Valuation of immaterial assets

SLUSK

Is it just me or do they tend to grossly overvalue immaterial assets such as brand names and the like? This is a problem especially with online business. Facebook is valued at billions of dollars.
http://www.techcrunch.com/2009/05/22/a-new-potential-facebook-investment-at-10-billion-valuation/

Is Facebook even making a profit these days?

Spotify has been valued at €200 000 000
http://www.techcrunch.com/2009/08/04/spotify-closing-new-financing-at-e200-million-valuation-music-labels-already-shareholders/

Spotify is making huge losses and have very low revenues.

Why are these kind of companies excessively valued time and time again? Does not the idea of profits and revenue even spring to mind to these people? It is insane to value a company at hundrends of times more than their profits.

Flamed Diving

The only value that matters is what people pay for the good.

SLUSK

Well I don't believe in "objective values" to goods and services, however the moron who invested this money should be fired since there is no way they can make a profit on these above investments.

Capt'n Midnight

google have made a lot of money but they did by adding value to the core service

something like facebook best hope is to be bought out

BUT microsoft amongst others have spent billions on buying successful sites and then not capitalising on them


websites are fickle and people can move easily




On the other hand there are brands like Eircom, I know enough people that would not take their services if offered for free that the brand may actually have a negative value





What's in a name ?
ask the people who decided to rename Royal Mail to Insigna :rolleyes:

Flamed Diving

According to the link above, Facebook has 350m users. Which is roughly the population of the US on a website. The valuation stands at a hypothetical $10bn.

10,000/350 = $28.57

This is the amount you would need to extract from each user, on average, to justify the valuation. Now, I'm not a marketing type, but what would it take to get this mass audience to start paying for itself? $2-4 per month "premium" subscription, al la LastFM? Development of an eBay style auction site within FB?

For those who are quick to react and slow to think, my calculations seek to return the investment in one year only.

Anyone else have ideas?

silverharp

it does make you wonder at companies like google that is currently valued at just under $200bn (or roughly 2/3rds the value of microsoft) so even if 1bn people are using it everyday one would be talking about $200 per user.
As was said markets are rarely fundamentally valued and part of it is down to time horizons, in the short term the market is ever only a voting machine so as long as the buyer believes he can sell it higher over the next day or month his decision can be vindicated.
I would imagine if you had 200bn in cash, there would be a better use for the capital then buying google

Flamed Diving

Google also have ads on this page, remember. It's not just about google.com, they are everywhere.

silverharp

Flamed Diving wrote: »

Google also have ads on this page, remember. It's not just about google.com, they are everywhere.

oh I agree its a great and very profitable company but I think its valued at something like 40 times earnings, so it has to do a lot of running to justify the current price and there is no guarantee that they will be market leaders in say 10 years time

andrew

I thought Facebook was valued so highly because the information they have allows them (or may in the future allow them to) provide very targeted ads a-la Google. Before the Trinity Ball was on, banner ads appeared for it on my Facebook, which is incredibly specific.

ED 209

It's the power that facebook can wield gives it its value. That's why Microsoft paid a huge amount for a 1% stake. Stop Google or Apple getting involved.

Facebook is cash flow positive so essentially it's a money machine now. It's rapid growth has been why it is yet to be profitable. This will change as the gap between revenue and costs gets wider as the company matures.

thebman

Flamed Diving wrote: »

According to the link above, Facebook has 350m users. Which is roughly the population of the US on a website. The valuation stands at a hypothetical $10bn.

10,000/350 = $28.57

This is the amount you would need to extract from each user, on average, to justify the valuation. Now, I'm not a marketing type, but what would it take to get this mass audience to start paying for itself? $2-4 per month "premium" subscription, al la LastFM? Development of an eBay style auction site within FB?

For those who are quick to react and slow to think, my calculations seek to return the investment in one year only.

Anyone else have ideas?

Facebook intends to make money from advertising and the built in games.

Like Google with Youtube and both have yet to turn profit. Both claim that they could turn a profit if they wanted to by stopping investing in growing the business but then they think they'd lose their marketshare to competitors who continue investing.

The trend people should look at IMO is that this is their message for the past few years. I think there will always be someone just behind you in the online market waiting to capitalise on your weaknesses and that there will always be new features and they'll always have to try to keep investing or at least will think its the right thing to do to keep ahead of competitors.

Eventually social networking sites go run because of one of two reasons IMO. Either they invest so much in putting new features on the site that they actually start giving people lots of features they don't want and the site becomes too hard to use so users go elsewhere to a new site that is easier to use or looks less cluttered. Or they put ads everywhere to try to make money but that isn't what people want from the site and there are other social sites without them so the people go to these other free, non-cluttered sites instead.

I don't think you can really win TBH. Social sites are hobby projects not investments. When they try to turn a profit, people go elsewhere.

ED 209

A lot of it links in to protecting the search engine space. Google is the biggest marketing company in the world. They have to build a moat around their search engine and YouTube is that moat.

Microsoft have done the same with Facebook. If you look at the big picture social networks are pawns in a chess game between the big search engines.