Why Facebook $2 billion is absurd – a rough calculation

OK – apparently under the radar screen, teen media holding company Alloy acquired Sconex, a.k.a. Facebook for high schoolers.  Ironic that real dollars were being exchanged and totally overshadowed by the Facebook $2 billion buzz.

So let’s do some back of the envelope calculations.

Using registered users as the unit of currency – after all, social networks are like soylent green – its people!  How else are you going to monetize those page views?

  • July 19, 2005:  News Corp+Myspace.  $580 million for 67 million registered users = $8.66 per registered user.
  • March 28, 2006:  Alloy+Sconex.  $8.7 million for 500,000 registered users = $17.40 per registered user.
  • Speculation:  tbd+Facebook.  $2 billion for 9 million registered users = $220.75 per registered user.

How did I get 9 million?  This post pegs Facebook at 5+ million registered users on 10/27/2005, with 20,000 new users daily.  It’s been 153 days since then.  Let’s make 5+ = 6 and 153 * 20k = 3 million.

The knock on myspace is that only a small percentage of users are active.  OK so reduce myspace by 82% and you get 12 million users, for a cost of $48.09 each.  Still a bargain.

So if you want to look at your Facebook on myspace terms, we’re talking roughly $78.5 million.  I still say Facebook should take the money and run – if it’s still on the table.  Look – if I had more time I would construct a proper DCF model and post it here – but that’s not my job and I have some other interesting research I’m taking a break from writing right now.  If you have any links to a model let me know and I’ll post.

(btw I ran across this article
at Reuters while looking up figures – I think you have to use a
different figure for Sconex b/c the stock is reported as guaranteed.)

I haven’t heard any buzz about LinkedIn – which seems pretty successful with a corporate user base.  Lots of potential – how much would it be worth on the block?

And considering that social networks are made of people – when are they going to revolt and realize they’re the ones creating the value and being sold out?  My guess is that the execs will say "let them eat cake."

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