Novice Investing - Facebook Will Face The Truth

Date: Friday 05th 2008f September 2008 05:46:03 PM

Facebook Will Face The Truth - 03/28/2006

By: Novice Investing Staff

Late last year, News Corp (NWS) paid $ 580 Million for MySpace.com, a price deemed too steep to many. The acquisition looks like a success to News Corp as MySpace.com's shares of the internet traffic has tripled from 12,000 to 33,450 reach per million users.

The social-networking mania is far from over. Facebook.com reportedly rejected a $ 750 Million private offer and is looking for as much as $ 2 Billion for the sale of the company. Is that too much to ask? From the surface, it looks that way. Currently, Facebook has a 5450 reach per million users. That is half of MySpace.com's traffic when it was acquired by News Corp. The company is now asking four times the price of MySpace while having half as much visitors. There are two possibilities here. MySpace may be selling too cheap or Facebook is asking too much.

For comparison purpose, let's look at other past acquisitions of similar size. On February 15th 2005, New York Times Co. bought About.com for $ 410 Million. At the time, About.com too was having a 10,000 reach per million users, or about 1 % of internet users. One can conclude that About.com and MySpace asking price is about the same since they were acquired when their internet traffic is about the same.

How about another comparison? Let's look other established websites. This time, let's look at CNET Networks Inc. (CNET). It fetch $ 2.09 Billion today with a web reach of about 30,000 per million users. We have talked briefly about CNET's traffic last year. If CNET were to have a reach of 10,000 per million users, then theoretically, its share price would be reduced to $ 666 Million instead of the current of $ 2.09 Billion. Why do we assume that way? Yep, you got it. Because About.com and MySpace were acquired when they reached about 10,000 per million internet users. Meanwhile Facebook currently reaches a mere 5450 per million internet users.

Maybe Facebook think that it can grow its reach to 20,000 per million internet users. Even then, comparing similar deals, Facebook is worth around $ 1 Billion. But then again, it might not double its visitors count

anytime soon. Social networking site is a volatile business in nature. When you are popular, people will flock to your site quickly. But when you are out of fashion, watch out. At this point, if one has $ 2 Billion to spend, CNET Networks is definitely a safer bet.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding CNET Networks Inc. (CNET) or any other securities.

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