What’s the Value of Facebook? Three perspectives, all related.

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Facebook had 901 million monthly active users at the end of the first quarter this year. That’s impressive.

Let me focus on three issues: Tomorrow’s IPO, the Branding/Advertising platform and Business Strategy. I wear three hats: Investor, Branding Consultant and Business Strategist.


As an investor, I am subscribed for some shares of the IPO prior to it going public tomorrow morning but now that Facebook, the phenomenon, is becoming a public company, things will change. Until then, I think the stock is a trade not an investment. I will not buy any more stock tomorrow after it opens and I’ll sell my allocation into the initial pop because of the following two reasons:

Branding/Advertising Consultant

As a Branding/Advertising Consultant, I can’t generally recommend buying advertising on Facebook. And it seems advertising is their current monetization model accounting for 82% of revenue in the first quarter of this year. But I do recommend a presence (and investment) for consumer companies and non-profits. Nevertheless there are better places to advertise that cost less money. Traditional advertising, email, direct mail, etc. can all be less expensive ways to send prospects to a Facebook page and build a Fan base. Earlier this week, GM announced in the Wall Street Journal that they are pulling the plug on their $10 million Facebook advertising effort.

Business Strategist

As a Business Strategist, I believe Facebook, while it is already generating a profit, and that is reassuring to investors, needs to do some serious thinking about how they will increase earnings to grow into the stock valuation. Now that it is a public company, it must become more focused on developing revenue streams and maintaining a significant growth rate. Going into this IPO, growth rate has slowed from 154% between 2009 and 2010, to 88% in 2011. And it continued to slow this first quarter to just 45% from last year’s first quarter.

Getting billions of eyeballs on your website is impressive, but what is critical is converting them into revenue. I’m not sure an advertising model is the answer for Facebook. And Mark Zuckerberg seems uninterested in strengthening an advertising model.

I think it will eventually become clear that they need to get creative about how they will monetize those viewers. Being famous and being rich are not automatically linked. I mentioned GM earlier. It is important to note that while they are cutting the $10 million in advertising, they are still investing $30 million to build and maintain a Facebook presence for their array of automobile brands.

Brands will need to evaluate whether Facebook’s tremendous potential is worth the cost of advertising there. Because there is a lot that can be done on Facebook without buying advertising space.

12 Responses to “What’s the Value of Facebook? Three perspectives, all related.”

  1. SaminOregon says:

    From a targeting standpoint, most of the ads that Facebook sells are probably not really optimized for the platform.

  2. tierigoldste82 says:

    Your point is well taken: Numerous analysts have now raised concerns over the future of the company, citing uncertainties about Facebook’s revenue model, mobile strategy, advertising, Mark Zuckerberg’s leadership, and more.

  3. Adrian Knauss says:

    I like your post, concise and accurate. Notice the stock did not trade well on it’s first day of trading, curious to know if you think it will pick up in the next few weeks.

  4. Earline Towles says:

    extremely interresting post about paid advertizing but what we need is something that combines the raw statistical power that many people spend hours compiling in various spread sheets or with online tools merged with the simplicity of a plugin that stays tucked away and hidden.

  5. jackamarit says:

    The biggest problem Facebook faces is the deceleration of its revenue. The market doesn’t like deceleration, especially when a company’s profit margins are already as high as Facebook’s. At a 50% operating margin, Facebook’s profit margin is likely to go down not up. So Facebook’s earnings are only likely to grow at Facebook’s revenue growth rate–or slower.

  6. Dave Shappel says:

    You’ve really got an intelligent blog, would you rent ad space (for a banner ad) for my site?

  7. Mark Man says:

    You were spot on about the value of Facebook IPO. Since your post, it has lost about $35 Billion in value as shares dipped below $29. Are you a trader? Cheers. Mark

  8. purchase targeted facebook likes says:

    With an ENORMOUS consumer user base creating even scarier amounts of big data, and considering that its model revolves around revenue derived from targeted, personalized ads, the inevitable pressure to beat financial projections in the public markets leaves our personal data in a precarious position. Everyone needs to realize that the quickest way to big quarterly gains is a straight line to selling our private data to marketers.

  9. J.R. says:

    The Wall Street Journal just reported Facebook executives have offered to provide data showing the effectiveness of GM’s advertising on the site in a bid to convince the automaker to come back.

  10. LESLIE says:

    Sometime back, Zuckerberg had contemplated cashing in on Facebook, and I bet, if it were today, he would warmly welcome bids. However, that time is long gone, and since then he has curbed a very ambitious vision for the company. Maybe that will help. We’ll see how quickly he can learn financial economics. :) Take care.

  11. TheTrader-47 says:

    Great blog, Facebook’s IPO price was not truly ludicrous–it was just extremely expensive. The market values Apple, a proven company, at only 10X 2013 estimated earnings per share. Meanwhile, at the IPO price, the market valued Facebook at about 65X consensus 2013 estimated earnings per share. That is extremely expensive.

  12. Mike Hensgen says:

    Like your blog, Steven. And your FB take…to expand on it a bit…“Being rich and being famous” don’t necessarily lead to becoming richer.

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