Facebook’s Zuckerberg Now Richer Than Steve Jobs
blogs.forbes.com
blogs.forbes.com
And to be honest, Facebook would be a really lousy investment at the current valuation (whatever that number happens to be depending on the phase of the moon $14-$100 billion). Even at the conservative end of this ridiculous metric, say $25 billion, it would take about 30 years at current revenue to equal that let alone make any money on it -- that's a shitty investment as bad as buying a house. They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years (a saner metric that most people use when valuing corporate assets, "what's the 5 year revenue expectations of this company?). Sure they're on an exponential growth path right now, how much longer do exponential growth paths last? History shows, "not long".
Their bigger problem is that they pretty much have most of the Internet connected human species with broadband and disposable income already signed up. I don't think any of the analysts understand this. You'd have to drag huge chunks of the population of the planet out of poverty and into middleclassdom to make any meaningful movement upwards in those numbers. FB might be able to squeeze 750 million users this generation out of the planet. But getting more than that will involve bringing world peace to the Earth and feeding and educating all of humanity.
Looking at hard numbers, in markets where FB has about %50 market penetration, their growth rate is ~4% per month. Actually, the ~4% metric works even down to 30% penetration. And you see <10% growth for places with around a 15% penetration. The only places with high growth are current low penetration markets like India and Brazil, with ~14% growth, but <4% penetration. One could reasonably expect that as penetration increases, growth will decrease (yeah yeah every point growth in India is some huge number, but India is not some huge middle-class affluent market waiting for penetration, You're simply not going to sign on 30% of India's population only 7% have any Internet access at all, exactly the same as last year).
Doubling revenue year over year for 5 years is fantasy-land in most cases, not going to happen if you've saturated the market. And unless we make interstellar contact soon, or can expand Facebook into the Dolphin and Chimp populations, it's not going to grow much more. At some point, FB's new signons are going to start tracking global birthrates (and active users will start to decline as the baby boomers start to pass on). The human population growth curves of the planet look bleak for FB.
Don't get me wrong, FB is a valuable company, maybe $5-7 billion, maybe 10 on the very high end. Those are still very impressive numbers. But these valuation numbers that float around are some of the most fantastic multiples of revenue I've seen in ages. Either the models the analysts are using are wrong, or they're simply pulling random numbers out of their asses. I'm guessing the later since I've seen some pretty wild ranges.
So my real question is, Zuckerberg is richer than Jobs, based on what? How many wishes and unicorns Zuck can buy with his fantasy valuation money?
Valuation means nothing until it's turned into real money.
Even if, given their current revenue model, they tripled revenue tomorrow. They're still only a marginal investment with either a 10 to a 50 year payout depending. Those are U.S. federal securities time periods. If I had $40 billion I had to dump for 10 years, I'd put it into bonds before I'd put it into FB.
As I was attempting to point out, no matter the hype, once you saturate the market, you can't hype away the math. Right now at the lower end valuations, they are a 30 year investment. I don't think anybody in their right mind would take on those odds considering the population growth curve of the human species.
FB is going to have to adopt a seriously different revenue model in order to try and keep their revenue growth curve up and bring down these insane valuation multiples on their revenue -- they simply can't keep relying on new signups and ads. I have a feeling anything they do will be intrusive and along lines that won't be what people like (first 10 friends are free! $5/friend after that!).
I know the article I linked to ends on a fuzzy note, I'd have ended it quite down. Basically, they have no idea how to revenue their service. And they're really only reaching <20million people anyways (in theory, word on the street is that only a fraction stay as active users).
If you ignore the typical VC funded fantasy growth projections, when their internal revenue figures for q3 of 2009 were leaked, they weren't exactly rosy. http://techcrunch.com/2009/07/15/twitters-financial-forecast...
I think even more dysmal is their user growth curve. As of the beginning of this year it looked like this http://techcrunch.com/2010/01/19/state-twittersphere-hubspot...
Now, about revenue? it seems more related to social analytics, since using the API (with its limitations) it's difficult to do big scale analysis.
That's not so ridiculous for an internet company dominant in a developing space. Minecraft seems to have doubled its revenue stream every single month for the last few months.
Here's Google's track record (since everybody seems to want to compare the two even though they're in entirely different businesses in theory). https://investor.google.com/financial/2003/tables.html
Year Revenue %Growth
2001 86m 352%
2002 438m 409%
2003 1.4b 234%
2004 3.2b 118%
2005 6.1b 92%
2006 10.6b 73%
2007 16.6b 56%
2008 21.8b 31%
2009 23.6b 9%
2010 25b (est) ~9%
elblanco is measuring a current valuation against a revenue estimate that's over a year old.
1. More time on site through more features, more facebook connect implementations and more platform support
2. More efficient and targeted advertising with better technology (Google did this very well and are the envy of everybody)
3. Taking a bigger slice of platform revenues by forcing the use of Facebook credits, which means they get 30% of what Zynga et al make (Zynga made more than Facebook in '09)
Your argument assumes that $/user will remain static, when in truth it is very early days for Facebook in that regard. I think their $/user run-rate is good atm considering how shitty their ads are.
