Facebook: $38/share, $117/user

-- By MatthewGriffinCashia - 14 Oct 2012

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At the time of its IPO, Facebook was valued at $100 billion. This resulted in an offering price of $38/share. After building financial models and compiling comparable company analyses I was unable to come anywhere close to such a valuation. Nor has management – i.e. Zuckerberg – made any satisfactory projections as to where growth will come from. So why have the gurus of Wall Street deemed this medium for social interaction to be of such worth?

Let’s take a quick look at the facts. According to its S-1, Facebook had 850 million monthly active users at the end of 2011. With annual revenue of $3.7 billion, this equates to an average revenue per user (ARPU) of $4.35. ARPU and Facebook’s IPO price are constantly being flaunted and discussed by Zuckerberg and the media; however, neither Zuckerberg nor the media ever mention an even more important number: $117. What does this $117 represent? Well, based on Facebook’s valuation, Zuckerberg effectively sold each Facebook user – i.e. you – for $117.

According to its S-1, Facebook derived 85% of its 2011 revenue from advertising. Big deal, right? All Facebook does is let advertisers pay to post ads on its site. Wrong. Facebook’s data gold mine allows it to divide its user base into numerous demographic and preference packages which it then offers to advertisers. Everything you “like” or view is now going to be packaged and sold; however, this doesn’t just affect your experience. This information gathered and sold to advertisers will also in turn grant them more information about your “friends,” thus filling up their screens with more ads.

For a site that was built to make the world more open and connected, it feels like Facebook has sold out. Rather than a contact list of friends, families, and communities, it has become a marketplace where Zuckerberg and advertisers plot on how to extract value and commercial gain from selling and buying you. Even comical is the fact that while Facebook lists as one of its risk factors the possibility that hackers could steal the information it has, it fails to identify that it is in the same business of the hackers: stealing information and profiting from its obtainment. The privacy and security measures Facebook has taken are merely a tool to safeguard its profits by reducing competitors’ ability to obtain your information, and not to safeguard you, the user.

Zuckerberg has attempted to portray himself as the carefree Gen Y type, and attempted to portray his book of your information as nothing more than an innocent medium to connect with others. This is an image he has attempted to maintain while he made billions by selling your information. Zuckerberg made billions, the Wall Street fat cats got fatter, and businesses worldwide now have the ability to know your life as well as you know yourself. It seems like the only group not getting a cut of this $117 is the people who provide, and by right own, the very material being sold.

I propose that Facebook’s worth is derived from its user base. Why then should they not share in the wealth that is being reaped from it? As the owners and contributors of the information sold, Facebook users should share in the benefit produced by their exploitation, and not just by receiving more narrowly tailored advertisements.

So how do we get it? We could petition Facebook, but seeing as how Zuckerberg is the majority shareholder no action can be taken by Facebook without his approval. And I don’t see him as being interested in giving anything back to the people he took it from, since it was Zuckerberg who eventually decided to sell out to the capitalist ideology and tarnish the at once potentially pure medium of exchange and expression that Facebook represented.

But wait, don’t we have privacy laws? Of course, that must be the way. However, because of the fine print you acknowledged when signing up for Facebook, you have no rights to stop them from any of this. In fact, you explicitly approved the sale of your information and have effectively sold yourself, or at least your digital self, into slavery. You are a slave to Facebook. You toil in the digital data mines adding further value to them through your posts and likes, and Facebook, your master, reaps the benefits without paying you any wage. Maybe next time you see one of those agreements you should read it. You might be surprised by what you find.

What about a boycott of Facebook? Maybe we could just go back to using MySpace? . This time let’s just refuse to authorize the new site to steal our information? Sure, this is at least hypothetically possible. Of course, it doesn’t address the injustice that Zuckerberg has inflicted on users for his own pecuniary gain.

Sadly, it seems that there are currently no adequate routes to address the crimes being committed by Zuckerberg. In fact, the very entity we constructed to protect us from injustices such as this – the government – has explicitly allowed Facebook and other companies set up to launder money derived from sales of stolen information to go forward with these acts unpunished.

So back to our question: how did the wizards of Wall Street reach a $100 billion valuation? They reached such a valuation through the realization of what Facebook is: a theft. And theft has pretty good margins. Wall Street, being familiar with such improper shifts of wealth, saw the value that this scheme represented. Further, having the government in their pocket, Wall Street realized that this was a scheme that could be perpetuated indefinitely with little resistance from the users who were too blind or too unconcerned to rise up against such an injustice.

So will we, the users, the victims of Facebook, ever be made whole from the theft and exploitation of our personal lives and activities? Let’s just say I wouldn’t keep checking your mailbox for any checks.