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Russian bank: Facebook worth $76.4bn

Rory Cellan-Jones | 12:03 UK time, Tuesday, 8 March 2011

Facebook is now worth $76.4bn - that's the latest extraordinary valuation put on a company which is becoming the poster boy for a new dotcom bubble.

Man blowing bubble

Facebook's value just keeps on inflating

Just a few months ago, an investment led by Goldman Sachs valued the social network at $50bn. Now, a group of analysts at an investment bank has looked at how the business is growing and come up with something 50% higher.

To put that figure into context, it makes Facebook worth more than the likes of Kraft Foods, Honda, Disney or Barclays. If, that is, you believe it and many will be sceptical, not just because of the outlandish figure but because of its source.

The analysis comes from a Russian bank, Otkritie - in a report on Mail.ru [944KB PDF], a Russian social network operator which is an investor in Facebook. That 2.38% stake in Mark Zuckerberg's business, made in 2009 at valuation of $10bn, is the biggest asset of a business which floated in London in November.

If investors take the latest valuation seriously, shares in Mail.ru - formerly known as Digital Sky Technologies - could leap ahead, though it's interesting to note that the bank's analysts put a Sell recommendation on their report.

So how did the Otkritie analysts reach their conclusions? The bank decided to look at where Facebook might be in 2015, given its current rate of growth, both in user numbers and revenues. Four years ahead is a very long time horizon for a business like this. But when I spoke to Tibor Bokor, one of the report's writers, he explained their methodology: "The faster it grows, the further ahead you have to look."

By 2015, Otkritie reckons Facebook will have 1.2 billion users and revenues of nearly $17bn. That means that the bank is making two key assumptions - that Facebook's user numbers will continue to grow more rapidly than the global online audience, and that its share of a growing online advertising audience will race ahead. Here's how it puts that:

"We estimate that Facebook captured just 2.7% of ad budgets in 2010. We expect vast improvement in the company's ad monetization, with its share increasing to 20% in 2015."

Otkritie concedes that this will be a huge challenge. What it does not say is that it would also involve a major change of tack from a CEO, Mark Zuckerberg, who has always put growth in the user base ahead of earning advertising dollars.

I put it to Tibor Bokor that many would see his report's conclusions as outlandish. He demurred, insisting that if anything it was conservative: "I would say the risk is on the upside, to be honest."

I also asked him how his team had come up with new figures for current Facebook users - 620 million - and he conceded that this figure and the revenue numbers were garnered from various websites, rather than from the company itself.

But he said it was up to investors to judge: "It's an extrapolation of recent trends. The question is how far investors are willing to extrapolate." Right now, it seems that investors are just desperate to get their hands on shares in Facebook, and the easiest way is via shares in Mail.ru.

On its press release about the report Otkritie says it is "among the top 30 most reliable Russian banks", not a description that will impress everybody. But is its work on valuing Facebook any less rigorous than that undertaken by a rather better-known bank Goldman Sachs when it decided on its $50bn figure?

By 2015, that $76.4bn valuation may have been shown up as Russian pie in the sky, like the figures investment banks plucked from the air to value dotcoms in 1999. Or perhaps we will look back on it as just another landmark in Facebook's journey to world domination...

Comments

  • Comment number 1.

    It is amazing that one man made Facebook on his own..... now look at it. Mr Zuckerburg has done quite well for himself. (I need to watch the Social Network Movie)

  • Comment number 2.

    Crazy risk going on here, with just a bit of bad PR and customer experiences, Facebook could go into a backwards decline of users leaving the site, however due to the lack of credible alternatives at the moment, I think chances are some of these investments will pay off.

    Just talk to your parents or grandparents about it, if they don't have it yet, chances are they know about it, will ask questions and are interested in it.

  • Comment number 3.

    Not long ago, a certain MySpace website was seen the as the ultimate tool for cyber networking. Whatever happened to that? Oh, that's right, it was milked dry and overtaken and is now virtually unpopulated and overlooked as a serious networking site. Facebook have to be careful to keep things upwardly mobile, but at the same time financially stable, as well as enjoyable place for it's users. Otherwise it'll go into one of infinite forgotten corners of the Internet.

