Friday, 18 May 2012

understand both sides of the sky

I was looking at that Facebook launch on the telly. The amount the company is worth now is about the same size as the Greek debt.

Throwing virtual sheep appears to have a similar value to raising real ones.

I also noticed the recent withdrawal of General Motors from Facebook. They've reduced their annual spend from $40m to $30m with Facebook. So I decided to invent a little sum. Suppose GM is one of the top 100 advertisers on FB. Maybe it spends the average amount. So 100 times $30m = $3 billion income from top advertisers.

Then assume everyone else advertising is a long tail of equivalent size to the top 100. That's another $3 billion of income. So now we are at $6 billion. And Facebook is capitalised at $110 billion. That's about 18x earnings. Remarkably its in the same 18x earnings territory inhabited by Google.

Except I know my sums are wrong. They are massively optimistic. Facebook's earnings last year were on a 100x multiple. So it needs to work 5 times as hard to get to Google's results.

Remember, there is no 'R' in Geek debt.

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