The Value of Selling Social Networks

Tuesday, July 28. 2009

The Value of Selling Social Networks

Blimey - no sooner does one write a post on one SocNet being on the block and 2 others rumoured to be, than a 4th (Friendster) is also put up for sale, notes TechCrunch.

A very interesting issue is the valuation:

One thing we couldn’t gather from the documents, which are embedded below, is the price Friendster is hoping to get. The company is backed by more $45 million in capital venture firms like Battery Ventures, Benchmark Capital, DAG Ventures and Kleiner Perkins Caufield & Byers, along with some early angel investors such as LinkedIn founder Reid Hoffman and Spinner/Grouper founder Josh Felcher.

Our latest model valuing social networks puts Friendster at only $210 million, based on Facebook’s recent valuation of $10 billion. Mostly that is because of the lower spending power of consumers in Southeast Asia, making advertisers value them less differently. That $10 billion Facebook valuation, though, was for preferred shares. If you look at the $6.5B valuation of the most recent sale of common stock, Friendster would be worth only $137M in comparison.

Valuing down from Facebook's current minority share purchases is one approach. A more accurate approach today, however, may be valuing up from the reported revaluation of Friends Reunited, reportedly down c 90% on its purchase price. (Quick back-of-bizcard maths says a 90% discount on Facebook is c $650m - $1bn, and thus Friendster is c $14 - 20m)

Boo, I hear you cry - where is the rigour in that calculation! (Rigour? In Valuations? - hah!). One can only wonder what the new "post sale" valuation of Facebook will be, if all these SocNets get sold at pennies on the original purchase dollar.

Are Social Nets now seen as sinking ships?

Posted by Alan Patrick in Social Networks at 00:17 | Comment (1) | Trackbacks (0)

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"Rigour? In Valuations?"

Completely. An art, not a science.

But using Facebook's old valuation to estimate a current valuation of a much smaller, very different network, sold under very different methods, is atrocious art.

I doubt Facebook's "valuation" will shift from sales of other social nets, it's a discontinuous market between the hyped future of the web and the current reality of the web's parts.

#1 Taylor Davidson (Homepage) on 2009-07-28 08:11 (Reply)

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