Is Facebook Really a $104 Billion Company?

This week, Facebook underwent its final valuation before their initial public offering of stock.  Facebook is making all sorts of history with its IPO, but the real question in my mind is “how the hell is Facebook worth $104 BILLION?”

2011 By the Numbers

Revenue: $3.7 billion

Profit: $1 billion

Advertising Revenue: $3.1 billion

What is interesting about the financial information revealed in the filing is that Facebook appears to make about the same per user as Zynga does. - Joe Magyer

Monthly Users: 845 million

Facebook button count is wrong, use RealShare

Okay, so clearly Facebook doesn’t make enough money to be worth $100 billion.  IBM is worth around $100 billion too, and it’s profits for 2011 were around 14x higher than Facebook’s.  Why does Facebook have a valuation this high?

Untapped Potential

Facebook’s real power is data.  At this point, I am willing to bet that the company has more data than its 3000+ employees have figured out what to do with.  That means, they have lots of room for new revenue streams, some of which may not be possible without a huge injection of capital (ie: an IPO).

What Could They Do?

One of the hot topics in startups today is big data.  Facebook is the epitome of big data for the consumer market.  With the IPO, Facebook will get a $5 billion cash injection, allowing them some room for major acquisitions.  Which startups will they be looking to buy?  Well, that’s for us to find out, but those acquisitions will make or break Facebook’s future.

Let’s think about some of the data Facebook has.  They know when you read and “like” any article on the internet.  That can probably give them a good look at a consumer’s political and economic position in life.  Now, think about purchasing.  They probably know at least a few of the things you own (or are likely to own) based on the things you tell it that you “like” or the devices you log into Facebook from.  They could build the most comprehensive purchasing prediction algorithm ever.

What if they were able to predict exactly at what point in your life you were most likely to purchase things like textbooks, consumer electronics, etc. and place that product at your fingertips on their network?  They already do some of this in their targeted advertising, but with new minds and more resources, I imagine that they will look to do much more of it.

But Really, $104 Billion?

While I think Facebook will find some new successful avenues for revenue, they have to be careful here.  Users are fickle, and just because they have nearly 1 billion users now does not mean that user base will enjoy Facebook collecting and using even more of their data.  Building a platform like Facebook is not rocket science, so competitors could show up to give them a run for their money.

Personally, I won’t be investing in Facebook at this point.  I do think the $104 billion valuation is bloated, but I’ve been wrong before.  What do you think?