Posts Tagged ‘Business’

On Facebook Valuation

August 19, 2012 Leave a comment

After more than a 50% drop in value, I’d like to jump in the Facebook conversation to explain why I believe that there is significant upside potential for Facebook shares. At the present time, there seems to be concerns on the large amount of shares that will be unlocked soon, but more fundamentally there is a cloud of doubt on: 1. how Facebook can monetize mobile traffic, 2. other sources of revenue available, 3. migration to other social platforms. The bottom line is, can Facebook generate loads of cash and sustain growth?

To address these concerns, I’d like to first cancel the first one – which is the 2 billion shares that will be outstanding. Although this represents a short term challenge of basic supply and demand, it does not affect the fundamentals of the company, which will be the ones who will dictate Facebook’s valuation in the long term. Thus, let us focus on the other issues at hand, which is how they will make money, and how they will retain control of the social layer.

To understand my point of view on Facebook’s social layer and what it represents for the company, you can see here and here. Basically, Facebook has a monopoly over the Internet’s Social Layer. Their 900 million member personal data makes them the most formidable partner to marketers trying to reach their customers online. So the question is, Can someone else build a competing product that is capable of amassing such a large amount of personal data from nearly 1 billion people? If your answer is yes, that still doesn’t erase the fact that Facebook still owns the personal data as well, which would allow them to monetize it. Therefore, even if some other social networking site can get people to share so much personal data with them (which I doubt), the time it would take them would give Facebook a considerable advantage over that competitor. On the other hand, if your answer is no, the value of Facebook is considerably higher than it is today because of what they will be able to do with that data that no one else will.

Will traffic for Facebook’s desktop site sink? Yes. Will traffic to its mobile app become higher than its desktop site? Yes. Will traffic to Facebook properties begin to decrease? Very likely. Does that matter? For its revenue, not much and here’s why. Investors sold Facebook shares after seeing Facebook’s first quarter report, where revenue growth from display ads decreased. This raised a red flag in Facebook’s ability to sustain their growth and valuation. Since then, the company has continued a downward slope to a market cap of around $50 billion. However, looking at display ad revenue from Facebook’s site as a measure of the company’s capacity to generate revenue is a mistake. I believe that this measure will continue to remain weak in comparison to other sources of revenue (although it will continue to rise), but it won’t matter as much for Facebook’s bottom line in the long term than other products.

Forget games, forget Zynga and its Farmville and all those other fickle products. Facebook’s value is in its ability to package all of its members’ personal data into an external marketing engine directly competing with Google Adsense. In 2011, Google generated $10.4 billion in revenue from “Google Network Members’ Websites”. Anyone familiar with the product will know that it is a contextual advertising marketing platform whose principal source of targeting relies on an algorithm that matches relevance of a web page and an ad, and can limit it to a specific geographical sector. The system allows anyone to create these ads in minutes, and is responsible for about a third of Google’s revenue. This will be Facebook’s greatest source of revenue if they are able to bypass privacy obstacles.

Google knows they need more personal info. They have plugged their social networking site Google Plus into every single product they have in hopes of preparing for the competition that Facebook will create. Google Plus continues to fail at this, and despite claims of high traffic numbers for Google Plus, we all know that our society “likes” (Facebook) instead of “plus” (Google). In other words, people visiting an external website are far more likely to click on Facebook’s “like” button, instead of Google’s. Everytime a user “likes” an item, Facebook’s value increases. As Facebook continues to dominate this personal data storage, their Google Adsense competing product becomes much more valuable than Adsense.

The product I am talking about doesn’t exist, but it has to. Facebook’s Adsense will be very similar to their internal ad engine, except that it will allow marketers to advertise anywhere in the web. Facebook will be able to command much higher rates than Adsense, because Facebook will allow them to target their customers in more detail. For example, a marketer could advertise to people that are celebrating their birthdays, people who are engaged, or to people who like Coca Cola. These are just very small examples of a much more elaborate campaign that can be tailored, given Facebook’s massive personal information.

Commanding a greater amount of money for these campaigns would allow Facebook to also share more money with the webmasters hosting the ads, which would be an incentive to drop Adsense in favor of Facebook’s product. That move could bite in directly into Google’s Members’ Websites revenue. Growth rate in that line has been a healthy 20% year over year. If marketers would be willing to pay more for Facebook’s targeted ad campaigns across the entire web, it could quickly become a $10 to 15 billion revenue source in the next year or two, which is five times Facebook’s 2011 revenue. Attracting more advertisers with this product would also benefit its internal property revenues, as more of their internal impressions could be filled and perhaps at a higher price.

If you believe the product I have just talked about will not exist, then a $50 billion market cap is probably right. However, if this product is launched, then the current valuation appears significantly undervalued. The more likely question is not if they will launch this product, but when. And when they do, it is my belief that Facebook and Google shares will be affected inversely.

All these considerations are for a term of 1 to 3 years. For the short term, uncertainty about the company’s direction and the large amount of outstanding shares could put some downward pressure into the stock, despite its fairly low valuation. For the longer term, as technology progresses, other significant sources of revenue can be mined from Facebook’s personal information field. For example, as web browsing transfers to mobile platforms, the combination of geographic location with personal preference data opens up the possibilities for other types of targeted advertising. To see a basic explanation of this, you can read the article I wrote on mobile ads. On the other hand, Zuckerberg’s voting power dominance of the company is a risk issue that can make investors uneasy. His ability to communicate his vision and remain relevant as technology changes will be a determinant factor for the company’s long term progress.

