I have been arguing that $100B is rather rich for Facebook. Perusing the S1, and discussing this with Bloomberg’s Dave Wilson has further confirmed this.

Why? It has to do with what they consider a daily or monthly “user.” Indeed, this is extremely significant, because the excitement about Facebook’s reach and user base is driving valuations to levels that may be setting the company up for investor disappointment.

Consider the 843 million monthly users and the 450 million daily users. Those sound like enormous numbers — but what do they really mean?

As it turns out, there is far less to being counted as a FB user than meets the eye. If you click on a Like button any given day, you are counted by Facebook as an active user that day.

From the S-1:

Daily Active Users (DAUs). We define a daily active user as a registered Facebook user who logged in and visited Facebook through our website or a mobile device, or took an action to share content or activity with his or her Facebook friends or connections via a third-party website that is integrated with Facebook, on a given day. We view DAUs, and DAUs as a percentage of MAUs, as measures of user engagement. (emphasis added)

All of those people clicking all of those “Like” buttons are counted as active that day, EVEN IF THEY NEVER GO TO FACEBOOK.COM.

Think of what this means in terms of monetizing their “daily users.” If they click a like button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services. All they did was take advantage of FB’s extensive infrastructure to tell their FB friends (who may or may not see what they did) that they liked something online. Period.

This helps to explain why Facebook’s annual revenue per user is so low:

Facebook – $5.02
Google $30
Netflix – $148.20

It also helps to explain why Facebook’s valuation may be so greatly exaggerated. Retired Neuberger Berman value investor and present CNBC commentator Gary Kaminsky observed that at similar multiples as Facebook, Google would be trading at $850 and Apple trading at $1250.

The question for investors: Can Facebook monetize their users at a rate 5-10X greater than what they are currently doing? If they can, their valuations are far more reasonable. If they cannot, then this is a very very expensive company.

Valuation Issues

Source: Barron’s

Category: IPOs, Technology, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Who’s a Daily Facebook User? Anyone who clicks “Like””

  1. JasRas says:

    Also, some of us actively control what FB can gather from us. They are extremely invasive in that they basically datamine your history, cookies, and other things on your computer. I use an add-on called Disconnect Me that prevents (or limits greatly) FB and GOOG from scraping in anything other than what I knowingly volunteer…

    It’s worth watching the video on the add-on. The pedigree of the developer was that of a person who started at Doubleclick, then jumped to Google, etc… so understanding what incursions into personal privacy was occurring, developed his add-on or extension.

    Facebook is likely going to mess up what they’ve built with their constant “improvements”…getting a lot of coincidental feedback from my friends and co-workers that they do not like “Timeline” at all. Instead of messing with the frontside of FB, they need to be tweaking the backend in multiple ways. I really like the ability to group my friends on Google+ into segments and control what flow they get from me…Not really wanting relatives or clients seeing those New Year’s Eve pix… I also know from talking to software developers that it is a daily battle to interface with FB as they change/update code on a daily/hourly basis and they are very poor communicators with the development community of these occurrences, so they usually find out when a client complains their interface with FB isn’t functioning.

    There are many a tech company that learned the hard way not to piss off developers. FB is on track to learn the hard way.

  2. Orange14 says:

    BR – good post and I think spot on. Neither my wife or I are FB users or intend to be. However, both my daughters are and I’ve asked them what the use FB for. It pretty much is only to keep track of what their friends are up to. The both use Google for e-mail and when they want to buy something on the Internet, they use Google to search for potential vendors. Unless FB can figure on a way around this conundrum I cannot see them becoming as profitable as Google.

  3. Doofus says:

    This DAU count methodology is ridiculous.

    Shamefully hyped, overly expensive. Danger, Will Robinson.

  4. teraflop says:

    Comment, a la plastics: “sticky eyeballs.” Now fb can measure it. 12 years ago it was theory.

