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Comment by pchristensen | Hacker News Reader

Is it that big of a fail if it stabilizes with 50 million users? The real question is if they can find a way to monetize that (like AdWords did for Google) before they run out of cash.

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Considering that Facebook has been "valued" at $15 billion, yes, 50 million users is a failure. That would mean that they'd have to justify why each and every user is worth $300. A good percentage may be worth close to that much, but certainly not every one.

That's a failure of the investors, not the site.

Maybe so, maybe no. Depends on what sort of promises were sold to the investors. Even so, caveat emptor I guess.

Yup. Even if Facebook told the VCs that Zuckerberg lays golden, candy-colored, web-two-point-oh eggs, it's still the VC's bet to lose.

Not saying that 15Billion isn't ridiculous, but the formula is n't nearly as simple as

value_per_user = valuation / num_users

I hope this doesn't come out the wrong way, but why isn't it as simple as that? I'm sure the Enron accountants could come up with a better valuation model, but that doesn't necessarily make it so. It's a simplistic formula, but it seems reasonable enough to me.

Valuation is not the same thing as revenues per year. Or profit per year.

an easy example: if facebook made 15B per year with 5B in profit, they could distribute dividends of the 5B each year to stockholders. In only 3 years, your original investment would be paid back and it would be all profit (to the investor) from that point on.

Would you think that was a good deal? I would! So good that it'd get bid up on the open market way past 15B.

Well, technically if you want to use that model, then if each user spends $25 a month on products/services they find on facebook, then after a year(collectively) each user will have at least spent, $15 billion, which I think is worth...well... $15 billion.

Of course Facebook only gets a small cut of that, unless they start selling massive numbers of "gifts" or Facebook tshirts...

True, if TiVo or a cable company had 50 million subscribers, then yeah, it could be worth $15 billion. I don't see a $25/mo product from Facebook, though.

Not to mention that we don't know what percentage of the 50 million are active, participating users.

Networks are worth more than the sum of their parts.

Not in every case. The quality of a network can decrease with added users if they subtract from the community.

$15 billion / 50 million users = $300 per user.

That's a bargain compared to GeoCities, which, I believe was purchased by Yahoo for $1100 per user.

Look at how well that went. For both companies.

Well, let's look at it from an investment perspective. Growing tech stocks trade at 20-50x earnings, but an especially hot or new stock can trade at 100x (I'll use that for Facebook). So for a $15B valuation at 100 P/E, they'd have to make $150 million in profit per year or $3/user. I don't think they're there yet (I think revenues are in that ballpark, not profits), but it's not unreasonable.

Of course 100x is an extremely high valuation multiple for a company based on fundamentals instead of speculation, so if they can't monetize, or if they stop growing, or if attrition goes up, then their multiple goes down and then they might have to make $6, $12, or $24 in profit/user/yr, which I'm pretty sure is unreasonable.

Moral of the story: we're all guessing. If they can monetize, then every doubter is wrong. If they can't, then every doubter says "I told you so."

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