See How Much Money Your Social Networks Make Off of You
If you’re like many Americans, you probably use several social networks regularly, checking in on your smartphone, tablet, or computer to see the links your friends have posted, the photos they’ve uploaded, the videos they’ve shared, and the witty tweets and statuses they’ve penned during their spare moments. But have you ever wondered how many dollars you’re making for Facebook or Twitter when you spend all of that time with their apps and websites? And how much do you make for LinkedIn when you’re networking, or for Yahoo when you scroll endlessly through your Tumblr dashboard? And in turn how much those sites are worth because of you?
We’ve done some basic math to figure out how valuable your social media use is to the companies behind your favorite social networks. To figure this out, we looked at two numbers: the revenue each social network generates, and the size of its user base, using figures from the end of 2014 wherever possible. This yields a rough estimate of how many dollars the average user generates for the company. Most social networks rely on advertising for the vast majority of their revenue. But some, like Facebook and LinkedIn, also generate revenue by charging users for games or premium services. Calculating based on total revenue (not just advertising revenue) helps to take these other user-dependent revenue streams into account.
Find out how much you’re worth to these five social networks: Facebook, LinkedIn, Twitter, Instagram (owned by Facebook), and Tumblr (owned by Yahoo).
So let’s say that you use only Facebook for your social networking needs. You made $8.97 for the social network last year. But if you use Facebook to connect with your friends, and LinkedIn to connect with colleagues and network with others in your field, you made $15.31 for the social networks last year. Add in Twitter, and you’re up to $20.17. And if you use all five social networks, you made $22.74 for these social media companies all by logging in, posting and liking content, reading articles, and perhaps occasionally clicking on an ad.
There are a couple of caveats with this method. This kind of basic calculation assumes that all users are the same, while we know for a fact that your location, level of activity, how many friends you have, and what you do on the social network have a big impact on how much revenue you actually generate.
Even your gender has an impact on how valuable you are to your social networks. Additionally, your level of engagement with articles that Facebook links to or with Tumblr’s promoted posts also changes the dollar value a company could put on your usage. And whether you access your social networks of choice from your smartphone or on a desktop will also determine how valuable you are as a user.
How did we arrive at these numbers again? Facebook’s total revenue in 2014 was $12.47 billion, and it had 1.39 billion monthly active users as of December 31, 2014, according to its fourth quarter 2014 results. Facebook’s advertising revenue for 2014 was $11.49 billion (and Ad Age reports that Facebook is selling fewer ads but charging much higher prices for them than it has in the past). When we divide $12.47 billion by Facebook’s 1.39 billion users, we arrive at a revenue of $8.97 per user.
LinkedIn’s total revenue in 2014 was $2.22 billion, and it had 347 million members (though it didn’t specify how many are active users of the social network) according to its 2014 financial report. Ad Age reported that LinkedIn’s ad revenue for 2014 reached $454.5 million. Dividing LinkedIn’s $2.22 billion in revenue by its 347 million members, we get a revenue of $6.34 per member.
Twitter’s revenue in 2014 was $1.4 billion, according to its fourth quarter results. A document on company metrics and financials disclosed that in 2014, Twitter had 288 million monthly active users and earned $1.25 billion in advertising revenue. (Twitter also reported that timeline views reached 182 billion for the fourth quarter of 2014, an increase of 23% year-over-year, and advertising revenue per thousand timeline views reached $2.37 in the fourth quarter of 2014, an increase of 60% year-over-year.) Dividing Twitter’s $1.4 billion by its 288 million active users, we arrive at a revenue of $4.86 per user.
Facebook doesn’t report specific figures for Instagram. But in December 2014, Instagram announced in a blog post that it had reached 300 million users. In February, Cowen & Co. analysts projected that Instagram will generate about $700 million in revenue in 2015 (and $5.8 billion in revenue in 2020), according to Mashable. The same analysts say that Instagram is worth about $33 billion. Because we don’t have a number from Facebook on how much Instagram made in 2014, we’ll go with Cowen & Co.’s projection of $700 million of revenue in 2015, divide it by the 300 million users that Instagram disclosed, and arrive at a revenue of $2.33 per user.