  5. dead hobo says:

    BR believes:

    Think of what this means in terms of monetizing their “daily users.” If they click a like button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services

    This is incorrect. It’s my understanding that pressing LIKE puts a cookie on your PC. If you are logged in to Facebook at the time, this cookie can be personally identifiable. Under some circumstances, advertisers can also view the cookies written by pressing LIKE. Thus, just pressing LIKE allows advertisers, not just Facebook, to know a lot about you and potentially sell you something.


    BR: They can gather data — we know they do that well. But it explains why the RPU (Revenue per user) is so low

  6. Michael M Thomas says:

    At the end of the day, doesn’t it come down to the metric by which we used to analyze airlines (back in the day when there were such): by comparing revenue seat miles with available seat miles?

  7. Mike in Nola says:

    You don’t need an addon if you are using IE9.

    To block facebook tracking from site to site, if you use IE9, all you need to do is go to “tracking protection” under the safety menu, enable “your personalized list” go into settings to set it to automatic and use the control to set the number next to “show content from providers” to something like 3. That will block any ubiquitous trackers, which are more numerous than you know. You’ll see a list of all the crap that is blocked. If you want to work harder you can manually set it to block certain trackers and allow others.

    Here’s a video explaining it:

    If you ever want to unblock tracking while on a particular site, you can move your mouse to the little circle with the arrow through it (is there a name?) up in the address bar. You can tell it to turn off the tracking protection for that site only, say for facebook itself.

    Even better using the tracking protection section, you can click on “get tracking protection online” and install the Fanboy tracking protection list (TPL). It will block a much wider array of trackers. Don’t use TrustE; it’s a shill for ad companies.

    Also, there’s a setting for ActiveX filtering which gets rid of all those Flash Ads. It will also block legitimate videos. Again, you can turn off blocking for a particular page by moving your mouse to that icon in the address bar and telling to turn off ActiveX filtering. It will only turn it off for that site.

  8. ByteMe says:

    What? An overhyped, overpriced IPO in the tech space?!?

    I’m shocked! :shock:

  9. Bokolis says:

    Imperative is the mindset that, if people aren’t making transactions, they are not “using” your website; they are mooching. Y’all should know better than I do that there ain’t no money in that. If they are raising money, it had better go to introducing a transaction-based product. If not, then this is akin to raiding the trust fund, disguised as harvesting goodwill.

  10. dead hobo says:


    Google can be as pervasive, but they offer far more than narcissism to the Google user. Until I bought my Xoom, I also avoided Google. Today, I trust their privacy policy and settings and believe my browsing history won’t end up on a permanent record somewhere. I opened 3 gmail accounts (1 main, 1 for commerce and 1 for junk mail, all forwarding to the main acct) and linked them to my email client. I plan to move all of my personal business to them over time and close my other accounts. Even if browsing history were collected, the email client would not write cookies. While I require Google on my Xoom, I am only a casual user on my PC. (Plus I use a virtual browser that erases all session data using DOD standards every time I close the browser. Plus CCleaner just for grins.) I’ll probably start loading up on Android phones later this year.

    I read that gmail is the main mail provider for Google corporate and not just a place for anonymous addresses. Since all android phones require a Google account if you want to get decent use out of it, this makes Google the equivalent of a public utility in many respects. Their location services are going to be of great benefit. I relent, mostly.

    Google also offers scads of other useful programs and services, unlike Facebook. To some extent, writing here is, to me, a Facebook equivalent, although my personal information is as non-available as I can make it. It’s an educational project for me and probably as many as 3 people read my comments a couple of times a year, which serves my vanity.

    Facebook is a tool to get people to connect and make them available to advertisers. Connections can be direct or subtle. It’s a free society so narcissism and giving the gift or your personal privacy is legal and commercially beneficial.

  11. tmentele says:

    Robert Scoble does a persuasive job explaining why FB might be worth the money:

    …”Open Graph is only one way. Companies like Foodspotting push information INTO Facebook, but they don’t get value out. Developers, like Foodspotting, tell me they are hearing rumblings that Facebook is developing a new kind of advertising. One that looks sort of like Ad Sense, but that push ads out to Open Graph partners. Spotify, for instance, has pushed five billion songs INTO Facebook. Imagine when Facebook pushes ads OUT to Spotify!”


