Are we entering a social media bubble? Part 2

In the last part we went over some of the revealed financials of LinkedIn.

In this part we will look at two other social media giants: Twitter and Facebook.

Twitter:

Twitter keeps most of its financials and information under tight wraps. However, there have been supposed leaks of a few pieces of information. Let’s look at some of the “rumored” numbers for Twitter:

  • In December 2010, Twitter was valued at nearly $4 billion by investor Kleiner Perkins
  • Recent investor talks in February have put the new value at $8 – $10 billion

User and Usage Statistics:

  • In April 2010 Twitter had 105,779,710 registered users
  • New users are signing up at the rate of 300,000 per day
  • 180 million unique visitors come to the site every month
  • 75% of Twitter traffic comes from outside Twitter.com (i.e. via third party applications.)
  • Twitter gets a total of 3 billion requests a day via its API
  • Twitter users are, in total, tweeting an average of 55 million tweets a day
  • Twitter’s search engine receives around 600 million search queries per day
  • Over half of all tweets (60 percent) come from third party applications

Finances:

2010:

  • Net revenue, 2010: $45 million

2011:

  • Net revenue, 2011: eMarketer expects Twitter to earn $150 million

projected twitter revenue

It is important to note that Twitter still had negative profit in 2010 due to hiring and data center costs.

Revenue Streams (including rumors):

  • Promoted Trend (lasts 24-hours): $80,000 (rumored)
  • Promoted Tweets: $100,000 (rumored)
  • Twitter Halfhose – composed of 50% of all tweets: $360,000
  • Twitter 5% of all tweets: $60,000
  • Twitter Mentionhose – composed of all mentions of a Twitter user, including @mentions and re-tweets: not disclosed
  • Twitter Decahose– composed of 10% of all tweets: not disclosed

It is also important to note that the promoted tweets and trends only started last spring, and the other revenue items were just announced in November, 2010.

I do have a few issues with the limited data released. My first issue is with Twitter’s revenue model. Until 2010, Twitter did not appear to have any real revenue models. Even with a true model starting to emerge, it is still not yet profitable. There is potential, that cannot be denied, but is the potential worth a value of $8-$10-billion? Was the potential value worth $4 billion back in December when profits for the year were in the red? Projections show revenue increasing to $150 million for 2011, but how seriously should we take these projections? $100,000 a pop for a promoted tweet from potentially hundreds of companies seems to have lucrative potential. Another thing to consider is how users will take the fact that companies will be able to “buy” all of their tweets and @mentions.

Facebook, on the other hand, has something most other social media sites do not have: a real revenue model.

Let’s look at the numbers from Facebook:

  • Goldman Sachs’ $450 million investment valued Facebook at $50 billion

Finances:

2009:

  • Net revenue, 2009: $700 million (estimated)
  • Net profit, 2009: $200 million

2010:

  • Net revenue, 2010: $2 billion
  • Net profit, 2010: $500 million (estimated)

2011:

  • Projected net profit, 2011: $1.1 billion

ad revenue

Facebook User and Usage Statistics:

  • 600 million users
  • Facebook is banned in China
  • Facebook got more hits than Google in 2010
  • more stats

We can see that the ad revenue generated from Facebook alone is more than the combined revenue of all other social media sites. Additionally, for any revenue generated by a company through the site, Facebook garners a 30% cut. For Example, Facebook gets 30% of the revenue generated from games such as Farmville and Mafia Wars. This revenue model is similar to how Apple handles its app store. Of all the social media sites this appears to be the most stable and sustainable. Instead of only relying on ad revenue, Facebook can generate revenue from content created by others.

So are we entering into a social media bubble? I’m sure you already know what I am going to say, but I will make it official. Yes, I do believe we are entering a social media bubble. As many of these social companies make the move to go public, there will be much speculation about the potential which will drive up initial prices. My prediction is that once it is realized the revenue models for most of the companies are not sustainable or realistic, the bubble will burst. The exception to this I see is Facebook, as they have the advantage of having more reliable and sustainable options for revenue due to their robust platform. This isn’t to say to not invest in the IPO’s of these companies. There will be price frenzies in the initial offerings. However, I would recommend caution in holding onto them for longer terms.

Facebook Link Map

Facebook Link Map (Click to see high resolution version)

Comments
2 Responses to “Are we entering a social media bubble? Part 2”
  1. Gian,
    I totally agree that there is a Social Media bubble. And, it really concerns me as I don’t think the economy could take another bubble burst.

    Thanks for the great content!
    Sharon
    http://www.sharonmarkovsky@gmail.com

Leave A Comment