380 Facebook Friends: My Value to Zuckerberg is over $45,000

About the Contributor:  Bugra Bakan is the founder and president of Investment Advisory Firm, Shield Wealth Management.

How much are your friendships worth to you? Can your net worth be quantified based on the number of connections you have? Are you aware that you could be helping someone get rich…or even better help someone make more money through you, than you make for yourself?

Mark Zuckerberg can help us with the answers. The company he started, which needs no introduction to this corner’s readers, is doing just that; quantifying the value of relationships.

According to the recent Initial Public Offering (IPO) documents, Facebook is valued around a $100 billion dollars. Currently it has 850 million users, so each is worth $117.64.

Since I have 386 friends on Facebook , my value to Mark Zuckerberg is $45,409.04!!! Wow…

I grew up reading Sherlock Holmes and Agatha Christie novels. I loved trying to figure out who could have been the possible killer of the overweight 46 year old well dressed male lying dead in front of the fireplace in his apartment. Cause of death being the severe puncture wound in his lungs, from the 28 caliber bullet, shot in close distance. The suspect was six foot tall, and most likely used a silencer as the upstairs neighbor, a massage therapist who works from home, didn’t hear a gunshot on the night of the murder.

First thing you do at a crime scene (after the obvious yellow taping and securing the integrity of evidence), is to ask yourself; who would benefit from this? Who might have the motivation to commit this crime? Next you would search for his friends, relatives, business and personal connections and try to gather clues for a motivation. It would be very important to know his profession, his likes, dislikes, recent travels, political orientation, the last movie he watched, the books he read, his past relationships…etc.

You probably know where I am going with this. In a pre-Facebook world, information that would have taken months to gather through countless interviews, detailed detective work, and long hours of research, is now voluntarily made available by all of us, at no cost. This ruins the excitement of pages and pages of suspense and wondering where the victim’s brother in law was on the night of the murder, as he was nowhere to be found. In post-Facebook world, the answer is: “Well, sergeant…he just posted his recent pictures taken at a meditation retreat in Thailand…on Facebook. His passport records confirm this.”

No wonder according to Onion, a satirical publication, this is all CIA’s doing under the cover of a social media company. I will let you dwell on that notion.

Facebook’s $100 billion valuation is clearly not as a result of last year’s revenues of $3.7 billion, or net profits of $1 billion. This would put price to sales ratio to around 20, and price to net income ratio to somewhere between 80 and 100. To give you a comparison, Google’s price to sales ratio is approximately 8 to 10. No investor would be willing to go for this valuation, unless he/she was informed that the number of internet users would double between 2010 and 2016, up to 3 billion from 1.6. (Source: The Boston Consulting Group). The monetization of this soon to be a billion people connection network on Facebook, has just started. Depending on who you ask, it can easily become the largest company in the world, far exceeding the market cap of the giants like Apple.

Not everyone is convinced. It is still not clear if Facebook can transition out of a start up, especially when Mark Zuckerberg owns a third of the company and is not shy to say that he is not in this for the money.  It is also troubling to some that active users are half the amount of all users and its growth has slowed in  major markets. The amount of time spent on Facebook per user in those markets is also declining, indicating that the initial hype is over and the company’s potential is already peaked. It can very well be another Myspace, which was valued at $580 million only a few years ago, and recently sold for $35 million.

But there are plenty of others who think this is just the beginning. Once the Facebook fully implements the Timeline, which is designed to encourage people to spend more time while logged on, and “social plug-ins” that allow users to share their interests while they are on different websites with their Facebook friends, the revenues shared from this activity can be exponential. Facebook doesn’t have to make money, according to some. It just needs to take a part of revenues from each click that came through Facebook. At the end, anyone who is in marketing and sales will tell you that the best referral resource for products and services are our friends. That’s what Zuckerberg and his investors are counting on.

Another way to test the financial relevance of the Facebook effect, is to check the reaction from its competitors, which is now mainly Google. I am not an expert analyst on technology, but rather a market strategist. I do find it however; safe to say that if Google is taking Facebook seriously, and going after its business, while falling behind…Facebook must be doing something right. That’s a strong litmus test in my view.

Hope you enjoyed my corner.  Please follow me on…oh well…you know.

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