*This article is not financial advice, nor is intended to recommend the purchase or sale of any stock or investment. Please consult your financial advisor for investment guidance.

CNET Acquisitions

January 7, 2008 1 comment

For the past several months, I have been watching and considering an investment in CNET Networks, precisely because of its attractiveness of individual assets, which if spun off could suggest a much higher total worth than the current $1.3 billion. However, upon closer inspection of the individual parts, I am still not convinced that the sum of its parts, under current conditions, is worth more than its 1.3 billion. CNET is currently carrying too much fat and producing mediocre returns on their prime jewels. Take for instance, which as suggested by the NY Times produced in October a mere 6 million page views, compared to 8 million page views produced by a small group of bloggers with minimal costs over at TechCrunch.

The key of course, is finding buyers for CNET’s crown jewels, which are:

  • – This is currently a site which alone could be worth more than CNET’s current market cap, but the focus of the site is its main problem. is aimed at providing a TV guide resource – big mistake!

Instead, could become the place to go for TV watching, think YouTube or Hulu. Capitalize on the millions of confused visitors coming in from the highly marketed .TV extension. Strike deals with media companies to stream television through Stream everything under the sun! Sell the idea to Mark Cuban, sell it to Murdoch. Try to get a link from future generation television sets that are integrated with wireless internet, so that is the link to online television. How many people are looking to buy a TV and just type Have a section in the site for TV purchases, cable subscription services.

The current site is probably 10 to 15% of the traffic and revenues it could achieve.

My current price – $100 to 500 million. Future worth with minimal refocus – $1 to 5 billion.


  • – When you type, the first thing you see is technology news. Get over it. If I want technology news, I will type,, or I don’t even want to know how many of CNET’s 2,600 employees it takes to run this charitable venture costing investors $16.65 million last quarter. Again, as, is being used for less than 15% of its capacity.

When I type in, it should be news about everything. I want to see videos of what’s happening around the world. I want to get international perspectives for what is happening in the war in Iraq. People should find ALL possible resources on news information and be able to interact and contribute. Oh so many possibilities!

My current price – $50 to 300 million. Future worth – $0.5 to 1 billion.


  • is fairly well developed and should fetch a good price. I don’t have specifics on how much it costs them to offer what they claim to be a, “a rigorous testing process to ensure it is safe and spyware free”. Unless this rigorous testing process is subsidizing a considerable number of employees, an automated system should not represent a considerable cost. Advertising money here should be flowing comfortably in the black.

My current price $50 to 150 million.


  • – Wow, these people really knew how to pick their names. However, as Google becomes a household synonym for “search” I am less confident in this domain than what I would have been five years ago. I would assume that this is a rapidly depreciating asset and should have been shopped around much earlier. Sell it to Sahar Sarid for his search venture Assista. I am sure he’d appreciate the value it can bring to own the direct synonym to Google in his quest to take a bite of that space.

My current price $10 to 20 million (perhaps more depending on current traffic and revenue numbers)


  • – Give me a break! This baby redirects to Yes, it should be a crime punishable to death. has no home of its own. I’ve personally shopped around to buy chat ccTLDs and have already developed one into a chat site. These sites are great, because they are cheap to build and to maintain, and user loyalty is huge. is a dream domain with immense potential. I want it.

Suggestions for this site are obvious – build chat channels and capitalize on the type-in traffic, which will serve as the commencement of an avalanche of visitors. These people spend 20, 40, 60 minutes straight in a page. Even at $2 CPMs, this is one site that could produce millions. Instead, old grandpa CNET reasons – if they type in it must be they want to read technology product reviews! Shame on you CNET.

My price $300k cash, right now! OK, seriously – $5 to 10 million – and the 10 is pushing it, because there’s no community. This is just a domain name purchase.

Future worth – $10 to 50 million easy. – $5 million – $4 million – 3 million – $2 million – $1 million – $500k – $300k

As you can see from current conditions, a $1.3 billion market cap is reasonably priced. Yes, many of us see potential in a much higher worth, given the properties they own, but right now there is no bargain investment in CNET unless you have the power to enforce radical changes to current management or have faith in Jana’s capacity to push for that change.

2008 Internet Predictions

December 30, 2007 Leave a comment

To continue with the tradition of those who like to make predictions for the New Year, I have recovered an old crystal ball which has shown me the following Internet changes coming for the year 2008:

1. Big search engines will update their algorithm to favor country code top level domains (ccTLDs) in local search related queries.
2. As a result, in part,  of number 1 prices and liquidity of ccTLDs will rise.
3. .mobi will continue to gain momentum, even though I have opposing feelings about this extension.
4. People will learn to understand the importance of IDNs and the value of these will rise – specifically for one word IDNs under the corresponding ccTLD or under the .com and .org.
5. Thousands of wannabe land rushers will flock to try and get a piece of China’s Internet population – and like in the West, most will fail.
6. General Internet users will be more knowledgeable of the Internet and search – reducing Type-in traffic for common words under the .com extension.
7. Many successful Internet ventures will start as tools built for users within Social networks, and no longer start from a single proprietary website.
8. A top Internet executive will be arrested.

Hey, don’t argue with me. This is what the crystal ball showed me, and it was very dusty.

May this New Year bring much love and happiness to all.