Facebook’s recent $10 billion valuation has prompted many to ask, “How do you value a social networking site, and what are the values of other social networking sites out there?”
The TechCrunch blog staff took a shot at it, and the results are here.
It’s quite a departure from the discounted cash flow and multiple valuations that most use to value companies, but there is some merit to the work.
The valuation is basically a function of the number of unique users in a market and the average Internet spend per user in each market.
So, a social networking site that operates in a market with lots of Internet users and high advertising spend per user is valued higher.
Of course, as the total number of users and the ad spend per user change, so does the valuation. This is most strongly evidenced by the decline in the valuation of myspace.com, which had a higher valuation than that of facebook only one year ago.
The TechCrunch blog’s summary reads as follows: “The bottom line: If Facebook is worth $10 billion today, MySpace is worth just $6.5 billion. Bebo is worth $1.8 billion, Twitter is worth $1.7 billion and LinkedIn is worth $0.8 billion. Facebook also accounts for 37% of all social networking value points in our model. Another way of saying this: If Facebook is worth $10 billion, the value of the entire social networking industry is $27.1 billion.”
There you have it...for now, at least.
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