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Economic Analysis

The Real Value of Facebook, Sans Envy

I do not plan to invest in the stock at this point but I will try to explain here the real value of this company for the economy, not the value speculators or investors are looking for.

It is estimated that social networking accounts for about 22% of the time spent online. Facebook, Twitter and other social networking sites contributed to a substantial increase in the number of computer users and to prospects for higher growth of the PC industry. People who would never use a computer in their spare time and maybe not even at work bought one, or a smart phone, for social networking purposes. The impact was multi-sided: Revenue coming for PC sales helped the retail sector, the PC makers, the chip manufactures, University researchers and students, etc. This impact was needed at a point in time when signs of saturation in the PC industry were on the horizon, it was like a blood infusion. In my opinion, Facebook was part of the needed solution for the popularization of PC that the industry was looking for a long time.

So what is the real value of Facebook when its real impact on the economy over the last 5-7 years is taken into account?  I cannot estimate it but it should be very high, even higher than it is estimated for its IPO given that this company is the main drive behind a trend that has a high impact on the computer industry growth and as a result on economic growth.

Some argued that Facebook is selling its users and its founders are becoming millionaires. I sense some envy behind such statements. I am not a millionaire but I have come to the conclusion that this world has a future as long as new millionaires are born constantly. Thus, I prefer to look at the extreme fortunes Facebook founders and employees will make with their IPO from another angle; they are getting their cut of the profits generated from a significant impact of Facebook on the computer industry growth and on the economy, not from selling their users.

Disclosure: no relevant positions.