What Are Social Media Sites Really Worth?

For something that was practically unknown at the beginning of the century, the social website phenomenon has created a frenzy among internet users and investors. From social media and gaming sites to social networking and social buying, many of these websites are fetching multi-billion dollar valuations. IN PICTURES: How To Make Your First $1 Million

When News Corp acquired MySpace in 2005 for $580 million, the ground breaking deal made international headlines. However, the value of the following social websites makes the MySpace purchase price look like chump change. (The glitz and glam of Hollywood could help put some more glitz in your pocket. Check out Analyzing Show Biz Stocks.)

Social Business Networking
LinkedIn ($2 Billion)
Out of the list of social website giants, LinkedIn was the first one on the scene and will be the first one to go public. The company was founded in 2002, quickly captured a 34 million user base at the beginning of 2009, jumped to 60 million within one year and surged to over users 90 million as of 2011. Perhaps helped by the recession, as millions of unemployed workers explored alternative measure to finding a job, LinkedIn provides the valuable service of helping professionals expand their network of business contacts. This business networking site is valued at $2 billion.

Social Gaming
Zynga ($8 Billion)
Before Groupon earned the title of the internet's fastest growing website, the honor was held by Zynga, an online game developer. Able to leverage off the social networking phenomenon, Zynga developed the highly profitable and highly addictive Facebook applications of Farmville, CityVille and Mafia Wars. The power of social websites is possibly best reflected in the valuation of Zynga. Veteran game developer Electronic Arts, the maker of such popular titles as The Sims, Medal of Honor and the Madden football series, has a market cap of approximately $6.5 billion. Zynga, on the other hand, a three-year-old startup, is valued at around $8 billion. (While some investors see it as volatile and unreliable, the tech sector can provide fantastic returns for investors with a little knowhow in the field. (See A Primer On Investing In The Tech Industry.)

Social Media
Twitter ($8-$10 Billion)
Although not as famous as Mark Zuckerberg, the founders of Twitter created the internet equivalent of text messaging. The company was created in 2006 and gained immediate acceptance within one year. Twitter has an estimated 190 million users who generate an average of 65 million tweets a day. Recent rumors have suggested that Facebook and Google may potentially be interested in purchasing the micro-blogging website. With blogs and online media gaining worldwide popularity, Twitter will continue to capitalize on this trend.

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Social Buying
Groupon ($15 Billion)
Groupon is a fairly new entrant to the social website landscape. Andrew Mason launched the website in November of 2008 with a simple idea – sell people coupons. What initially started with a focus on the Chicago consumer, Groupon now has major operations in Israel, Columbia and Romania. While others have tried to replicate Groupon's business model, this social buying website has capitalized on its first mover advantage and has become the fastest growing site ever. During the mid-months of 2010, analysts were skeptical that Groupon deserves the suggested $3 billion valuation. However, only several months later, following Groupon's rejection of a $6 billion offer from Google, the website is speculated to move forward with a $15 billion IPO.

Social Networking
Facebook ($50 Billion)
After what started as a simple idea to connect people around Harvard, Facebook has seen exponential growth. In the seven years following its creation, this social network currently has 500 million users, 50% of which use the site on any given day. With ever-growing traffic levels, in September of 2010, Facebook became the internet's top ranked website, jumping in front of Google. Despite that other social networking sites appeared in this space before Facebook, Facebook provides a more personal experience between users. Mark Zuckerberg's creation is currently valued at an astonishing $50 billion.

The Bottom Line
The extraordinary price tag put on social websites has many speculating that the industry is in a bubble. However, only time will tell whether or not these multi-billion dollar companies continue to experience the level of growth required to justify their valuation.

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