bubble, MySpace, valuation

Is MySpace worth $10 – 20 BILLION?


Doubtful.

According to RBC Capital analyst Jordan Rohan, it might be possible. “Rohan said MySpace could demonstrate a value of between $US10 billion and $US20 billion within a few years. Acknowledging he was making an ‘audacious claim’ he justified the forecast on the basis of MySpace’s ‘raw, unprecedented user/usage growth.’” (Quote from Sydney Morning Herald).

This is bubble talk. Paul Kedroski thinks that “putting up oversized estimates of a company’s value is mostly a marketing move for a financial analyst, not an exercise in company valuation. The number doesn’t matter; it is simply a piece of red meat to attact the media pack.” (Quote from Infectious Greed).

Occassionally analysts get caught up in the excitement of the next new thing to make wild predictions about technology (aka the hockey stick projection). We saw way too many of these predictions during the dot-com bubble. Looking back at projections made in 1999 and early 2000, how many predicted that [insert name now defunct company here] was in a position to take over the world in just a few short years?

In reality, technologies rarely, if ever, continue meteoric rises, and MySpace is no different. Yes, MySpace has had tremendous growth. Yes, they are one of the most frequently visited sites on the Internet. However, two things are likely to prevent MySpace from hockey stick growth:

  • First, young people are fickle when it comes to trends. MySpace is the hottest social networking site right now, but it may not be as hot in a few years. The younger participants may find another site more interesting as they become old enough to participate, or another company may target the below 14 crowd and keep them as they grow older.

  • Second, growth will stabilize as the market gets saturated. A new group of 14 year-olds become old enough to use the site every year; however, at the same time, others will drop off as they outgrow it or move on to other interests.

I am not saying that MySpace will crash and burn anytime in the near future. I suspect that it will continue growing at a *reasonable* rate (just not at an exponential rate).