Social Media Valuations – Profs Galloway & Damodaran
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Social Media Valuations – Profs Galloway & Damodaran


[MUSIC PLAYING] – [Scott Galloway]: So we’re here with Professor
Aswath Damodaran, professor of finance at NYU Stern. The social-media space, it
looks as if Facebook is sort of running away with the game. You could describe the sector as
Facebook and the seven dwarfs. Every day they get stronger. They made some
incredible acquisitions. What does that mean for
valuations in the space, or as Facebook becomes
more and more powerful, does the rising
tide lift all boats, or do we start to see the
other ones deflate and Facebook continue to melt upwards? – [Aswath Damodaran]: I think the
social-media space is driven by this big online
advertising market. So let’s start with
that as a premise. It’s a big market
that’s out there, and I have a feeling It’s
a winner-take-all market. It’s a market
where the winners– maybe not one, maybe
two or three companies are essentially going to end
up dominating that market. When Facebook first
went public, I valued it as a Google
wannabe, a company that if it was like
Google would be a success. And I have to make a confession. I think Facebook has surprised
me in really good ways. It’s a company
that seems to think about how to convert its users
into revenues and profits every minute of the day. It’s not something
I say about most of these social-media
companies because they seem to assume that
if you have the users, the revenues will come. But Facebook, I
think, has clearly kind of made that connection. And because of that, when
I value Facebook today, I no longer valued it
as a Google wannabe. I think Facebook is going
to dominate this business and Google is going
to be the Facebook wannabe in this market. So I think if Facebook succeeds
in the scale that it will, it’s really bad news for a
lot of the other social-media companies in the space because
there isn’t enough of a market for them to survive. I think that if you’re a
social-media company then, you’ve got to think
about niche markets. I think about LinkedIn. You go for a space where
Facebook is not that interested and you make it your market. So I think increasingly
from a business standpoint as a social-media company,
the domination of Facebook has to be built into
your plans when you think about what to do next. – [Galloway]: So let’s talk a little bit
about Facebook versus Google, because people talked about
YouTube disrupting TV, and now it looks like Facebook
might be disrupting YouTube. And now there’s
more native videos being uploaded to the Facebook
platform that links to YouTube. It looks like with
autoplay, more video is going to be consumed off of
Facebook than off of YouTube. Do you think you
could potentially see an environment where Google
starts to leak value and market cap to Facebook? Has it already started? – [Damodaran]: I think it’s already started. And I think that, for Facebook,
the point at which that shift happened is when they succeeded
on mobile, because the reality is the future of this is
all going to be mobile. I mean, we’re not
going to be sitting in front of laptops
and computers checking out YouTube videos. You’re doing it on
phones and iPads. And the minute Facebook
cracked the code– and it took them a
while to do that, to get on mobile and get
people checking Facebook videos on mobile sites– I think they were able to
get a step ahead of Google. Because the reality
is people no longer go through search engines
looking for YouTubes. They go through Facebook
pages looking for videos. – [Galloway]: What do you think of this idea– and this is a question
pregnant with a comment– we believe here that
Facebook native stories idea where these old
media companies are letting stories stay on
the Facebook platform and then keeping the
advertising revenue, we feel this is almost sort of
a second self-inflicted wound, the first being letting
Google crawl their data and slice it up. But now they’re saying you can
keep the advertising revenue but we don’t want people
to leave Facebook. Doesn’t that, at
the end of the day, sort of lead these
guys down the same path and ultimately spell even lower
valuations for the old media guys, the New York Times
companies, et cetera? – [Damodaran]: I’m reminded of the
old music companies telling Apple, iTunes you
can do this but not anymore. We’re going to give you this
and we’ll keep the rest. You’re letting the camel’s
nose inside the tent. Sooner or later Facebook
is going to say, hey, we don’t need you guys. So I think it’s a
reflection of the fact– but it’s a fight
you can’t win anyway because if you don’t go
the social-media space, nobody’s reading you. So you need the
social-media companies, but they’re so much bigger
and more powerful than you are and so much more
necessary for this process to work that they’re
going to walk away with the bulk of
the spoils here. It’s a question of when,
not a question of whether. – [Galloway]: You talked about LinkedIn. We believe that
LinkedIn– and it’s hard to find value
anywhere in here, but from a layman’s
perspective we would say that
you could probably find some value on LinkedIn
based on the sheer fact that it has what we feel is
the greatest moat around it. You might flirt with
Pinterest or Twitter and decrease your
usage of Facebook or go onto Instagram,
another Facebook property, but once you have your
resume on LinkedIn, you’re likely there for a while. And they also have a more
robust revenue stream. They get revenue from
different sources. Is there value in
LinkedIn relative to the other platforms? – [Damodaran]: I like LinkedIn. As a social-media
company, LinkedIn has always impressed me as
a company that has a plan. Like Facebook, it’s looked
past the number of users, saying how do we make
money off our users? So whether it’s the
premium memberships or whether it’s the ads,
they’ve recognized very quickly that they’re in a niche market. They’re not going
to go face to face with Facebook on the online
advertising space and win, but they don’t have to. There’s enough money here
that a niche of this market is still a pretty big market. And I think LinkedIn,
because it’s focused– and that’s, I think, the key– has been able to
succeed in that market. It’s easy to get distracted
here by the mood of the moment, and a lot of these social-media
companies chase after whatever the mood of the moment is. And LinkedIn has not done that,
and that’s to their credit. – [Galloway]: So the whole social-media
ecosystem, private valuations– which we know now Pinterest
has raised maybe, I think, $11 billion. We see what some
of the others are. Most overvalued and undervalued
company in social media in your mind? – [Damodaran]: I’d say Snapchat is
probably the most overvalued because I can’t think of
a way in which they can– maybe they’ve got this
giant plan out there, but I can’t think of a way in
which their particular product can lend itself to advertising. I would say Twitter
has the potential to be a valuable company. So even though it might
look overvalued now, it’s because of the
way they’re managed. I think if they
were managed better that 300-million-plus
users could be put to much better use. But Snapchat, I can’t even
think of a way in which you can convert those users into
revenues without undercutting the product you’re selling. – [Galloway Great. Thanks Professor. – [Damodaran]: You’re welcome. [MUSIC PLAYING]

2 thoughts on “Social Media Valuations – Profs Galloway & Damodaran

  1. I've never seen a facebook video load fast enough for the actual video in my life – no matter the country or internet speed.

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