Monday, February 13, 2012

A Facebook detractor's vindication: something smelt rotten here

Thanks to Barry Ritzholz writing in Washington Post, I've learned that Facebook counts me as a "Daily Active User" for the purposes of its gazillion dollar IPO (stock sale). The truth is I hate Facebook; if I want to interact with friends, I contact them. I cruise the World Wide Web for the opportunity to encounter the new and unfamiliar, not to float in my social circle. I pass through Facebook only for practical purposes to check on occasional event invitations.

But I'm a "Daily Active User" because this blog automatically publishes to Facebook, whether anyone looks at it there or not. This is accomplished by some blog widget whose source I've forgotten.

But to make the maximum amount of money for Mark Zuckerberg and friends, Facebook has invented some vastly inflated metrics to describe its usage. Ritzholz reports:

Facebook’s SEC data [purported] to show how fast the firm was growing. FB was becoming a “daily habit for more users,” and the numbers from the IPO filing were extraordinary: 845 million Monthly Active Users and 483 million Daily Active Users.

MAU? DAU? I had never heard of either metric, and novel accounting for public companies is always a red flag. Don’t just take my word for it, ask a Groupon investor.

It turns out that Facebook "users" don't necessarily visit the site. If you hit a "Like" button anywhere or, automatically publish there from another site as I do, your "usage" has been invoked inflate Facebook's value.
Ritzholz summarizes his conclusions:

What I learned from Facebook’s filing was that they have 161 million active users who actually go to each month. That’s not shabby -- but it’s a far cry from the MAU claims of 850 million. That definition of active users is probably overstated by a factor of 500 percent. I suspect that the $100 billion valuation may be overstated by nearly as much.

Facebook may turn out to be the goose that laid the golden egg yet, but somehow this detractor is not surprised that there are some phony implications in its self-description.

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