Facebook to Hit 200 million Active Users in a Matter of Months. Unfortunately, a $100 Billion Valuation is 6 years away.

December 18th, 2008

In a recent post, Justin Smith noted that Facebook should reach 200 million users in March 2009. I’ve long been a Facebook Fan and had predicted about 18 months ago that this milestone was coming faster than almost everyone else was expecting.

In August 2007, I wrote a post that extrapolated from Facebook’s historical growth rates as follows:

FB 2004 (Dec. 31) — 1 million
FB 2005 (Dec. 31) — 5 million
FB 2006 (Dec. 31) — 12 million
FB 2007 (Apr. 26) — 20 million
FB 2007 (Aug. 1) — 30 million
FB 2007 (Dec. 31) — 50+ million
FB 2008 (June 6) — 100+ million
FB 2008 (Dec. 31) — 200+ million

So as the end of the year approaches, it looks like Facebook may have missed my 200+ million mark by around 3 months time.

Not a bad prediction, huh?

100-billion-dollars

Before anyone else brings it up, I must say that my other prediction regarding Facebook’s ultimate valuation being $100 billion seems a bit less prescient with respect to them hitting this lofty valuation at the same time that they hit their 200 million active user mark.

However, I still believe that Facebook will eventually scale the valuation heights. The reason for my faith in Facebook is the incredible stickiness of their site and my firm belief that someone will crack the nut on extracting revenue from Facebook’s loyal users.

The reality is that almost no one who reaches a certain critical mass of facebook friends (made up of a mix of family, college buddies, relatives, business colleagues, etc.) is going to stop going to the Facebook site. Nor is anyone going to bother recreating this picture of their social graph again on a competitive site (especially now that any site who wants to can simply inherit this data via Facebook Connect). This gives Facebook an incredibly long time horizon to finally figure out a monetization method that will extract a significant amount of revenue per year from the online activities of their 200+ million users both on the Facebook site itself and on other sites that leverage the Facebook profile data.

What will it take to reach a $100 Billion Valuation?

Assuming a valuation rate equal to 5x sales (i.e., $100 billion valuation means $20 billion in annual revenues) and an ultimate active user base of 500 million active users, Facebook would need $40 in annual revenue from each of its users to justify a $100 billion valuation. This level of revenue will probably come from a mix of display advertising, keyword search advertising, friend-to-friend gifting fees, micro-payments for private group access, customer acquisition fees (e.g., credit cards, car loans, mortgage refinancing, etc.), product referral fees, trans-shipment fees from international package deliveries, mall membership fees from merchants and per-transaction fees from the use of the Facebook checkout system (and other Facebook Connect-related services like a Facebook-branded credit card).

Based on this, my predictions for Facebook’s active users and annual revenue for the next 6 years are as follows:

FB 2009 (Dec. 31) — 250+ million, $500 million, $2.00 per user per year
FB 2010 (Dec. 31) — 300+ million, $1 billion, $3.33 per user per year
FB 2011 (Dec. 31) — 350+ million, $3.5 billion, $10.00 per user per year
FB 2012 (Dec. 31) — 400+ million, $5 billion, $20.00 per user per year
FB 2013 (Dec. 31) — 450+ million, $13.5 billion, $30.00 per user per year
FB 2014 (Dec. 31) — 500+ million, $20 billion, $40.00 per user per year

We’ll see you in six years to compare notes.  :)

Thanks,
Lee Lorenzen
CEO, Altura Ventures
LeeL@altura.com

One Response to “Facebook to Hit 200 million Active Users in a Matter of Months. Unfortunately, a $100 Billion Valuation is 6 years away.”

  1. China Dreams » Blog Archive » Facebook to Hit 200 million Active Users in a Matter of Months Says:

    [...] Lorenzen from Altura Ventures wrote this post about Facebook potential. I am not sure about the valuation. I am more a value investor my self, [...]

Leave a Reply