An Accurate Financial Valuation of Social Media Assets (Facebook)

Abstract

The global economy constantly changes to satisfy the demands of the consumer. In the past decade, tremendous strides in technological advancement have occurred. In fact, one of these recent developments includes the creation of social networks. These technology platforms connect millions and even billions of people around the world. Although the original intention of this invention served as an amenity to consumers, enterprises have discovered their place within these social networks. Immense opportunity arises with the potential customer bases that emerge from social media platforms like Facebook, Twitter, and Instagram. Although some firms choose to promote their brand through digital marketing and advertisements, these social networks allow any business to create an account free of charge. This gratuitous feature allows any company to acquire a customer segment simply through a social media account's followers. Although a company's social media account attracts a tangible number of users, a tangible value of this following remains a mystery. The universal acceptance of social media justifies the presence of value in these assets. However, no one has identified an accurate method in calculating this value. Unfortunately, businesses do not actively exchange these type of assets, which inhibits the analysis of comparable transactions. However, the recent explosion of data analytics provides the solution to this previously unsolved dilemma. These analytics define value through the cost approach with statistics such as cost per click or cost per action. However, these underestimate the true value. The author believes the calculation of cash flow production will yield the most accurate valuation. The data analytics provide a channel that will lead to the annual cash flows of each social media account, and this model will calculate the most accurate value of social media assets.