 1/15 look/update there Facebook at least 6 days a week. Honestly, how do you grow from that base; when already 12% of the world population has a Facebook account -- It gets even worse, a good chunk of the population has no access (or very limited access) to the internet.  Lets say that 1/3rd of the world population has access (by hook or by crook) to the internet -- still 2.5 billion is a large number.  I would say that 800 million accounts of which half are daily users is a fair share of the global population.  So Facebook's model (which was always a way for people to socialise -- read hook up) will have to generate more dollar per users, in a new (and yet untapped) way.  

As one analyst point out when people go to google they are either looking for information about facts or about things and products -- in other words they are looking at solving a problem.  That's not the case on Facebook, they are there to socialise.  Frankly, I doubted Google's profit model when it first emerged, I suspect that even they could not contemplate how the world of information has changed.  Its true that for teenagers Facebook may be a great way of shopping for things, it may be true that it's a great way of finding a doctor, dentist on recommendation of people you know.  I for o ne remain wary of Tripadvisor - you never know who wrote the comments on a specific hotel or resort -- the future may be a more curated forms of information.  So Facebook may have an edge, still it remains that it is a largely unexplored area of growth for the company that has been focusing on growing its user based (at astonishing speed and volume) and not so much at growing its revenues -- although they have gone up rather dramatically.  But with net profits of $1 billion in 2011 (not bad really) a market valuation of $75 billion is a massive multiple.

One thing for sure, once 7% of the world population uses your site at least 6 days a week -- your growth model is more challenging and definitively outside your comfort zone. 

Note to readers:  Before any snide remarks are made, I do realize that tons of companies have Facebook pages, (movie too apparently).  So the comparison is not entirely appropriate, still 7% of the world population and probably 1/3 of the world's "connected" population... still a very large percentage.

Note to readers:  I have no positions in Google, Facebook, and Tripadvisor





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