The figure comes from a calculation that’s crude but instructive. When Facebook stock goes on the market for the first time, it’s expected to sell for $30 to $40 a share, a price that implies the company is valued at around $100 billion. Meanwhile, the social network’s recently amended IPO filing, released this week, shows that it’s closing in on 1 billion active users. Those users are Facebook’s product: It sells their attention (and, potentially, their data) to its customers, who include advertisers and online gaming companies such as Zynga. So if Facebook is worth $100 billion, then its billion users are worth, on average, $100.
That’s rather a lot for a social-media company. It’s more than Yelp’s users are worth—the online ratings service’s $1.3 billion market capitalization implies that each Yelper is worth about $20. Facebook’s purchase of Instagram for $1 billion last month suggested a value of $25 to $30 per user. And what about Twitter? Its highly engaged users are worth about $70 each.
The generosity of the $100-per-user valuation really sinks in when you consider how much Facebook’s users bring the company right now. It’s not $100. Or $50. Or $25. Or $10. No, Facebook earns a mere $4.84 in revenue per user per year, and just more than $1 a year in profit per user. In order for each Facebooker to be worth $100, they’d need to deliver that $1 in profit every year for a century, plus interest.
In the past, the answer to any naysaying about Facebook’s value was always the same: growth. Vast, unprecedented growth. There were once people who thought Mark Zuckerberg a fool for turning down $1 billion from Yahoo in 2005, when Facebook had roughly a million users. Just two years later, Facebook had 50 times that many folks on board, and Zuckerberg was reportedly turning down $15 billion from Microsoft.
With Facebook now nearing a billion users, that seemingly boundless growth is nearing an upper bound. The world has about 7 billion people, and only around a third of those have Internet connections. If every Internet user on the planet signs up, Facebook can grow to about 3 billion users—and that includes a whole lot of people in China, which blocks Facebook and shows no signs of relaxing its social-media policies anytime soon. Besides, it’s probably fair to say that most of the world’s richest people are already on Facebook. Those rushing to sign up in India and Brazil represent an important market, but one that’s not nearly so lucrative as the United States on a per-person basis.
While Facebook’s past growth has come from new sign-ups, the bulk of its future growth will have to come from wringing value out of its existing users. But the financial data in Facebook’s latest IPO amendment reveals that Facebook’s revenue per user has been relatively flat. In fact, despite its still-growing user base, total revenue dipped in the first three months of this year, and the company’s quarterly profit was the lowest it’s been since 2010.