Thank You for Smoking (but not reporting)
There are days when The Browser wonders what the heck they are smoking over at Bloomberg. Take, for example, the report that while Facebook isn't for sale, one of its board members, Peter Thiel, says that the two-year-old social networking site's "college-aged users make it worth $8 billion or more, as much as Viacom Inc.'s MTV music video channel."
We know that the rules of reporting for a wire service say that when a prominent company insider says something substantive, you've got to report it as news. And Thiel is, admittedly, a pretty interesting guy; in addition to his tech and political interests, he was also the co-producer of the movie Thank You for Smoking. But isn't there any journalistic obligation to put the $8 billion number in some kind of context? The notion that Facebook, with its 11.6 million users, is worth as much as MTV is ludicrous. Viacom (VIA), which owns MTV, does not break out revenues for its individual cable networks, but all of Viacom's cable networks brought in more than $6.7 billion in revenues in 2005, and a hefty $2.6 billion in operating income. It's a reasonable assumption that MTV represents at least half of that, and so if Thiel's $8 billion figure is at all accurate, you're talking about a multiple for MTV something like 6-8 times operating income, which is about standard in the media industry. At times, Facebook's founders have claimed that the site turns a profit. But even if it does, the total revenues for the company could not be higher than eight digits. After all, Bloomberg's own figures indicate that total advertising spending on all social media sites is $350 million - a fraction of MTV's revenues. The Browser understands that we are living through a Web 2.0 bubble, but that doesn't mean that credible news outlets like Bloomberg need to blow smoke into it. He just said it was worth $8 billion, and you'd have to believe that that includes a lot of implied worth, meaning worth that won't be recognized for 3 or 5 or 10 years.
You are forgetting that anything is only WORTH what someone will pay for it. I would not be at all surprised if Facebook has received offers in the neighborhood of $1 billion, as it is a much better networking site for a variety of reasons that MySpace currently is. The $350 million in social networking advertising that you cite is sure to rise well into the billions in the coming years. Exactly, RP: "implied worth". You're certainly right that if there's anyone out there willing to pay $8 billion, or $80 billion, for Facebook, then that's what it's worth. Of course, I don't think that person exists right now.
My point is that a financial wire service reporter does a disservice to readers by failing to spell out the difference between "implied worth" claimed by a company insider, and an objective valuation using some kind of accepted industry metrics (like a multiple of earnings). Fair enough. The distinction between real worth and implied worth is an important one and I understand why you might be a little concerned that Bloomberg didn't make that distinction.
Go Blue! The reason why facebook is potentially worth so much is since it has vital information of millions of young people, information that can be sold to marketers for huge sums of money. Imagine bringing Google type targeted advertising to facebook, that is where the money is. Facebook knows people's interests, favorites (books, movies, clothes, etc.), in addition to being able to figure out who has the most friends and thus who is most able to influence other people. Facebook can sell the ability to show ads to *individual* users based upon their demographic and pyschographic information. The possibilities are huge.
JB: Don't get me wrong, I'm not trying to argue that Facebook is worth nothing! I understand the appeal and potential of the site. But I remember people saying exaclty the same thing about Tripod's college audience in '98, and where is Tripod today?
The point here is: when trying to fix a value to a company, good reporters use established yardsticks. Simply writing down a number thrown at you by a board member is sloppy, irresponsible reporting. 
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