
Decision Time For Facebook: Term Sheets Received At $2 Billion Valuation - vaksel
http://www.techcrunch.com/2009/04/15/decision-time-for-facebook-term-sheets-received-at-2-billion-valuation/
======
tewks
Six years on, they really haven't monetized the site. Its advertising system
is seriously ineffective and they've dropped the ball in corporate-consumer
interaction to Twitter. Beacon was a disaster.

People like Marc Andreesen claim that they could be profitable in a second. If
this is true, why would the company be trying to raise more VC and dilute
everyone's holdings?

[http://www.techcrunch.com/wp-
content/uploads/2009/04/twitter...](http://www.techcrunch.com/wp-
content/uploads/2009/04/twitter-march.png)

There is definitely value that's being squandered as time goes on. Putting the
lipstick on the pig and dumping it before time runs out might not be such a
bad idea as they seem to think.

Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are
really burning through $20 million/month, they've not gained very much by
waiting.

~~~
gojomo
_Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are
really burning through $20 million/month, they've not gained very much by
waiting._

Compared to almost any other investment over the past two years, a gain of
25-30% is _a lot_.

~~~
potatolicious
Your valuation is only worth something if you can cash out to that amount.
Just because somebody says you're worth $2B, doesn't mean you can necessarily
arrange a clean exit in that ballpark.

~~~
webwright
I think it's pretty clear that they are aiming for IPO, not acquisition.

------
bdr
For the "Facebook is worth zero"/"lol no business model" crowd, I'd like your
answer to these two questions:

1\. At what valuation would you invest in Facebook?

2\. Why is your number so different from that of people who have a lot more
information than you? Are you that much smarter?

~~~
potatolicious
1 - I'm no investor, I prefer to spend my money building things :) But
nonetheless, I wouldn't invest in a company unless I saw a road to
profitability - doing otherwise is playing the hype/bubble game, and we all
know how well that works.

2 - Do they have more information than us? They might have concrete operating
costs, revenue, etc, but I'm convinced that many analysts haven't a clue how
the internet works.

Historical perspective also works too: remember the last dotcom crash? Those
companies were being valued in the billions by a large number of analysts who
"know a lot more" than the average joe. Hell, kicking and screaming against
ridiculously absurd valuations at the time was a minority voice.

~~~
bdr
It's hard to believe that you don't see a road to profitability for Facebook.
It seems to be more a question of _when_ at this point, and trading that off
against growth.

What do you mean "how the internet works"?

~~~
brk
I'm curious then, what do YOU see as their road to profitability? And at this
stage, I would say "profitability" should mean being able to pay a return to
the investors in a timely manner and becoming a stand-alone company.

~~~
Retric
Fasebooks long term profitability is based in part on a long term reduction in
the cost of bandwidth and computer hardware. The real question is can the
survive to that point, and are they going to remain profitable on that time
scale.

IMO, companies that are experiencing huge growth are better off reinvesting
all of their income into the business even if it makes it look like they are
not profitable. Granted at some point dumping more money into the company is
not going to help growth but maximize growth and then cut costs is a
reasonable approach.

PS: When you see Facebook cut 5k jobs expect great things on next years
balance sheet.

~~~
brk
But what is their revenue stream? Advertising alone? That doesn't feel, to me,
like something that most people would consider to be a reliable revenue
stream.

Hardware is usually not a significant data center cost, at least not in
relationship to the power/cooling/floorspace costs. Wholesale bandwidth has
dropped over the last several years from about $100/Mb/Mo to $35/Mb/Mo. I
don't know how much lower that can reasonably go. But, let's say it becomes
1/3 the price again (down to $10/Mb/Mo) over the NEXT 5 years. That's a long
time to wait when you're losing $20MM/Mo (using the speculative numbers quoted
elsewhere for that). And the net cost savings probably don't yield more than a
few $MM/mo.

~~~
Retric
Advertising worked for ABC, NBC, CBS, the New York Times, and Google etc.
While it's somewhat cyclical it's actually fairly stable revenue stream. Ok,
Facebook and the New York Times have other sources of revenue but advertising
is their major source.

Anyway, I think they are basically treading water and not just burning 20mill
/ month at this point in time. So their revenue is 300 million / year and
there costs are close to that. Most of there money seems to be spent on
infrastructure and people to support said infrastructure. So, if the cost of
their infrastructure drops to 1/3 then their total costs should drop by ~1/2
as they still need people, and they would be making ~10million a month which
is worth around 1 billion. However, I expect they can increase their revenue
though optimizations and growth so they are probably worth in the 2 - 10
billion dollar range.

PS: Would need to look at their actual costs to get a better Idea.

------
dsil
I like Microsoft-is-big-and-dumb stories:

"As an interesting side note, Providence was heavily involved in the $15
billion round, and submitted a term sheet in the $10 billion range or higher
at that time. The big rumor is that Facebook convinced Microsoft that the
competition was Google, not a private equity firm, and it helped close the
deal at a much higher rate."

------
thaumaturgy
Call me old-fashioned, but it's hard for me to understand how something like
Facebook is worth any $billion amount. That's a lot of money for an intangible
product.

(I'm equally stumped by Google's wealth too, though.)

~~~
fizx
It's a big world. $1/user/mo * 800 million users is a lot of money.

~~~
potatolicious
We've heard this argument before - but as history shows, extracting this
$1/user (in profit!) per month is harder than it seems, especially when the
nature of your product is not monetizable easily.

How many businesses have failed that staked their entire existence on "we'll
get tons of users... and show ads!"?

~~~
bmelton
Say we can get 10 cents per user per month?

800,000,000 * .1 = 80,000,000

For most smaller scale websites, they are valued at 12-18 months of revenue,
meaning Facebook's resale value at about 1,440,000,000.

2 billion isn't that far off the mark given the user base really.

~~~
potatolicious
You still have costs - how many ads will your users click on? How much are
advertisers willing to pay for each click? How much does it cost to retain a
single user?

I can bet you that a Facebook user eats up a lot more than 10 cents a month in
storage, bandwidth, CPU usage, etc.

The problem with Facebook is that they've targeted a notoriously cheap
demographic - one that is both culturally and financially opposed to _paying
for stuff_. The only successful ads I've seen on _my_ Facebook network is for
things like college movers and maybe media promotions... You can't tap into
the goldmine of _actually valuable_ ads like, say, car sales or law services.

~~~
Andys
People might click on ads that are properly targetted. As it is now, every ad
I've seen on FB are way, WAY off base for me.

FB perhaps needs to find ways to upload more of the personal activities and
data in order to make ads more accurately targeted.

------
JabavuAdams
Take it! Have these guys actually started to believe their own crack?

For the record, I don't see any way that Facebook is worth even $1B. Feel free
to mock me in 10 years.

------
spaghetti
I wouldn't invest simply because FB doesn't provide any service that's of
value to me. Google does, Microsoft does, Craigslist does, Amazon does, my
local dry cleaner does. FB does not.

------
volida
I've been saying this for the "evaluation" for quite a long time now.

Microsoft will probably end up buying them for "free" in 2-3 years.