  • Comment number 4.

    Presumably all of Facebook's revenue comes from ads? They don't actually produce anything to sell and don't charge their users. So are we really to believe that a web-site whose only revenue is from selling ad-space, is genuinely worth more than an international mega-bank with a long history of big profits and a large team of skilled accountants to help them "minimise" their tax obligations, such as Barclays. It's ludicrous and feels like lastminute.com all over again.

    As stated, it only takes one incident that generates bad PR and users will desert Facebook in droves. The internet is a very fickle place, there is no guarantee that it will still be popular in 4 months let alone 4 years.

  • Comment number 5.

    It sounds like Otkritie's numbers tally up with the recent valuation of Facebook on SecondMarket, the problem is that these are a *very* small number of Facebook shares and with such high interest and demand in the company, the valuations of these will obviously be seriously overblown.

    If Facebook were to float publically, I bet the IPO would be nowhere near the $30 offering it's currently reported to be at.

  • Comment number 6.

    I don't think any online company is worth that much let alone Facebook. The investors are hyping up its importance (no doubt due to the social network) and over valuing the company. I would FB is worth $50m at best. FB is a fad almost like a new line of clothing - new today and old fashioned tomorrow. I give it 4 - 5 yrs before FB fades from public memory.

  • Comment number 7.

    @davidbrent, "So are we really to believe that a web-site whose only revenue is from selling ad-space, is genuinely worth more than an international mega-bank"



    I think Google would have something interesting to day about this!

  • Comment number 8.

    Facebook is not worth $76,000,000,000 and Barclays is not worth less than $76,000,000,000.

    This blog post should have been about how people like this will ensure we get another financial crash within the next 10 years. The finance industry is full to the brim with monkeys who have no idea about money.

    Lord help us all.

  • Comment number 9.

    @Kyndylan Google is a different kettle of fish though, they have a myriad of non-ads related streams of revenue such as (but definitely not limited to) search appliances for large companies to index their data, GMail, Google Apps for Business, Android, Google Checkout, Picasa, etc etc

  • Comment number 10.

    After reading the PDF, some of the assumptions regarding the numbers seem a little optimistic - it basically requires FB to essentially double the user base (currently approx 622m according to the PDF) in 3 years time.

    See here for a link to some Google financials...

    http://www.google.co.uk/search?q=google+income&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

  • Comment number 11.

    Personally, I'm somewhat skeptical about Facebook's ability to significantly increase it's advertising revenues. As someone with a degree of involvement in purchasing online advertising, what concerns me about advertising on Facebook (which we have considered and ruled out) is the ability to target ads at customers compared to search engine advertising. If we purchase advertising on, for example, Google, we know we've got a very good chance (assuming the ad is correctly designed and targeted in the first place) of reaching users who're after our product or something vert similar to it. On Facebook, that targeting is just not there, so any ads placed are essentially scattergun "awareness" ads. Whilst this might be fine for certain types of business, it strikes me as a hard, hard concept to sell to anyone operating outside mass-market consumer products for which the target audience is "human beings".

    Or, to put it another way, whilst a search engine will pick up income from, for example, a business offering plastic injection moulding in a particular location (easy to target, the user searched for 'injection moulding somecounty' or thereabouts), that revenue will never make its way to Facebook as there's no realistic way of targeting it at the relatively low number of potential clients for said business.

  • Comment number 12.

    The usual reaction from the majority: jealous at everyone and everything that is better than them. All they want is a piece of the cake without working for it. Too bad. Life is not fair, get used to it.

  • Comment number 13.

    Anyone see any similarities between the valuation of Facebook and AOLs valuation of Time Warner?

    All hype in my opion with next to no chance of filling that valuation.

    Just look at Facebook predecessors.

  • Comment number 14.