  12. RC says:

    Oh the eyeballs …. can I ever forget that “metric” …. The whole FB thing is exactly taking the some trajectory that late nineties eyeballs catching web based companies took. We know how that ended.
    Someone important (cant remember the name right now) wrote in the aftermath of the tech bubble burst that 10 times sales was a limit to watch out for. Anything higher than that is in bubble territory. With FB we are starting in stratoshphere already.

  13. streeteye says:

    Facebook has better ad targeting, since they have better personal information. (ie the example of a wedding photographer targeting every woman in Minneapolis who just changed status to ‘engaged’).

    That’s why Google has to re-invent their business around Google Plus. If they don’t start getting a similar level of personal information about their users, and delivering a similar level of targeting, Facebook will be able to charge more for ads. Then all the advertising partner media sites for AdWords and display will be better off on Facebook’s network. And Facebook will disrupt Google’s business.

    It’s a race to the bottom on personal data collection and usage, and only regs are going to stop it.

    Boils down to, how much of the ad market will Facebook pick up, how many users, what’s the lifetime value of a user to advertisers. Broad ballpark – advertisers in the US currently spend about $500 per person per year. Thought exercise – what portion is online eventually going to capture and how much will be Facebook?

    $100b is very rich – Google’s enterprise value after taking out the cash is a bit north of $150b. You have to believe Google is going to get seriously disrupted, or the market is going to get that big, and Google is really cheap.

    See Jeff Matthews – http://jeffmatthewsisnotmakingthisup.blogspot.com/2012/01/is-facebook-killing-google-no-but.html

    If you don’t like Facebook and their advertisers knowing everything about you, try Disconnect – http://disconnect.me/facebook .

  14. jgrand says:

    Hi Barry, I think your post is a bit misleading. In order to ‘like/recommend’ something you need to be logged in. Being logged in produces traceability and data, valuable to advertisers. Simply wanting to ‘like’ something is not possible without being logged in. I’m a good example. While I do have a FB acct, I don’t consider myself an active user. However, I’m always, technically logged in thru a mobile device and often recommend articles that i come across in web travels. On my home PC/laptop where I work from I make sure not to be logged in, unless to recommend an article. While on the surface it may not seem as if all this liking adds up to much, but I’d be careful to dismiss it so quickly and write with the sarcastic undertone. I’m also skeptical about the rich valuation, but with so much negative talk it could end up being quite the contrary play. Being 34 I’m in a quite a good demographic to see immense change that FB has produced with the younger generation. Eventually the teens and 20′s will have more disposable income and FB quite paly a significant factor influencing their spending decisions.


    BR: You don’t have to go to Facebook to login — All you do is click like, and a popup window appears — and thats it.

  15. InterestedObserver says:

    It seems from afar that FB is the relatively new thing on the block and that their revenue stream is from advertisers simply trying it out, seeing if there’s value. It’s clear that there’s a lot of internal tension in their business model. Optimal monetization and people will freak out over privacy issues, preserve privacy and the potential of the revenue stream starts to drop. I don’t think anyone really knows where the balance will fall, and that’s the risk with FB’s valuation.

    Perhaps I’m too old school, but from these eyes FB (and Google+ for that matter) seem to make sense primarily when you’re a brand – be that a company, blogger, or high profile public person. There are some nice features for everyone else, but there’s a bit of a cost in privacy and need to cultivate. Over time, that can be a lot of friction and it’s still unclear how good FB is as a tool for discovery since that is often driven by encountering stuff well off your usual mainstream flow of friends and information.

  16. I don’t see ads on the iOS app. As more people move to mobile how a they going to make money off them. Less real estate less revenue. That trajectory can’t be good.

