Is Facebook worth $100 billion? I doubt it.
Facebook generated over $3.1 billion dollars in advertising revenue in 2011 from their display ads and 80% of additional revenue from Farmville creator Zynga (although they try to say it's 12% of overall revenue). But they write in their SEC filing:
"We believe that our rates of user and revenue growth will decline over time. For example, our annual revenue grew 154% from 2009 to 2010 and 88% from 2010 to 2011. Historically, our user growth has been a primary driver of growth in our revenue. Our user growth and revenue growth rates will inevitably slow as we achieve higher market penetration rates, as our revenue increases to higher levels, and as we experience increased competition."
Facebook made the majority of their revenue off display ads which can be seen on PCs as a whopping 28% of all display ad impressions were seen on Facebook in 2011 according to comScore. Yahoo was number two with 11%, followed by Microsoft, which had 4.5% of the display ad share—which leaves a handful of smaller competitors like the leading real-time Canadian display ad exchange Casale Media among many others as it was reported by Rogers Connected that the web now has 330 million websites.
Knowlton Thomas touched on Facebook’s massive mobile problem as it inches over 425 million mobile users that they aren’t monetizing just yet.
It’s true that Apple and Google have already taken steps to monetize as we explained Google’s three step mobile advertising plan here last week, so Facebook is very late to the game. From the number of other mobile advertising networks I’ve also heard about, Facebook better build their own fast and look for third-parties via acquisition or an ad program similar to Google’s, where other mobile properties can decide to join the Facebook “ad network” to rival the tens—if not hundreds—of other mobile advertising networks that have already popped up.
Also consider the fact that Google says they can’t make as much money from mobile ads as they can from web ads and you don’t see Facebook making as much advertising revenue as they once predicted. That’s especially not with platform use continuing to shift to smartphones and tablets from PCs and those half-smartphone, half-tablet devices that may gain some popularity.
I do think there is potential for marketing genius in mobile from Facebook—for we’ve shown you here on Techvibes the amazing potential of mobile marketing and advertising over the past few months with all the different inputs there is—and there is confidence from investors that Facebook can sort out these issues, but so far they just haven’t shown it. I'm frankly not surprised either as it's an extremely confusing field for even us mobile marketing professionals to navigate, one that requires a different line of thinking than the web.
Looking down the road into the future I think it’s safe to say that Facebook’s revenue will hit a peak and then slowly decline as more and more people use mobile devices. It’ll also drop with the likelihood of Google’s YouTube never agreeing to work with a Facebook advertising solution but rather other display advertising parties as that technological hurdle is being sorted out now. Further, Facebook’s 30% tax contract with Zynga expires in 2015, and it’s clear that mobile gaming will take an increasing chunk of revenue from the social gaming space which is largely web-driven.
I just don’t see how Facebook is a $100 billion dollar company—I think it’s even a stretch to say it will hit $10 billion dollars in revenue by 2015. After 2015 though? Unless there is great innovation from Facebook, which agreeably is always an evolving platform, that valuation will have to be over a period of more than a decade, if not 15 years into the future.
We’ve seen how much the Internet has changed in the last five years and I wouldn’t expect anything different in the next five. In fact, there is no doubt we’re seeing change happen on the Internet faster than we’ve ever seen before.
As more niche social networks like Pinterest become popular and more people discover what more the web has to offer beyond the major sites, the more Facebook’s value will decline. Take into consideration it only has 40%-plus reach across the Internet today, and while that number can be translated into the world’s third largest country, it’s hard to see Facebook thriving as much as it has in a post-2015 increasingly fragmented Internet filled with mobile devices. Further, Facebook is reaching a peak of how many new users they can get in the Western World, where they are most popular because there's only so many people on the planet.
Perhaps Facebook is just a champion of the PC era, and with only 3200 employees is just a company that’s headed for IPO with great expectations only to disappoint a few years later with too many top executives cashing out. Where will the motivation be to sustain long-term success from Mark Zuckerburg and a thousand millionaires?