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Bill Gurley Bullish On Facebook, Social Media Firms


Facebook might well be worth its $100 billion pre-IPO valuation based on its dominance in the sector, venture capitalist Bill Gurley said Friday.

“From my perspective, the No. 1 thing that investors care about are barriers to entry and competitive position. From that standpoint, it’s hard to find another company in a better position,” he said.

In a wide-ranging interview on “Fast Money,” the Benchmark Capital general partner spoke about social networking and weighed in on a range of online companies, including which ones he was backing.

Facebook Filing IPO: Valuation Justified?

Gurley said a “protective moat” around Facebook’s business made it difficult for competitors to pose a serious threat in the near future, noting that other players such as MySpace, Friendster and Orkut have faded amid Facebook’s ascendancy.

Gurley said Facebook could see its stock trade at 10 to 12 times next year’s earnings, a thesis he discussed on his blog, Above the Crowd, and said the sector had room to grow.

“I would still argue social networking is in its infancy, that people are just figuring out what other people are going to do on these networks, and I would offer that the company has a ton of optionality from where it sits to establish new revenue models, new product lines, those kinds of things,” he said.

Gurley owned a stake in Facebook via its acquisition of FriendFeed, a social networking company.

Is Twitter Headed Toward an IPO?

Twitter to Go Public Too?

An investor in Twitter, Gurley said it might not be in the company’s best interest to grow in the public eye, especially with a business model that’s evolving.

“The company’s focused on just building out its model, building out its ad product and scaling up its business. They’re not thinking about, ‘Hey, when can we go public?’” he said, adding that it would likely happen in due time.

“It’s not something on the priority list right now,” he said. “I think it makes all the sense in the world to focus on growth first and monetization second.”

Other Social Media Names Gurley Likes

Gurley said he also liked Instagram, the iPhone-based photo-sharing social media company.

“We call these things social networks, but they’re really connections of people,” he said.

Two other companies in which Gurley has a stake are Edmodo (“It connects teachers, students, parents the way LinkedIn connects professionals.”) and Nextdoor, which allows for people in a particular geographic neighborhood communicate, share recommendations and publicize local events.

“You’re going to see more than Facebook and LinkedIn. There are going to be a few other categories,” he said.

Google’s Less-Than-Free Model

Gurley had only words of praise for Google and its habit of offering free services on the web and via its Android smartphone platform

“Anyone that’s investing anywhere in tech desperately needs to understand how unique this Android business initiative is. I would go out on a limb and say it is the most aggressive business execution in the history of business. They’re basically entering the market with a product that is less than free,” he said.

By that, Gurley meant that smartphone service providers and handset manufacturers were able to share in Google’s search revenues, while most other business models try to profit by charging for services.

“The way to think about it is: If Pepsi cost negative 25 cents, what would that do to Coke?” he said.

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Trader disclosure: On Feb. 3, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian is long AAPL call spreads; Najarian is long BAC call spreads; Najarian is long PNC call spreads; Najarian is long GS call spreads; Najarian is long GDX call spreads; Najarian is long NFLX call spreads; Najarian is long RIMM call spreads; Najarian is long GNW call spreads; Najarian is long MOS call spreads; Grasso is long AVAV; Grasso is long ASTM; Grasso is long BA; Grasso is long D; Grasso is long LIT; Grasso is long MHY; Grasso is long MO; Grasso is long PFE; Grasso is long PRST; Grasso is long S; Grasso is long XLU; Karabell is long AAPL; Karabell is long IBM; Karabell is long TGT; Karabell is long MOS calls; Karabell is long GOOG

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