Last year, a Microsoft deal led analysts to conclude that Facebook was being valued at about $15 billion. Recent private share sales and investment activity are suggesting a number closer to $2 billion.
…This still seems like a whole lot for a company that has never had a profitable year and relies on investor good will to keep its website functioning.
Facebook is a private company – as such, it doesn’t have to release full details on its financial situation. Estimates of its valuation are a type of speculation, based on hints here and there and a few deals that did become public. The $15 billion figure was originally dreamed up in response to Microsoft’s announcement that it would provide $240 million in investment capital in exchange for unspecified ownership claims and an advertising deal.
Of course, shares aren’t exactly traded the same way with a private company, but there are still some ways for employees and shareholders to cash out on their equity. Third party dealers are reporting transaction prices between $2.50 and $5 – suggesting that Facebook has a current market value closer to $2 billion.
Did I mention that still sounds high for a company with negative revenue?
Traffic is a Cost Until You Make it Profitable
Website traffic isn’t an end unto itself. Without monetization, its just a cost. You have to provide hosting, you have to provide content, and you have to provide marketing to get the people there. Even if the people just show up and write all your content for you (Wiki, I’m looking at you!) you still need money to host the sites. The more traffic you get, the more that hosting is going to cost. And once you get to the higher levels of dedicated servers and tens of thousands or millions of visits a day, you’re talking about a lot of money.
Google managed to convert its traffic to revenue before their venture capital ran out, but not every website is going to become the undisputed leader of online advertising placement like they did.
In fact, no one else could take that role on unless they managed to directly take down Google in their primary revenue source. I won’t hold my breath on that one.