    People will get bored of Facebook as they did Friends Reunited. Plenty of people I know have joined but just never use it. We are fickle if something else comes along we jump on the bandwagon. A few more years and it will be worth a fraction of what it supposedly is now!

  • Comment number 15.

    Sounds quite a lot for something you just organise a night out with your mates with!!

  • Comment number 16.

    Any valuation of a company like Facebook is going to be just a random number. They don't sell anything, and their only 'valuable' asset is their list of users. They have no monopoly, they are not a 'vital' product. The demand for their service is almost infinitely elastic. Their users could stop using them tomorrow, and then Facebook would be worth zilch.

    I'd invest in some tech companies. I wouldn't invest in Facebook. I have a big suspicion of any tech company who essentially has a single 'product' and only has any value because of their (non-subscribing) userbase. Anyone who remembers 11 years ago knows that the value of these can change rapidly overnight at the whim of valuers.

    You could invest in them and make a fortune, or you could invest and lose everything - and which you do depends solely on other investors, hardly at all on the company itself.

  • Comment number 17.

    Yes like i said Facebook is a fad and once the next 'big thing' hits people will jump ship.

  • Comment number 18.

    This press release just seems to be a boast to remind investors that the bank has 2.8% of facebook, something not many people have. A bit like me reminding people I picked the 14/1 grand national winner about 5 years ago.

    Moreover, facebook as lots of revenue streams it has not opened yet. Beyond banner ads there are prompted updates (like twitter has recently rolled out), co branding opportunities, facebook voice calling and facebook games. It has a large (actively addicted) userbase to get money from.

    Until you think of something better those users aren't going anywhere.

  • Comment number 19.

    This is ALL about Goldman Sachs trying to inflate the price of Facebook prior to any OPI or sale, as they do all the time. Get a load of suckers to buy the shares based on sky high projections which turn out to be just that, projections.

    Facebook will turn out just like MySpace, bought by News Corp in 2005 for $580m. Now News Corp is looking at getting rid of them for maybe as low as $50m.

    Or maybe Bebo (remember them)? bought by AOL for $850m and sold 2 years later for $6.5m

  • Comment number 20.

    @uk_is_toast

    I can't find the document immediately, but I am pretty sure that Goldman can sell their investment in Facebook without notifying their clients who they got to invest.

  • Comment number 21.

    Must be time to get out of tech stocks, again.

  • Comment number 22.

    I would say the valuation is a reasonable estimate of its potential based on current trends.

    Facebook does have a near monopoly currently, at least in the western speaking world. Even in countries like Japan where it has competitors (for example Mixi) it is starting to make inroads into their business. Many people use Facebook as much or more than their mobile phone and the uses Facebook could put its access and data to are nearly endless. What would a mobile phone company be worth if it had the vast majority of the world market? Probably more than the list of blue chip companies mentioned before.

    Currently there is no obvious competitor to Facebook, but in the fast moving world of communications and especially internet technology one could spring up as fast as you can say NetScape, Geocities, EBay, Friends Reunited or MySpace and take away most of Facebook's business within a couple of years if not months. It is this risk that would make me wary of buying into Facebook at these valuations. Even Google is feeling the heat from Microsoft's Bing as in turn Microsoft has from its own competitors in the recent past, but at least those companies have a diversified research and product base, does Facebook?

  • Comment number 23.

    I would guess that Facebook gets its money from advertising - but has anyone ever seen these adverts?

    Talk about the last refuse of the snake oil salesman! I am sick to death of constantly being bombarded with adverts telling me that there are certain 'miracle' foods that will help me with weight loss or credit cards 'guaranteed' to restore my credit rating and so on and so forth.

    One would have to be a fool to buy anything advertised on Facebook and I am sure it won't be long before advertisers realise this.

  • Comment number 24.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 25.

