Will The Geek Inherit The Earth?

If you believe all you read, then Facebook, the world’s premier social network, is now bigger than Barclays or Disney.

That’s quite some statement. If it were true, then it would be truly astonishing and it would certainly add some credence to the widely held belief that self-confessed geek, Mark Zuckerberg, is intent on global domination. However, what’s needed here is some perspective. Where do these outlandish claims come from and are they based on actual evidence, rather than a mere hunch?

Let’s start at the top and get the source and the figures out in the open.

The report comes from Russian Investment bank Otkritie. That fact alone won’t exactly fill everyone with confidence, will it? It claims that Facebook is now worth an estimated $76.4 billion: that’s an increase of $26.4 billion dollars on the valuation by Goldman Sachs only months ago. Many regarded Goldman’s $50 billion as excessive and a tad on the wacky side. However Otkritie are adamant that its figures stack up.

Where did these figures come from? Well, they’re actually based on an estimated valuation of what the company might be worth in 2015: they are extrapolated figures based solely on recent trends. Now, there are forecasts and there are ‘forecasts’, and this one really is a forecast: most businesses may well look to the future for indications of growth and expansion, but this prediction might as well have been plucked from a crystal ball. Otkritie have also estimated that by 2015 Facebook will have over 1.2 billion users and will earn $17 billion annually from advertising alone. On the face of it, these claims could well be seen as outlandish, if not deliberately misleading. Otkritie, however, views the figures as conservative, if anything, maintaining that the faster a company grows, the further you need to look ahead.

Facebook currently has 620 million users and is worth an estimated $50 billion, according to Goldman Sachs at least, and has thus far managed to capture 2.7% of the total online advertising market. By 2015 Otkritie believes this figure will have risen to a whopping 20%, which is somewhat at odds with Zuckerman’s stated belief that his focus is principally on growing the user base, not increasing the advertising revenue.

So, here comes the perspective. Otkritie’s report was written on behalf of a company called Mail.ru, a Russian social network provider and major investor in Facebook.

The company bought a 2.38% stake in the social network in 2009 when Facebook was valued at $10 billion. If any potential future investors take the report seriously, then Mail.ru could see it own shares rocket.

At the end of the day any company or product is only worth what someone else is prepared to pay for it; it’s no different than a house, just that bit more expensive. Who’s to say that the predictions won’t come true by 2015? Facebook is currently unstoppable, but will this momentum continue, and if so, at what pace? Maybe Otkritie is correct, and in 2015 we’ll all doff our caps in admiration. On the other hand, maybe Otkritie’s figures are no more reliable than the figures plucked out of thin air in 1999 to value the dotcoms, and we all know what happened to that bubble.

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