  17. zozie says:

    For what it’s worth, my 24-year-old daughter removed herself from FB on Wednesday. For the last year or two her entries were almost all ” XX is going to…” in which she supported friends’ events – often when she wouldn’t even be in town. I would put her at the center of FB’s core demographic and people like her are suspicious of the endeavour.

    The big issue for FB is the fluidity of social media. Look at Myspace. It takes a lot of work to keep your Facebook presence up. More effort than I want to give it. It’s easy to let it slide, especially if you are not getting the positive feedback from all around you and that hurts the medium. The next cool thing is just around the corner.

  18. b_thunder says:

    Please correct me if I’m wrong, but it seems to me that FB’s “Daily Active Users” are not necessarily very active, and they don’t necessarily log in to FB daily?

    On a personal level, I have never registered for FB, and whenever I see an ad ( or receive an email ) that a company has a promotion or a sweepstakes that take place *only* on FB and are not available to the non-FB users on the “rest of the internet” – i write those companies a letter in which i let them know that i’m not a supporter of fracturing the internet on FB and “the rest” and in the future i will make a conscious effort to stop using this company’s products/services as much as possible. Do you hear me, Delta Airlines?

  19. [...] For starters, the idea of a Facebook, with about 1/4 of the revenues and 1/10 the profits, being worth 2/3 of a Google is, on the face of it, laughable. [...]

  20. theexpertisin says:

    Perhaps a significant amount of IPO shares will be bought by institutional investors, likely more than a few representing teacher unions and other public employees for their rich defined benefit plans.

    Ironically, those that rail against the 1%ers will subsidize new entrants into the “priviledged class”, and be overpaying on the stock to boot.

  21. “…Ironically, those that rail against the 1%ers will subsidize new entrants into the “privileged class”, and be overpaying on the stock to boot…”
    “Welding their own Manacles, never, even, learning ‘How to light a Torch’”


  22. [...] The big challenge is how to expand the advertising offering, including in its currently under utilized mobile platform, without creating more clutter and thus undermining the user experience. A recent analysis of the S1 filing suggests that the company will have to “monetize their user… [...]

  23. [...] been waiting for this. Barry ferrets out the first great gem from the Facebook IPO filings. If you press that little [...]

  24. Bob A says:


  25. dsimmons says:

    BR, it may be easier then a “Like”. Anytime someone uses Facebook Connect to login to someone’s website that would qualify as “connections via a third-party website that is integrated with Facebook”. It’s important to note that Facebook would be within their right to call them users. Why? These “trackbacks” allow FB to gather information on users outside of Facebook.com. I wouldn’t be surprised if people with a FB cookie that arrive at a FB Connect enabled site have their information transmitted back even if they do no logging in or “Like”-ing. If that’s the case, then anyone who *ever* had a FB account, didn’t delete the cookie and goes to a FB Connect site could be considered a user if they were really stretching the case – maybe… say, for an IPO.

    I think people are hung up on the semantics of using = user.

    Source: http://developers.facebook.com/docs/guides/web/

  26. Thor says:

    DH: “Today, I trust their privacy policy and settings and believe my browsing history won’t end up on a permanent record somewhere”

    Really? Why? I can’t remember if you work in the tech field, but trust me buddy, you are absolutely wrong here. 100%. They track everything, and they share most of it. Never, and I mean NEVER assume that what you do online isn’t being tracked somewhere, by someone, for all time.

  27. Thor says:

    I ask again, for all of those on here who poo poo FB – how many of you actually use it? And I’m not just talking about “I tried it for a couple months and I didn’t like it”.

    I honestly cannot comprehend how anyone who has used FB regularly would make any of these kinds of statements. Narcissism? That very much sounds like someone who has never used FB. Yes, there is an element of that for some people, but the vast majority of us use it to keep in touch with friends and relatives spread about the world. I watch my sisters in Texas keep up with what’s going on with my nieces and nephews and their children, I see my nieces follow their husbands as they are deployed (Navy and Army) all over the world.

