Saturday, January 08, 2011

How much money is Facebook worth?

SHOOT:  Another insightful piece from Business Insider.

Is Facebook cheap at $50 billion? Lots of people with money think it is.  Loaded Goldman Sachs clients are lining up to invest at that valuation. Too many of them, in fact!

Other investors are even buying the stock at $90 billion and $124 billion valuations on secondary markets. Are they nuts? Maybe. (The latter folks certainly are. Either that or brain dead.)

But Facebook has a plan that could make Goldman's clients look sane – and very, very rich.

It all starts with Zynga and Groupon.

Zynga, the maker of games like CityVille and Farmville, is now valued at $5.5 billion on secondary markets. That's more than videogame industry giant Electronic Arts.

Kleiner Perkins partner John Doerr says "Zynga is the largest, most rapidly growing, most profitable company, with the most happy customers that Kleiner's ever invested in over its life."

Groupon just raised $950 million at a $6.4 billion valuation – only weeks after turning down a $6 billion buyout offer from Google. It has been called the fastest growing company in the history of business.

And all that's really impressive.

But what's really amazing is that Facebook makes loads of money from both of these companies and their competitors.

Groupon and all its clones buy lots of Facebook ads – about a third of all the ads Facebook sells, in fact, a source at a Facebook-ad buying firm tells us. Zynga and the other social games publishers buy another third. These gamesmakers also pay a 30% tax to Facebook for use of its credits system. Facebook revenues from the games business was around $400 million in 2010, we recently heard.

So, what does this tell us about Facebook?

It tells us that Facebook is not really in the advertising business. It's also not really in the virtual currency business.

Facebook's business is taxing other businesses that figure out ways to make money off of social networking.

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