    The valuation is flawed in some respects. It bases future growth, on the current growth rate. Facebook is still a relatively new innovation, and hence in early stages, will expand at a much faster rate. In the last 6 years or so it has been around Zuckerberg and Co have managed to innovate and keep with the times, which has ensured it continued growth. This valuation relies on facebook keeping up with the times, as it has done so far, but will not (although it may) necessarily do in the future.
    Another interesting aspect to consider is what role will facebook play in life. From initially primarily, being a social mechanism, it has very much turned into a political tool (shown by the recent Middle East and North African uprisings). The changing use of facebook to inspire political activism recently, will also probably bear an effect on it development.
    Again the idea about a more efficient use of adverts doesn't work, as Zuckerberg has mantained from the start and prided the fact that advertisisng is comparaatively small, giving more room for interaction between users.

  • Comment number 26.

    After an auction on SecondMarket the company was valued att $75 billion on the 4th of March based on $30 a share. Given that figure its not unlikely that it will be at $76.5 billion now.

  • Comment number 27.

    dot com bubble v2.0 anyone?

  • Comment number 28.

    Hmmm... anybody remember Beebo? MySpace?

  • Comment number 29.

    This is nothing like Bebo/Myspace. Zynga, a FB game developer (FarmVille, etc), is worth $7-9 billion alone, with FB taking a cut of every transaction, so FB itself being worth $76bn isn't much of a stretch.

  • Comment number 30.

    I agree with the majority here that Facebook is highly overvalued, but it is different to MySpace etc in that they have a much higher market share and a stream of non-advertising revenue from charging game developers (e.g. Zynga).

    I've reworked Facebook's valuation and come out at more like $10bn, assuming usage drops off as they start charging.

    Like Google, they will have plenty of cash flow to develop other products in the meantime, but visa-versa their usage could drop off even faster than we've predicted.

  • Comment number 31.

    Agreed with many on here especially genghis1992. Its worth noting that FB is essentially one massive database for advertisers. Also having advertised on FB myself, the ads model needs tweaking because of the current low click through rate compared with other sites e.g. google.

  • Comment number 32.

    "Presumably all of Facebook's revenue comes from ads? They don't actually produce anything to sell and don't charge their users."

    Remember the same is also true of Google. So it is not impossible, although there are big risks involved - firstly whether Facebook can add lots of ads without driving users away, secondly whether they can get high enough value ads - difficult unless they can target based on private data which can be cause more issues with users, and whether something else might take over as the main social networking tool, which could happen but seems less likely now as the sort of users it is now picking up are older and less likely to move to newer "better" technologies en masse.

  • Comment number 33.

    Another Goldman Sachs fake high valuation to swindle money out of the middle class investors. Watch the price rise and then suddenly drop as it has done so many, many times before in other areas.

    'Analysts' that are invested in companies announcing the increase in their worth is shady, shady practice.

  • Comment number 34.

    Facebook will keep its existing fan base and build up by getting older generations to join. In addition, young children growing up will get it which will keep it moving forward. It will reach 1 billion... in 3 years though? that sounds like a government target... and there ALWAYS missed!

    The reason why it will continue to succeed is because it has its fingers in so many other pots. Basically anything you can do online you can do through fb. For instance, universities are using it as a method of teaching and engaging. Videos, pics,jokes and news articles etc can be shared instantly. Theres dating websites, games, charitry etc etc and some of the best features of msn and twitter all built within... (you wait till it nicks video chat from skype!) Anything i want to do. Not only does it get you there but it keeps you there!

    It has blown all the competition out of the water and for something else to swoop in is highly unlikely. For instance, I know for a fact the 2000 odd pics I have tagged and organsied wont be moving, I think of that as my life in a gallery. The same goes for finding friends or games i like to play. Fb isnt just a simple profile no more its a history of me, an online journal made up of my short statments, feelings, relationships and conversations.

    As for being worth so much without actually selling much you have to think of FB as a uinique way of targeting someone specific and their friends likely to be into the same thing. Where else can a marketing tool be that effective, that quick?

    FB will only go down if they somehow commit digital suicide, otherwise its here to stay just like Nike or Mcdonalds.

