Facebook value

Résumé du document

Many observers believe that social networking sites such as Facebook are overvalued and overrated on financial markets. This overvaluation of the networking domain did not hinder Microsoft from investing $240m in a 1.6% stake in October 2007. The propelling question was ?What creates value in Facebook and how can that value be converted into revenue?' Facebook was founded in February 2004. It is regarded as a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company developed and continues to develop technologies that facilitate the sharing of information through the social graph, the digital mapping of people's real-world social connections. As it is a very strong social network service, it permits people to meet other people, proceed by sharing content and staying alert and being aware of their contacts. Social network services are part of the internet upgrade of 2.0 version and evolved in its growth factor after 2002. Using the Warren Buffet definition of value 'The value of any business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset,' we will study Facebook's cost structure, its environment and eventually how it can earn money (working towards the revenue recognition factor).

Extraits

[...] Facebook could developp partnershipswith other websites and companies. That is what it has started to do with Microsfoft. Indeed the price of 240 millions of dollars include that Microsoft becomes the exclusive Facebook's partner for advertisement. Facebook could create partnerships with other websites such as Amazon, newspapers etc. Some people believe that Facebook could become a kind of new operating system: a social operating system. In that case Facebook could become the first page people get connected to when they launch internet and it could give them access to their emails, their timetable, selected pieces of news. [...]

[...] On the short-run Facebook has very small variable costs. As long as the admission of a new user does not require a new server or an increasment in bandwith the marginal cost is equal to zero. To put it in a nutshell Facebook has important fixed costs but low marginal costs. According to studies the total cost of running Facebook could be around 200 millions of dollars per year[6]. Facebook costs are lower than they could be thanks to their development model. [...]

[...] Facebook allows users to do the job. Indeed most applications are not developped by Facebook but by non-paid programmeurs (more than 90.000 programmeurs contribute freely to Facebook). Every user can use Facebook to create applications that are only available on Facebook platform and these applications contribute to the success of Facebook. Moreover Facebook does not provide content: users do it by adding pictures, writing comments and sending messages to their friends. Another way of having users doing the job is asking them to help to translate Facebook from English to other languages, which functions well as Facebook is now available in thirty-two languages. [...]

[...] Is Facebook one of them? Bibliography Information rules : a strategic guide to the network economy, Carl Shapiro and H. Varian Managerial Economics, H Davies and P.L. Lam, 3rd edition chapter 9 Network effects and the adoption of new technology : evidence from the US telecommunication industry, Sumit K. Majumdar and S. Venkataraman www.techcrunch.com - 85% of College Students use FaceBook by Michael Arrington on September - Facebook May Be Growing Too Fast. And Hitting The Capital Markets Again. by Michael Arrington on October www.zdnet.fr - Google confirme le rachat de Youtube www. [...]

[...] How to monatize Facebook? How much is it worse? Facebook is an interresting innovative product with a strong growth rate, a good brand and an important market share. Nevertheless it still does not earn enough money to survive. Until now Facebook has paid for its expenses by selling shares of the capital. 240$ millions of dollars in 2007 from Microsoft and 235$ millions of dollars in debt and equity in 2008 but one day Facebook will have to prove that it can earns money. [...]