Facebook’s dodgy stats

Well, well. Facebook’s IPO Prospectus claims 845 million users, which is probably true. But it also claims that the number of “daily active users” is a whopping 483 million. Andrew Ross Sorkin of the New York Times found that number hard to swallow, so he went digging. And guess what? That number includes people like me who are registered Facebook users but almost never visit the site.

Facebook counts as “active” users who go to its Web site or its mobile site. But it also counts an entire other category of people who don’t click on facebook.com as “active users.” According to the company, a user is considered active if he or she “took an action to share content or activity with his or her Facebook friends or connections via a third-party Web site that is integrated with Facebook.”

Come again?

In other words, every time you press the “Like” button on NFL.com, for example, you’re an “active user” of Facebook. Perhaps you share a Twitter message on your Facebook account? That would make you an active Facebook user, too. Have you ever shared music on Spotify with a friend? You’re an active Facebook user. If you’ve logged into Huffington Post using your Facebook account and left a comment on the site — and your comment was automatically shared on Facebook — you, too, are an “active user” even though you’ve never actually spent any time on facebook.com.

“Think of what this means in terms of monetizing their ‘daily users,’ ” Barry Ritholtz, the chief executive and director for equity research for Fusion IQ, wrote on his blog. “If they click a ‘like’ button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services. All they did was take advantage of FB’s extensive infrastructure to tell their FB friends (who may or may not see what they did) that they liked something online. Period.”

Facebook appears to be using the term “active” as a euphemism for “engaged” rather than how many users are actually going to its site every month.

I count as an “active user” because I’ve arranged for my Twitter stream to be fed to my Facebook account as a set of status updates. But as a member of Facebook’s advertising ecosystem I’m a dead loss because I never see an ad.

The bubble we’re in

The NYT had good, sober piece about the bubble we’re in, using as a peg what’s happened to Groupon shares since that company’s stock market debut. The piece also includes this useful table:

Here’s a look at some of the notable technology I.P.O.’s this year :

Demand Media

Offering price: $17

Tuesday’s closing price: $6.85

Current market value: $574 million


Offering price: $20

Wednesday’s closing price: $16.96

Current market value: $10.82 billion


Offering price: $45

Wednesday’s closing price: $66.00

Current market value: $6.36 billion


Offering price: $16

Wednesday’s closing price: $10.51

Current market value: $1.69 billion


Offering price: $14

Wednesday’s closing price: $3.75

Current market value: $1.47 billion


Offering price: $25

Wednesday’s closing price: $20.05

Current market value: $6.48 billion

FOOTNOTE: But why, oh why, can’t the NYT understand apostrophes? Personal computers in the plural are always PC’s in the paper. And so, it turns out, are IPOs.

Bubble wisdom

Lovely, lovely essay by Tim Worstall, which starts out with the usual speculation about Facebook valuations and winds up in a really interesting place, summarised thus:

And that’s the little secret about infrastructure that is so little understood. It is not true that having infrastructure makes us or the society richer. It is rather that using it does. And we usually don’t know how to use it until someone has gone and built a lot of it, people do that curious shaved monkey thing of experimenting with it and then we all find out. This is true of most inventions: it has been said that the biggest social change that the Model T brought was that women were less likely to be virgins at marriage. People worked out what to use the back seats for pretty quickly. The bicycle has been called the greatest contribution to the health of the working classes ever: it allowed courting outside the home village for the first time (amazing how inventions and sex seem to go together, eh? The first social network, Friends Reunited, is said to have caused a bubble in the divorce rate) to the benefit of the next generations’ genes.

So these bubbles, they’re not all bad. They provide an excess of whatever it is, which we then play with until we’ve worked out what to do with it. What we do with it is what allows the advance in wealth, even if those who built it for us have gone bust.

Where angels dare to tread: the new tech bubble

Nice, perceptive piece in the Economist.

SOME time after the dotcom boom turned into a spectacular bust in 2000, bumper stickers began appearing in Silicon Valley imploring: “Please God, just one more bubble.” That wish has now been granted. Compared with the rest of America, Silicon Valley feels like a boomtown. Corporate chefs are in demand again, office rents are soaring and the pay being offered to talented folk in fashionable fields like data science is reaching Hollywood levels. And no wonder, given the prices now being put on web companies.

Facebook and Twitter are not listed, but secondary-market trades value them at some $76 billion (more than Boeing or Ford) and $7.7 billion respectively. This week LinkedIn, a social network for professionals, said it hopes to be valued at up to $3.3 billion in an initial public offering (IPO). The next day Microsoft announced its purchase of Skype, an internet calling and video service, for a frothy-looking $8.5 billion—ten times its sales last year and 400 times its operating income. And those are all big-brand companies with customers around the world. Prices look even more excessive for fledgling firms in the private market (Color, a photo-sharing social network, was recently said to be worth $100m, even though it has an untested service) or for anything involving China. There has been a stampede for shares in Renren, hailed as “China’s Facebook”, and other Chinese web giants listed on American exchanges.

So, are we in another bubble? Answer: yes. It’s different this time, of course. (It always is — which is why people get fooled.) The Economist points out that one new factor is the relative importance of ‘angel’ investors — wealthy individuals who made money out of the last tech bubble — rather than traditional venture capitalists. Another is the arrival of new kind of investors who want to get in on this tech thing. Trouble is: they don’t know the first thing about it.

