Facebook founder, Mark Zuckerberg recently shot up the rich list rankings to become America’s 14th wealthiest person, ahead of Google founders, Larry Page and Sergey Brin.

Zuckerberg’s fortune is tied to the way in which Facebook is perceived and valued by those in the know and although there have been some indications that the site is stagnating after its initial astronomic growth, there are still more than 750 million active users on the site and it seems likely that it will crack the billion mark in the near future.

Facebook is not the only social network that has seen its valuation skyrocket after recent rounds of investment.

Microblogging juggernaut, Twitter is currently valued at close to $8 billion, or £5 billion, although it could be considerably higher given the rate at which new users are joining the site.

Social networking is making many people very rich, but there are obviously fears that this is yet another internet bubble that could burst at any moment.

The web has already experienced something of a crash when the markets dropped a decade ago and confidence flopped with many highly valued firms falling off the face of the planet.

This was at a point in time when 371 web-based American companies accounted for eight per cent of the US stock market, racking up a total value of $1.29 trillion at the time.

It is easy to draw parallels between the social networks of today and the dot com companies of 10 years ago, with vast sums of money pumped into fledgling firms in the hope that they will reap big rewards.

Facebook is unlikely to suffer such a spectacular fall from grace, although its operators are clearly aware of the fragility of its position.

In 2010, Facebook made a profit of an estimated $3.12 billion but it is valued much higher than this based on the amount private investors are willing to pay for a slice of its shares.

Because Facebook does not trade its stocks on the public market it is not obliged to publish financial results, but analysts can make a fairly accurate set of assumptions about the state of its balance sheets and just how much it is worth.

One of the latest Facebook valuations puts it at almost $70.3 billion, easily outdoing all other social networking sites including social buying service, Groupon which tops out at almost $16 billion after it raised $750.7 million in a recent round of fundraising.

What worries many insiders is that many of the smaller social networks are not actually able to make a profit out of their operations.

Facebook is an exception to this rule, but even Twitter has been struggling to monetize its operations even with a growing user base and increased focus on sponsorship and advertising.

As long as users keep logging on, social networks will continue to increase in value and although the boom and bust cycle must surely have an effect, there is no doubt that these new tools of communication will be harder to dislodge from the public consciousness.

 

Article provided by MoneySupermarket, the UK’s number one credit card comparison website. Find out more at http://www.moneysupermarket.com/credit-cards/

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Sanil S Founding member of MobMe Wireless Pvt Ltd, Ayruz Web Holdings

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