More on the Monetization of E-Commerce Relationships
Thanks to our very good, very smart friend, Paul Helmick of Premier Strategies, for sending this article from "Mashable" - the social networking news site.
As a publicly traded company, SNAP Interactive (formerly eTwine Holdings), the company behind Facebook apps “Meet New People” and “Are You Interested?” is required to file their earnings every quarter with the SEC. Thus, we’re able to get a peek into how much money Facebook applications are actually generating.
SNAP reported $388,000 in revenue for their fourth quarter, which was up from $35,383 in the third. They attribute the growth to their applications: “Are You Interested” finished December with 5.2 million users, while “Meet New People” claims 350,000. Thus, it can be determined that each user was worth about 7 cents in revenue to SNAP in the quarter, or about 28 cents per year (388,000/5,500,000 * 4).
As deals become more common in the Facebook application space, the question becomes how much is a user worth? As a publicly traded company, SNAP is sporting a market value of around $10 million. At its current pace, the company looks to pull in $1.5-$2 million in revenue this year, meaning its price-to-sales ratio is 5:1. If you assume a 5x price-to-sales ratio, that would mean each one of SNAP’s users is actually worth around $1.40 (each user pulls in $0.28/yr, if the company is valued at 5x sales, you arrive a $1.40 per user valuation).
As for SNAP Interactive’s stock (STVI.OB), shares are up more than 400% in the past 12 months. However, it’s important to note that the company is traded Over-the-Counter (OTC), which means it’s highly risky and speculative. Nonetheless, it’s an interesting company to watch, if for no other reason than it lets us see the actual financials of Facebook applications.
Considering recent deals in the Facebook application space reported in the low-seven figures for apps with a few million installs, $1.40 per user seems to be a reasonable approximation of what an app user is worth, at least for apps with an advertising-based revenue model.
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