When it comes to investing in more established companies like Facebook and the bigger web firms, traditional venture capitalists now face competition from private-equity companies and bank-led funds hunting for profits in a bleak investment environment. Gucci-shod leveraged-buy-out kings may appear to be more sophisticated than the waitresses buying dotcom shares a decade ago—but many of the newcomers are no more knowledgeable about technology.

Yep. So it’ll be nice watching them take a bath.

The Facebook Gold(man) rush, contd.

More from Good Morning Silicon Valley.

Here’s a somewhat clearer look at how much money Facebook is making, according to the Wall Street Journal, which cites a 100-page document given to potential investors by Goldman Sachs: For the first nine months of 2010, the Palo Alto company’s revenue was $1.2 billion, its profit $355 million. And by the way, the same document shows that because it expects to surpass the legal threshold for number of private investors, Facebook will either have to go public or disclose financial information by April 2012, which excites Silicon Valley and others who have been waiting for the lackluster IPO market to make a triumphant return. The New York Times’ DealBook likens the interest surrounding the possible IPOs of Facebook and other social networking companies such as Twitter and Zynga to the dot-com boom of the 1990s.

This corrects a misapprehension of mine. I had thought that if a company went over 499 shareholders, then SEC rules would oblige it to float. But that’s not the case. It either has to float, or publish more detailed financial information.

Facebook: the Gold(man) rush

It’s funny how people never learn. This useful report from Good Morning Silicon Valley brings back memories of the first Internet boom, and of the unscrupulous role that, ahem, major investment banks played in fuelling the lunacy. GMSV notes a WSJ article stating that Facebook’s 2009 profit was $200 million on revenue of $700 million, and goes on:

The New York Times’ DealBook reports today that Goldman Sachs Capital Partners, a $20.3 billion investment fund, was given first dibs at the Facebook investment but declined because of concern that the Palo Alto company’s $50 billion valuation is too high. The report also cited unnamed sources who say Facebook’s 2010 net income was $400 million on revenue of $2 billion. A Bloomberg report compares Facebook to Google: A $50 billion valuation is about 25 times the reported 2010 revenue, while Google’s price-to-sales ratio is estimated at 9. Another Facebook-Google comparison of note comes from Connie Loizos at peHUB: “When Google went public in 2004, it steered clear of sweetheart deal-making. … Deals like that of Facebook-Goldman reek of an old boys club way of doing business.”

Yep. Even if I had any money (which I don’t) and was minded to invest in tech stocks (which would be unethical, given my newspaper column) I wouldn’t ever touch a deal in which Goldman was involved. This, after all, is the bank that was recently fined for screwing its own clients. And now some of those saps are stampeding to get a ludicrously overpriced slice of the Facebook action. In ordinary life, they say that one sucker is born every minute. In the stock market, their birth rate seems to be considerably higher.

Later: It seems that the minimum investment Goldman requires for anyone who want to be involved in its Facebook fund is $2m. For disconsolate souls who don’t have that much money to lose, Silicon Valley Insider has this consoling news:

There’s a fun penny stock called Snap Interactive, whose fortune is tied to Facebook.

The company has the most popular dating app on Facebook and charges a small fee for some users. It’s managed to generate $2.7 million in revenue last quarter up from $1.7 million the quarter before.

That growth has gotten some investors attention, and now the stock price is soaring — its up over 1,000% in the last 30 days. So, if you want to roll the dice, and you want to play a Facebook company on the public markets, here’s your chance.

Er, their chart suggests that you may have missed even that boat.

This looks like a bubble to me, folks, with Goldman Sachs manning the airpump. The strategy seems clear: to stampede Facebook into a flotation by triggering the SEC rules that a company with more than 499 shareholders has to float.

In the interests of balance… I should point out that not everyone agrees with me that Facebook is over-valued at $50 billion.

Facebook: the craze du jour

The $50 billion valuation triggered by Goldman Sachs’s investment in Facebook has created another feeding frenzy. The Guardian has a nice piece by Jemima Kiss which manages to steer clear of most of the hype. Meanwhile, here are two charts which may help to put things in perspective.

The first shows the way valuations of Facebook have fluctuated over time.

The second — more sobering — chart shows revenue per user for different online services.

Geek talent wars

Apparently, Facebook is now paying engineers more than Google. And BusinessInsider reports that it seems to be worrying the search giant.

Google offering $100,000 cash bonuses is so last summer. Now it’s apparently offering seven-figure stock payouts to keep engineers from defecting

Last week it was $3.5 million. This week, All Things D reports that one engineer ended a bidding war by taking a $6 million stock grant.

We’ve seem talent wars like this before. Microsoft was sued back in 1997 for poaching employees from database company Borland. Google returned the favor last decade, causing Steve Ballmer throw a chair across the room. Now, Google is trying its hardest not to end up on the losing end as the cycle repeats itself.

In the past, this kind of thing was usually a symptom of a bubble. Why should it be any different now?

U2 can be in Facebook

From The Register.

Elevation Partners, the private equity firm backed by bad-backed U2 frontman Bono, has stumped up $120m for just over 0.5 per cent of Facebook.

The deal values the dominant social network at $23bn, and takes Elevation Partners' total stake to 1.5 per cent, having invested $90m at a $9bn valuation last year.

Reports earlier this month claimed Facebook's sales were between $700m and $800m last year, so Bono and friends reckon it's worth about 29 times revenue at the moment. Which is a lot.

The widely-held assumption is that Facebook aims to IPO in the next couple of years, when Elevation Partners and the other private interests who have paid its running costs since 2004 will cash in.

Bono's fund could use a hit. It sank hundreds of millions into Palm's attempted revival, which ended in a fire sale to HP this year…