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Facebook value overstated, study finds

Researchers warn of a social networking bubble in the offing

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10:20am, October 28, 2011

Claims that Facebook is worth $100 billion or even just $65 billion grossly overvalue the company, say researchers who have done a simple calculation of the company's worth. The pair of econophysicists warns that inflated value estimates for sites such as Facebook, Zynga and Twitter are signs that a social networking financial bubble is gaining steam.

"It's not the same volume of the dot-com bubble. That was really widespread," says coauthor Didier Sornette. Nevertheless, he and colleague Peter Cauwels conclude, a social networking bubble — and its impending pop — loom.

The ETH Zürich researchers argue that determining the value of social networking sites is vastly simpler than with other companies, because there's a relatively direct link between the number of users and profit. This boils the math down to a simple equation: the number of users times the profit per user. Calculated that way, Facebook's value is probably in the neighborhood of $15 b

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