Facebook is a Bad Investment

We like Facebook for its internet marketing capabilities. But at a valuation of $100 billion, it’s definitely over-valued.

The world’s largest social media network only made $3.1 billion last year, with an income of about $1 billion – so that’s a valuation that is 100 times larger than its income.  And Facebook has 800+ million users, meanings its actual income is about $1.25 per user. But at the current valuation, the average user value is $125.

When thinking about the value of a user, it makes sense to look at media giants, like Disney, or CBS. After all, television is still king.  For instance, did you know that the average CPM for national television shows is about $15 – $30 per thousand? A TV commercial usually costs $150,000 to $300,000 per 30 seconds for national programs.  The most successful prime-time TV shows have a rating of 11.0, meaning they reach about 11% of all households in America (there are approximately 102 million households).

For the sake of argument, let’s assume that everyone in the US watches TV – that’s about 307 million folks. Let’s take a look at the major networks: Combined, Fox, NBC, ABC, CW and CBS took in approximately $21.7 billion in 2010 – a 5.3% increase over 2009, when they captured about $20.6 billion in ad revenue, according to ad-spending tracker Kantar Media.

So, the major players in the US market for television advertising took in $21.7 billion in revenue in 2010 (that’s the most recent number I could find using a quick Google search, but let’s face it, we know it didn’t grow more than a few percentage points at best in 2011). That values each user of the television industry (which, again, is all of us) at about $70.00. Does one website like Facebook really deserve more valuation than the entire TV industry?  We don’t think so.

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Paul Lima

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