  • Comment number 35.

    To describe this pre-IPO speculative drek as 'valuation' is extremely irresponsible. Facebook's nearest precedent, MySpace, has been written down severely and Facebook at his time has neither publicly available accounts nor a viable business model. This is mere banker price speculation: the 'valuation' spreadsheet is laughable and would not pass Valuation 101. Label the Russian Bank's dross accordingly.

  • Comment number 36.

    FB is a great tool, although my experience is there seems to be a lot more transmit than receive. I think it highly unlikely it will disappear, but (financially) its a bubble that will soon burst into a more realistic valuation. I'd mark it as "Sell".

  • Comment number 37.

    it's worth only what someone is prepared to pay - as long as the music keeps playing thats fine, but when it stops what chair do you grab. Even if this kids was gold plated with diamonds on the top it wouldn't stop your trip to the poor house when your pension pots gone down the river (minus a fat commission to all those clever advisers), or would you seize his lap top and suzuki swift too?

  • Comment number 38.

    This valuation is completely ridiculous! As much as some people are saying "Facebook is different it's got loads of other revenue streams and has a large obsessive user base", it isn't different. Let's face it the people who spend the most time on Facebook and put the most time and effort into their profiles/play games etc. are teenagers and last time I checked they don't generally have overflowing bank accounts and so realistically most of Facebook's income has to come from advertising. Just from looking at my own page the targeting of said advertising is poor to average at best. There are a couple of geographically targeted ones I get which are sometimes wrong anyway as it seems to get UK and US places mixed up plus it has only managed to latch onto one interest of mine (a sport) and finally even though I am a graduate (and Facebook knows this) I am still offered all sorts of student services. So although Facebook should have a pretty good idea of what I like and what interests me it fails to use this properly and also has no concept of what I want right now, unlike google. If Google and Facebook teamed up they could produce the best targeted advertising ever, however sounds a bit terrifying to be honest so lets hope they carry on bickering!

  • Comment number 39.

    There's some fantastic BBC illustration here. Well done Rory! Facebook and Bubblegum - it's a fantastic visual counterpart to what the article conveys!

    I think http://www.bbc.co.uk/news/10105978 trumps it though - the use of an empty milk bottle to illustrate the shortage of IP addresses is simply wonderful!

  • Comment number 40.

    A lot of negative feeling here about this valuation. Had to sign up and have my 2 bob's worth as I work for an internet startup hungryhouse.co.uk...
    - "Myspace went wrong, the same will happen to facebook". IMO, people who make that argument probably never used myspace. It required a lot of effort, anyone without a band or other creative work to promote gave up within 30 minutes. that was the problem - loads of people signed up so they had great numbers, but very few actually used it... facebook's users on the other hand use it very very heavily because it's so easy and does just what they want. The glue they have keeping people there is years of photos albums of them with their friends. 90% of the photos aren't their own, so the wrench of giving that up all those memories would be huge for most people - myself included.
    - "bebo...". Bebo was used by kids. kids dont spend money, end of story.
    - "how can something that doesn't make anything but advertising be worth so much?". Google's market cap is $200bn. Essentially all that ebay does is advertising and payment processing as well - they dont MAKE anything. WPP, the worlds largest offline advertising company is also valued somewhere around $200bn. Even Yahoo is still valued at over $20bn which makes facebook look a bargain to me...

  • Comment number 41.

    we still don't know what their costs are.

  • Comment number 42.

    Oh please. This is a Russian scam, nothing more: over value and convince your customers to buy/sell, whichever makes the most money. FB is already overvalued, and the bubble is going to burst, maybe tomorrow, maybe next month, maybe next year, who can tell. But there are always those who want to milk it for all it's worth until it does.

    Nothing on earth would make me buy shares in FaceBook. It's just a website, not a product, and the example of MySpace demonstrates how fickle social network users can be. One day, something better than FB will come along, and just like MySpace, people will desert in their millions. Zuckerberg should do the sensible thing and cash in while he can.

 

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