SMALL BUSINESS

Is Facebook Really Worth $50 Billion?

08/12/2011 03:39 pm ET | Updated Aug 15, 2011

"Like" it or not, Facebook appears here to stay. With more than 500 million users across the globe, Time's reigning Person of the Year at the helm and a fresh infusion of cash from one of Wall Street's largest investment banks, the nearly ubiquitous social networking platform has become the most-visited website in the world.

Despite Facebook's increasing dominance, however, one big question always seems to loom: How much is this thing really worth? Sure, we've seen hypothetical valuations continue to climb, and founder Mark Zuckerberg (well, depending on whether you believe The Social Network) is now considered the world's youngest billionaire. But putting a real price tag on a company that recorded out its first profit little over a year ago and continues to resist calls for an IPO has been mostly about potential.

That changed in a big way earlier this week, when news surfaced that Facebook had raised $500 million from Goldman Sachs and a Russian investment firm, which valued the company at a staggering $50 billion -- more than eBay, Yahoo and Time Warner.

Such a stamp of approval from the likes of Goldman certainly turned some heads. So we decided to ask our Board of Directors -- a number of them veterans of the technology and investment space, and most of them regular Facebook users -- what they think of the deal and Facebook's long-term prospects in general.

Clint Greenleaf

Founder And CEO, Greenleaf Book Group


"The Facebook Ads program is so robust -- you can identify 24-year-old women who like football, watch Lost and collect Beanie Babies -- that I can see it being reasonable. Time will tell, of course."


Jennifer Hill


Startup Advisory And Venture Lawyer, Gunderson Dettmer LLP


"At 25x revenue, Facebook's investors have placed bets on the fact that it's the one 'channel' 500 million-plus people are watching everyday. It's arguably the only site where users are comfortable receiving personal, social, commercial and professional messages all in one place. These days, where else does it seem natural to see your best friend's kids' photos, your favorite fashion designer, messages from your work colleagues, garage sales from your peer group, and the first notice that you have been dumped? This is the melange that the investors are banking on to keep users tuned in as much as possible, sell products and services from companies and your peer group and place more ads than anywhere else on the Web.

"Perhaps the key questions are a) whether there is -- or in the short-to-mid term will be -- any other online alternative where this could compete effectively, and b) whether Facebook's network effects will provide sufficient incentive for users to keep on using it, as it transitions ever more explicitly from a perceived pure social network to a more commercial network."


Julie Jumonville


Co-Founder And Chief Innovation Officer, UpSpring Baby


"It took me a while to jump on the Facebook bandwagon and now we have four Facebook profiles in our family, two for business and two personal. Facebook is the advertising and marketing tool that provides the majority of our website leads, which results in revenue. Do I think the $50 billion valuation is valid? My answer is yes."


Tate Chalk


Founder And CEO, Nfinity


"My wife and I have a 'no Facebook' rule. We just don't believe it is healthy for a relationship. Now, my company has a page with thousands of friends and fans, but that's the extent of my Facebook knowledge. So I can't really weigh in about whether this is worth it or not."


Steve Strauss


Columnist And Author Of The Small Business Bible


"You bet it is worth $50 billion. It is changing the game and is where the eyeballs are. I love this statistic I recently saw: It took radio 38 years before it hit the 50 million user mark. It took TV 13 years to hit that benchmark. It took the iPod 4 years. It took Facebook (once it was no longer just for colleges) less than a year. Facebook has the juice."


Phil Town


Investor And Author Of Rule #1 And Payback Time


"For me to put $50,000 into a business, much less $50 billion, I need the business to have a huge protective moat -- a durable defense against competitors. What moat does Facebook have that can't be jumped by some new social networking breakthrough? Sheer numbers and exponential growth count for a lot, but the future is anything but obvious. From a moat perspective, this is a scary investment.

"There is substantial risk in this investment, therefore Goldman will probably judge that the $50 billion price is a significant discount to what they think Facebook's actually worth. That means they probably think that in 10 years it will be a $400 billion company that can become an $800 billion company by 2025 doing about $30 billion a year in net earnings. Anything less doesn't really work out to a reasonable rate of return, given the risk. But $30 billion is a really big number. Coca-Cola earned $4 billion last year. Exxon, the world's biggest public company, earned $28 billion last year and was priced at $375 billion recently. The Facebook market price has to somehow go all the way to the moon to make this a good investment for Goldman. Very scary.

"'The Payback Time' is the time it takes an investment to pay you your money back out of earnings (and the name of my last book). A reasonable time to wait is about eight years for a full payoff. Since Facebook is rumored to have earned about $20 to 30 million in 2010, Facebook has to grow at the astronomical rate of 100 percent a year for 10 years to get earnings to the $30 billion level.

"To make this work, Facebook has to grow like crazy and become the biggest company in the world. "That means, unless Goldman has a crystal ball, this isn't an investment -- it's a $50 billion roll of the dice. Probably the only thing that makes sense for Goldman is to count on a bigger fool to come along and pay up in five years or so."

The original version of this article appeared on AOL Small Business on 5/1/11.

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