Point 3 alone could more than double $/user in the next 12 months. Point 2 is the jackpot that could see them surpass GOOG revenues in due course.
I was actually having this exact conversation recently with some friends (which is why it's all so fresh for me), and by way of comparison. Google's revenue for 2008 and 2009 is 21.8bil, 23.6bil and looks on track to be just over 24bil for this year. Their exponential growth curve is over, it ended in 2006 but nobody was paying attention because their growth percentages were still really good.
I'm still not sold on FB using Adverts to grow to Google sizes. I just don't see it. Their friend suggests are terrible, I don't think they've suggested anybody I actually know ever, I can't imagine how bad targeted adverts will be. Plus they have a miserable privacy record. On top of that, FB isn't really used in the same way Google is. It's an entirely different usage model, one that I'm not sure lends itself to adverts the same way.
I think #3 is their best bet. Turn FB into a platform for apps, and license access to that platform. Basically an online videogame console with really really good social connectivity.
One thing to think about, my group of FB friends is almost entirely different from my group of linkedin friends is almost entirely different from my group of steam friends. I know I'm an anecdote, but other anecdotal evidence from people I know with the same type of disjoint friends and associates across different sites seems to support this data point.
The problem that Google has is that it is a doorway to other sites - they have spent 10 years now trying to find ways to keep this userbase on their site further with different applications. I think it is fair to say that Gmail is probably their only success in this regard - and even that hasn't solved their problem of diversifying revenue.
I think much of the current GOOG valuation is predicated on both the revenue growth they were seeing (as you point out, though investors should have seen the flat line coming) and a bet on the ability for Google to utilize their place on the web to build out a 'platform' of sorts with applications and other services. They have failed at both tasks, and it is only a matter of time that the market wises up to this and brings the value of the stock back to a PE more in line with that of a traditional media company (as that is what Google is at its core with this revenue model).
Watching Facebook grow must be really painful for Google, a real punch in the face and a bruised ego. At some point, I wonder, when will they take a step back and admit failure and re-evaluate their entire management structure.
I have the numbers somewhere, but Google's eCPM rate is just insane. I imagine that Facebook atm would be lucky to achieve a penny - so there is some room for improvement but I do agree with you that their primary business model will come from platform.
I think if FB are game, they could try in-stream advertising. A scenario would be a new movie being launched. The marketers for the movie could throw away their traditional website and go to the FB sales team, setup a custom page and then specify who they want targetted - say, 18-30 year old males in the US. Facebook could carve out this demographic, and then run an exclusive in-stream pop-in for a 24 hour period for millions of dollars. The users might react, but they could just make the ad clear. This is much more powerful than what Google offers - since they can only target a users attention, while Facebook is the only website with a global reach where users can be targeted directly.
I think in 2-3 years time that $3-5B from advertising is possible. Add another $3-5 from platform, and you are at $6-10B, with a lot of room to grow and a potential $60-150B valuation.
Also as an aside, won't Facebook be forced to go public at some point due to SEC regulations? I know they have placated employees by offering a sanctioned second market, but at some point they have to bite the bullet and list. It could be possible that they are waiting to book 12 months of platform revenue and a full year of those results for the prospectus (which will make the filing look a lot better - 2 major sources of revenue and strong growth).
Overall a very interesting topic. If you had a chance to today, would you buy Facebook stock at $20B? or $10B? :)
Basically, becoming a platform is where both companies need to go, and start monetizing that platform. But unfortunately for Google, they are much further away from being that than FB is.
I would go so far as to say that Google has utterly failed to figure out a good diversification strategy -- at this point, they just dump something out there and slap some targeted ads on it. But outside of search and gmail, they don't really have much of interest they can monetize on.
Google Apps might be their next billion dollar product line, if they can turn it into something decent. Enterprises are where lots of money is at, but their enterprise offerings are really rather lousy.
I'm actually sometimes flabberghasted at how much wasted potential Google has in terms of obvious monetize-able offerings they have in their basket, but all of them are treated like incomplete one-off projects done on employee's 20%...with vast stretches of time between obvious enhancements and/or some necessary things never getting built at all.
FB, on the other hand, has the platform but isn't doing anything with it that's readily monetize-able, and they can manage to keep people at the site, but there's really not a whole heck of a lot for people to actually spend money on. Once again, I don't understand why something like Ping or Pandora/last.fm isn't a central part of FB's strategy. It's like a videogame console with only 1 or 2 games.
Here is what I understand:
Facebook earned $650M in revenue in 2009. Most of that came from brand and performance-based advertising. $50M from Microsoft ads alone. $10M on virtual goods. [1]
Their biggest revenue share comes from advertising. Now, again, from what I understand, their ad targeting isn't as focused as, say, Google. I'm going to make an assumption, but it makes sense to me that Google users demonstrate more purchasing intent, which is why they can charge high CPC. I've never found a Facebook ad relevant to my purpose for being on the site, but regardless, I can understand the value for any company to spend money on brand awareness, getting views on a high traffic site with quantifiable demographics.