    I suppose it all comes down to seeing what you want to see. If you don’t like it, and you don’t think it’s worth a shit, that’s find, just don’t pretend you are stating anything other than your own opinion, there are tens of millions of people who use it and like it for something other than self promotion.


    BR: Its not what its worth as a user, its what its worth as a publicly traded company — this discussion is about valuation, and UI experience.

  28. bear_in_mind says:

    More confirmation that FB is a colossal waste of time and bandwidth. It was a brilliant initial concept that tapped technology and latent narcissism to create an easy-to-use, open/closed blog platform. Then the ‘geniuses’ started scheming how to monetize and broadcast your data, breaking the implied social contract. It’s their cul-de-sac, so they can do what they want with your data, right? Maybe they have a clean legal stance, but their ethical stance is indefensible. Good luck with that, FB.

  29. donna says:

    There are ads on Facebook? Huh. Adblock Plus doesn’t seem to let me see them…. ;^)

  30. donna says:

    And yes, I also use disconnect me, and whatever else I can find to prevent tracking….

  31. [...] Facebook ($FB) and the St. Petersburg Paradox:  valuation matters.  (Jason Zweig also Big Picture) [...]

  32. andrewp111 says:

    There is ONE way that Facebook can monetize its heavy users and become a multi-trillion dollar company. Just one. Full legalization of internet gambling. Google could monetize this too over its Android system to multi-trillions/yr. Should anyone be surprised that the Democratic Party has done a full 180 on this issue and is now supports repeal of the Republican law against internet gambling? This could be the killer issue that wins the election, so don’t ignore this.

  33. dead hobo says:

    Thor Says:

    Really? Why? I can’t remember if you work in the tech field, but trust me buddy, you are absolutely wrong here. 100%. They track everything, and they share most of it. Never, and I mean NEVER assume that what you do online isn’t being tracked somewhere, by someone, for all time.

    Agree that Google could know everything about me with effort and computer resources. But they have grown so massive and provide so many services that it is prohibitively expensive to keep information on everyone forever, and also a little ridiculous since the value goes stale geometrically with time. They probably stratify high value from low value users. They probably link user id with click info, but for marketing purposes, putting it out there at sign-on is unlikely since it would be incompetent marketing to tell all about each user just to look like a know-it-all. One scare would chase away 10 million users plus attract the attention of a thousand lawyers. Also, if I looked at tires from ABC in 2009, how valuable is that today? Google has grown into a pervasive world wide utility from a nosy advertiser. Facebook is still at the nosy advertiser level.

  34. ssc says:

    FWIW, I noticed there’s been a surge in my email for companies that want to be “liked”. For example, I order dog food from wag.com and just got an email that says if they gather 10,000 likes, there will be a donation to homeless dogs, and there are similar pushes from a variety of companies that I do business with. I ignore them, but wonder if there is a push now to crank up the numbers..

  35. [...] users,’ ” Barry Ritholtz, the chief executive and director for equity research for Fusion IQ, wrote on his blog. “If they click a ‘like’ button but do not go to Facebook that day, they cannot be marketed [...]

  36. [...] a lot less impressive than it sounds. Barry Ritholtz, the CEO and research director for Fusion IQ, noted in his blog that Facebook counts users even when they don't visit [...]

  37. [...] clever blog post by Barry Ritholtz (Chief Executive and Director for Equity Research at Fusion IQ) and an equally [...]

  38. [...] it turned out Andrew wasn’t manufacturing scandal — he went on to quote equities expert Barry Ritholtz: Think of what this means in terms of monetizing their “daily users.” If they click a like [...]

  39. [...] matter of how Facebook defines users. Not long after the prospectus was released, Barry Ritholtz pointed out on his blog that Facebook seems to be grossly inflating the number of people it counts as “active [...]

  40. [...] matter of how Facebook defines users. Not long after the prospectus was released, Barry Ritholtz pointed out on his blog that Facebook seems to be grossly inflating the number of people it counts as “active [...]

  41. [...] am as much of a Yelp fan as I am a Facebook fan — which is to say, not much at all. As a writer, I find the [...]