Arash Christopher Eslami's Blog


Who Can Compete with Facebook?

So what about all the social media websites springing up left and right?  Where does it stop and how should I go about this?  Facebook was founded in 2004 and in just over 8 years, the company launched an estimated $104 billion IPO.  That’s the third largest in US history.  They have 900 million users and have yet to solve their monetizing inadequacies.  Once they get that issue better addressed—which they will—then, my god, they are going to be bigger than big.

Do they even have a competitor?  Well I can tell you who’s out there: Twitter, LinkedIn, MySpace, Pinterest, Flickr, etc.  We could categorize these sites, with broad strokes, all fitting into the social networking internet group.  Facebook only generated $2 billion 2010 and a little over $4 billion 2011 in revenue, yet they managed to garner over a $100 billion market cap.  If you’re scratching your head wondering why would all these people buy the company with such marginal sales, the answer is simple.  The potential, the hype, this is how Wall Street works.

Twitter is a different animal though.  The company was launched in 2006.  In 2010, its first full-year of selling advertisement, the company produced $45 million in revenue.  It did $140 million last year in ad revenues.  With its pace, Twitter is projected to pull in $260 million by the end of this year!

Let’s try to put things in perspective.  Facebook’s market cap today is $60 billion while Twitter’s estimated market cap—remember, they’re still private—is between $8 and $10 billion.  Growing 100% in one year is something Facebook can be proud of.  But what about Twitter growing 213% in its second year of selling ads and an expected 85% growth in 2012?

We could theoretically say that Twitter goes public next year at $20 a share at a generous $20 billion market cap.  As an investor, you can definitely argue the safer investment is Twitter verses Facebook.  Even though Facebook’s ad revenue is expected to reach $6.1 billion in 2012, Twitter’s growth percentage wise is basically identical.  The difference is that Twitter’s market cap relative to its revenues is reasonable compared to Facebook’s whopping $60 to $80 billion market cap, depending on what day it is.

Still, Twitter is not the real “enemy” of Facebook.  Google+ was ranked top on a customer-service index of social-media websites by the American Customer Satisfaction Index.  Google+ debuted in June 2011 on the platform of the largest search engine in the world—Google.  Yes, they had a head start.  They already have 250 million users and we know that number is growing fast.

By the way, LinkedIn and Pinterest received better scores than Facebook in customer service.  If you ask me, Facebook will outperform Google+ in the long run and Twitter will provide the best value for your buck.


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