What Are 'Users' Worth in Valuing Companies? A Lot -- if They Pay Up

NEW YORK (TheStreet) -- What's a user worth online?

To backtrack -- online companies track their users carefully, referring to them as MAUs. Those are monthly active users, and each is a person who's tried an online site or service and likes it.

Most of the time, MAUs refer to users of apps or websites. They usually don't pay for a service, although sometimes -- most often in the case of gaming companies -- they do.

Usually, a paying user of a service is called a "subscriber." Typically, these types of MAUs pay on a monthly or annual basis.

Facebook (FB), for example, has 1.28 billion MAUs. Its market cap is $156 billion. That's about $122 per user.

However, Facebook also has acquired Instagram and WhatsApp in the past two years. WhatsApp had 450 million MAUs and was bought for $19 billion. That works out to $42 per MAU. Instagram had 20 million MAUs two years ago and was bought for $1 billion. That's about $50 per MAU.

Of course, Instagram has increased its MAUs from 20 million two years ago to 200 million today. That means Facebook only paid $5 per MAU two years ago -- a bargain.

Facebook doesn't tell us how much overlap exists between the MAUs of its different services however. Presumably this is because there is a lot of overlap.

This means that, in total, Facebook probably doesn't have many more than 1.3 billion MAUs. I would guess no more than 1.5 billion.

What about Netflix (NFLX)? The online movie distributor has 44 million subscribers or MAUs. Each streaming subscriber pays roughly $7.99 a month (more internationally); those who receive DVDs in the mail pay more. Netflix's market cap is $21 billion. So each subscriber is worth somewhere around $477.

Twitter (TWTR) has 255 million MAUs and a market cap of $22.2 billion. That means those MAUs are being calculated as worth $87 per MAU.

A report from Deutsche Bank today points out that King Digital (KING) has 307 million MAUs, making them only smaller than Facebook and Apple (AAPL) iTunes for MAUs. DB says King -- through its popular Candy Crush Saga game -- is ahead of Tencent's WeChat (estimated to have 272 million MAUs, which seems low to me), as well as ahead of Twitter's 255 million MAUs; Amazon (AMZN), at 237 million MAUs; Instagram, at 200 million MAUs; Zynga (ZNGA), at 123 million; and Netflix, at 44 million.

King's market cap is just under $6 billion, and it's got a valuation per MAU of $19.54. That compares to Zynga's valuation per MAU at almost $26.

There's clearly a difference between what the market assigns users who pay for a service (like Netflix) and users who don't by and large pay for a service (like Facebook). The companies without paying MAUs then have to rely on selling advertising to those users.

The paying user is worth $463. The non-paying user is worth only 25% of a paying user -- or sometimes much less.

Gaming companies are kind of caught between these two worlds. They have both free users and those who actually pay to level up or buy in-app upgrades. The latter, paying customers are tremendously important to the gaming companies. But only a handful of their players actually pay.

In Q4, Zynga's average user coughed up 6 cents in bookings (like revenue for Zynga). King's average user paid a little less than that. However, for both, well over 90% of their users play for free.

So, it's misleading for Deutsche Bank to imply that King is in a powerful position because of its MAUs relative to the other big services like Apple or Amazon.

Not all MAUs are created equal.

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At the time of publication, the author was long ZNGA and short TWTR, but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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