Yahoo has stayed largely silent about Tumblr’s financials since it acquired the social network. But the Wall Street Journal reported in October that Yahoo chief executive Marissa Mayer expects Tumblr to generate more than $100 million in revenue in 2015. Mayer also disclosed that Tumblr’s audience has grown to 420 million users, while the number of registered blogs nearly doubled to 206 million. She explained that her number for Tumblr’s users includes both logged-in users and people who land on one of its blogs. Because we don’t have a number for Tumblr’s 2014 revenue, we’ll use Mayer’s projection of $100 million in revenue for 2015, divide it by Tumblr’s 420 million users, and arrive at a revenue of $0.24 per user.
It’s easy to calculate a rough estimate for a social network’s revenue per user when companies disclose how many users they have and how much revenue they make each year. But some companies — including a few important social networks — don’t openly disclose that data. While Yahoo, for example, doesn’t disclose how much revenue Tumblr generates, some companies are even more secretive.
Take Pinterest. The New York Times reported that Pinterest was valued at $11 billion in March after a round of financing, a round that highlights “the investment world’s continuing infatuation with Pinterest.” But Pinterest doesn’t disclose how much it generates in revenue. It also doesn’t disclose how many people regularly use its social network. Estimates from eMarketer hold that Pinterest had 42.3 million users in 2014, and could reach 47.1 million users in 2015. The Wall Street Journal reported that Pinterest’s unique U.S. visitors reached an all-time high of 75.8 million in January, according to ComScore. Pinterest itself doesn’t disclose user numbers. VentureBeat reported that 80% of Pinterest’s traffic now comes from mobile devices.
Snapchat is another social media player where we’re short on data (though speculation abounds). Fortune reported in February that estimates put Snapchat’s user base at more than 100 million people. And in February, Bloomberg reported that Snapchat is seeking a round of funding that would value it at up to $19 billion. As Bloomberg noted at the time, Snapchat’s valuation has skyrocketed since it was founded in 2011. Chief executive Evan Spiegel turned down a $3 billion acquisition offer from Facebook in 2013 and raised funds at a $10 billion valuation last year. But we don’t know how much revenue Snapchat is really bringing in, especially with its advertising infrastructure in its infancy, so we can’t yet calculate how valuable the average user is to Snapchat.
Snapchat and other social media companies have recently received sky-high valuations, or achieved mind-boggling market caps — the dollar value of all of a company’s outstanding shares — which raises the interesting question of why these social networking companies are worth so much.
Even though Facebook’s total revenue in 2014 was $12.47 billion, its market cap is well over $200 billion. (And calculating your value to Facebook based on its market cap would make your value to the company about $143.88.) But there are some interesting theories about how this market phenomenon, which affects a variety of young tech companies, tends to play out.
Explaining how Snapchat planned to make money, Henry Blodget wrote for Business Insider about what’s he’s personally referred to as “Gurley’s Law,” a theory laid out by Benchmark venture capitalist Bill Gurley in a report on the valuation of a small but quickly growing tech company that was trading at a stratospheric multiple of earnings. “Gurley’s Law is this,” Blodget wrote, “At some point, every successful tech company will trade at a normal earnings multiple — say, 20X-25X earnings.” Blodget says that Gurley’s law doesn’t mean that a tech company trading at a multiple higher than 20X or 25X is overvalued, but when the company’s growth has slowed to a more mature rate, the multiples on the company’s stock will also be “normal.”
How many dollars of profit would Snapchat need to generate to justify Facebook’s $3 billion offer? Using Gurley’s Law, Blodget calculates that Snapchat would need to generate about $350 million of revenue to produce a profit of $120 million. He writes, “For Snapchat’s $3 billion valuation to be reasonable, you have to assume that Snapchat will some day generate, say, $500 million of revenue and $200 million of profit.”
Snapchat’s valuation has only gone up since Blodget made those calculations. But the company seems as if it is on its way to generating some real revenue. AdWeek reported in January that Snapchat is asking brands for $750,000 a day for ads — both “Snaps” that appear in users’ Recent Updates feeds and ad placements in the Our Stories live feed, which compiles users’ photos and videos of major events. And in March, Re/code reported that publishers on Snapchat Discover can command between $50,000 and $100,000 for ads placed alongside their content.
All of this is to say that social networks are nothing without their users, but the ways in which social media companies monetize their user bases can change rapidly. And a company’s success in putting expensive ads in front of you, or getting you to buy games, gifts, or premium services on its network, determines not just what it’s worth, but what you’re worth to the social network as well.