Why is Facebook highly valued?

The latest development in the electronic world is that Facebook is now worth $50 billion. The facts are there: 550 million users worldwide; page views of 25% of all Internet users in cyberspace, and; Time’s Person of the Year Award given to Mark Zuckerberg, Facebook’s founding father and current CEO.

However, questions were raised as to whether the $50 billion valuation is not exaggerated. It is unclear where the alleged money should come from. Facebook is not publicly traded; Nor does it have a version of banner ads, which is the traditional way of making money online. However, Facebook shares are traded privately. Based on recent business transactions, those actions have placed Facebook’s value at $42 billion.

The final count, however, is not tied. Comparing it with other megalithic companies and world economies would reveal that at $50 billion, Facebook’s valuation would be equivalent to the Gross National Product or GNP of the Dominican Republic; 4 times the utility of the monolithic company GAP, and; about 70% of the massive McDonald’s empire with a market capitalization of $83 billion.

Comparing Facebook to other Internet-based companies would lead one to believe that it must have been overvalued. Recent valuations given by Goldman and Company give a price/sales ratio of 25 times. Apple for its part, has 4.5 times; and Google has less than 7 times the price/sales ratio to display. The reason for the perceived higher valuation of Facebook may be due to supposedly higher profit margins.

Facebook doesn’t have the kind of operating expenses that would eat into profits, nor does it have stores to maintain. It also has no rigid overhead, keeping only a small number of employees for the kind of profit it generates. Google’s profit now hovers around 29%. However, economic experts still find it hard to believe that Facebook can be 2-3 times more profitable than Google. Until a new system is implemented for Facebook, people will tend to believe that it is probably making money. But definitely not the kind of money like $50 billion, as is being talked about.

The spread of Facebook as a social network had been rapid and widespread. One of the reasons for their popularity is that the rules and procedures they have adopted are quite easy to understand. Among those mentioned are the following, namely:

1. You have to be your own person: Lying about your identity is a violation of Facebook’s terms and can lead to account deactivation. Facebook doesn’t allow anyone to sign up with an obviously fake name. Those who pass the name checks could be tracked and their account delisted.

2. You cannot be 12 years old or younger: US law prohibits the creation of public profiles for anyone under the age of 13. This is done for the safety of minors and once discovered, the account will be deleted immediately.

3. You may not troll or upload illegal content – you may not send unsolicited messages to people who do not know you; nor may you upload pornographic, criminal, or copyrighted materials to the site. If discovered, the account will be immediately deactivated or otherwise deleted.