a Social Network bubble?

Remember the Internet bubble? You’ll enjoy the Social Network bubble !

Let’s have a look at a few metrics of the Facebook stock market introduction.

Facebook is worth according to the markets $ 100B for 900M users so roughly $110 per user. On the other side Facebook is making $ 4B turnover so an ARPU (Average Revenue Per User) around $4.4 per year, $0.37 per month. ($4B / 900M users = $4.4 per user) This the value of 4 SMS.

One can imagine the markets love for a mobile operator with a revenue of 4SMS per month and per user.

Hence the markets are confident that Facebook can retain every customer around 25 years. (!)

If you have a look at a classic Telco business, things look a different. Let’s take the case of one of its Telco giants Orange/France Telecom group. Orange is serving 226M users worldwide (Mobile, Fixed, and DSL). It makes a turnover of € 45B with a market capitalization of € 26.7B.

  Facebook Orange
Customers / Users (M)
900 226
User valuation $ 110 € 118
ARPU $ 4.4 € 199
User payback (years) 25 0.5

One would argue that the CAPEX used for these businesses are of different scales. Facebook CAPEX is around 1B whereas Orange is investing € 18.5 B during 2011-2013 period so around € 6B a year.

Facebook CAPEX is expected to double in the coming year, so one can imagine comparable CAPEX in the midterm.

The real challenge for Facebook is now to squeeze its ecosytem to maximize its revenue. Either Facebook can increase dramatically its ARPU in the coming years or we are facing a new bubble.

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