Facebook Passes EBay in Value, Becoming No. 3 U.S. Web Company

Original Post: http://www.businessweek.com/news/2010-11-15/facebook-passes-ebay-in-value-becoming-no-3-u-s-web-company.html

November 15, 2010, 12:30 AM EST By Brian Womack

Nov. 15 (Bloomberg) -- Facebook Inc.’s estimated worth is now bigger than EBay Inc.’s valuation, making it the third- largest U.S. Internet business and underscoring the growing allure of social media for investors.

Facebook’s stock is trading at more than $16 on SecondMarket Inc., an exchange for shares of privately held companies, said a person familiar with the latest pricing data. That would put its worth at about $41 billion, more than EBay’s $39.3 billion valuation on the Nasdaq Stock Market. Facebook only trails Amazon.com Inc., worth $74.4 billion, and Google Inc., valued at $192.9 billion, among U.S. Internet companies.

“There is certainly good cause for Facebook to have a tremendous valuation,” said Augie Ray, an analyst at Forrester Research Inc. in San Francisco. “It has in fairly short order -- just a couple of years -- gone from being a very niche site to one where the majority of Americans spend a great deal of their online time.”

Facebook, the world’s largest social-networking site, previously vaulted past other Internet pioneers, such as Web portal Yahoo! Inc. and travel site Expedia Inc. By providing a platform for people to share everything from baby photos to what they had for lunch, Facebook has attracted more than 500 million users and a horde of advertisers hoping to reach them. It’s also a way for people to stay in touch with friends and form new connections.

IPO Signals?

The valuation doesn’t indicate what Facebook will be worth in an initial public offering, which could be years away, said Lise Buyer, founder of Class V Group, an IPO consulting firm in Portola Valley, California.

“It could be a bargain at $41 billion -- we won’t know until it trades on the public markets,” she said.

The value of Facebook on New York-based SecondMarket has more than tripled in the past year, according to the person, who declined to be identified because SecondMarket doesn’t publicly release trading data. SharesPost Inc., another private exchange, estimated Facebook was worth $40.9 billion last week. That’s up almost 50 percent in the past month, according to the Santa Monica, California-based company.

Valuations of closely held companies are less precise than those of their public counterparts because trading is limited to a smaller pool of investors and fewer shares are available. Facebook also doesn’t disclose financial information.

‘Fundamentally Speculative’

“We understand there is a great deal of interest and curiosity in our past and potential financial performance,” said Jonathan Thaw, a spokesman for Palo Alto, California-based Facebook. “However, external attempts to forecast revenue or value the company are fundamentally speculative and should be treated as such. We’re focused on building our business to be successful over the long term.”

The company expects sales of at least $1.4 billion in 2010, up from about $800 million last year, two people familiar with the matter said earlier this year. Facebook may not have an initial public offering until 2012 or later, giving it time to focus on growth, the people said.

EBay, while still expanding, depends on its online marketplace -- a more mature area than the social-networking industry, said Aaron Kessler, an analyst at ThinkEquity LLC in San Francisco. Analysts estimate that EBay’s revenue will grow 5 percent this year to $9.14 billion, according to Bloomberg data.

Alan Marks, a spokesman for San Jose, California-based EBay, declined to comment.

Advertiser Growth

Facebook makes money from ads and a credits program, which lets people buy virtual items in online games. The company has attracted such advertisers as Coca-Cola Co., JPMorgan Chase & Co. and Adidas AG. It also has maintained ad prices, even as its user growth creates a surge of space for commercial messages, Facebook said in August.

“As an advertising platform, Facebook has been proven,” said Mark Mahaney, an analyst at Citigroup Inc. in San Francisco.

Facebook’s users have increased by more than two-thirds since September 2009, when it had 300 million members. In March, the company surpassed Google as the most visited Web site in the U.S., according to research firm Hitwise.

At AdParlor Inc., which helps companies advertise on Facebook, some customers are spending $20,000 a day on the social-networking site.

Facebook lets companies craft campaigns to reach specific customers by age, location, hobbies and other attributes, making it more appealing to marketers. They’re also eager to reach all those millions of users, said Hussein Fazal, chief executive officer of Toronto-based AdParlor.

“It’s getting more attention,” Fazal said. “It’s the sheer amount of volume on the site.”

--With assistance by Joseph Galante in San Francisco. Editors: Nick Turner, Tom Giles

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net