Performance advertising is interesting in facebook's case. When I type in 'Digital Camera' in google, I'm voluntarily giving out a query in exchange for information. Ads for digital cameras, photography books, etc would in fact be quite welcome for a decent percentage of people. But the search-engine user controls that exchange of service. Its akin to using a hammer. Google is the tool. The functionality is in your hands.
Facebook's model is more of an extraction process. Someone has opened a coffee shop with free coffee - but its only free if you hang around the place. Over time, they are trying to develop a model of you based on information that is overheard and asked of you. This is where I'm unsure if its sustainable. I'd also say a great majority of facebook users don't realize how the site has changed since its inception. A large majority of my non-technical friends have no idea how information is being analyzed. I'm not sure how robust facebook's brand is if some terrible scandal/event breaks out and people become really sensitive to what they share with the site. This "social contract" between users, facebook, and advertisers is something I don't think the majority of users understand. They just see it as a site with their friends. And its to facebook's benefit for users not to fully understand.
The last point I want to make is about Social Media. I understand how its shifted interaction and all that. But my concern is with its ties to the capitalistic sense of value. Technological progress does not always = making a ton of money. There are a lot of major technologies that changed the world . There were 2000 car companies at one point, and now only 3 american companies remain. Cars changed everything, city planning, etc, but investors, in aggregate, got fucked. The airline business is a similar story. There was also the tech bubble.
EDIT: I also want to add that since it is a private company, it is in almost everyone's favor to drive up its valuation. Founders, investors, and employees with stock, etc all benefit. When a company is public, there is an incentive to introduce negative information (hence the utility of short sellers).
Now, I'd love to hear an explanation on why its such an 800lb gorilla in the valley.
[1] http://www.businessinsider.com/facebook-wont-be-a-multi-bill...
You say, rightly so, that Google's ads are more targeted than Facebook's, because users show purchasing intent. But Facebook knows a lot more about users overall than Google knows (Google only knows a search term). Right now, this isn't such a big deal, since Facebook isn't really exploiting it. But pretty soon, Instant Personalization will give any site you visit a lot of useful information about you that can help them sell you stuff. This is something companies will pay a lot for.
Let's take a simple example. Let's say I have a friend called "Tom" who has a birthday next week. I visit Amazon's site (just looking for something for myself), but right there on Amazon's front page, I see a huge ad, with a picture of Tom, saying "Tom has a birthday next week. Why not buy him this book from his favorite author?" Obviously this is just a quick first example, but I'm guessing ads like this will drive up sales for Amazon big time. How much would Amazon pay Facebook for making ads like the above possible?
Today, most of your friends are on FB. Let's say you're planning a trip to Italy and don't really know the places you should go, and hotels you should stay at. If you ask that question on FB (which thus replace Google), some of your friends might give you recommendations based on their past experiences. If your best friend stayed in a nice hotel in Firenze, and was satisfied by the experience, his recommendation weights much more importance than a random guy on a random forum.
A significant part of ad dollars that would traditionally go to Google, would fly to FB. Hunch and Quora play in the same league. Google is dethroned from the number 1 destination to "ask for information".
Facebook questions + credits will certainly bring in a ton of revenues for FB but I doubt they'll make FB worth $25 billion one day…
The man deserves every bit of credit he gets for Pixar.
People > eyeballs
And, we'll see what happens in 10 years, huh? Facebook might be worth 20 times as much, or 1/20th. Apple is pretty stable at this point and not likely to go anywhere but steadily up, in my opinion.
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Ha! Please, wise HN users, explain to me why you downvoted this. I'm interested in hearing the rationale.
From Triumph of the Geeks, the inventors of the very first router owned about 20% of the company
Next was actually acquired on a down valuation--according to Wikipedia, Canon's investment gave them a $600 million valuation in 1989, whereas they were acquired by Apple for $429 million in 1996.
Makes the perks like the private jet look like peanuts vs. value he's brought to the table.
Apple's SEC filings are generally interesting, if you're ever incredibly bored.
Compared to that, how benevolent is Google actually? Not that they need to be. They don't owe that to anyone anymore than Jobs does. So I wish conversations about Apple/Google could drop the good/evil nonsense. It's about trade offs and results. Why they do what they do is their own business.
EDIT: Removed unnecessary sentence (made an irrelevant call on Google's benevolence).
My point is that people should stop looking for motivations in these companies and see them for what they are: companies who provide us some service or product. Especially since if you force the issue and make us compare who is more benevolent I think a strong argument can be made for Jobs being more benevolent than Larry and/or Sergey (and again, it doesn't matter).
Why not take the options and just give to money to charity rather than let it lapse? I don't believe taking the options would impact Apple much, just add a (minor) dilution to existing shareholders who would never begrudge this being done for Jobs. Even if he doesn't care for the money I'd have thought he'd see the positives of becoming a large philanthropist.
Couldn't locate the original article; found the following with a google search. http://www.marketwatch.com/story/apples-steve-jobs-blunders-...
Anyone care to confirm or deny this?
They've just dragged in a load of facts about the two people, combined with facts about the people from their Rich List. There's pretty much no non-trivial analysis here.
apparently he has been sued about it http://articles.sfgate.com/2006-01-31/news/17279373_1_oracle...