Simon’s Blog

A few days ago, I wrote about Facebook in the context of an IPO, and I said then that the big question is what is Facebook really worth. Now, thanks to Valleywag, we have some credible numbers from which we can estimate the company’s value. I’m finding it hard to get the numbers to add up to anything more than two billion dollars.

The bottom line seems to be that Facebook’s revenues for 2007 will, perhaps, be around $150M. Those numbers being based on a combination of guaranteed revenues from Microsoft who sell some of Facebook’s ads, and ads and sponsorships sold by Facebook themselves. Based on a price of 7X revenues, that would put Facebook’s value at around $1B. Now let’s assume that Facebook can grow revenues at a rapid pace in 2008. That would up the value today. However, I still don’t see why anyone would want to offer more than $2B for Facebook, as of right now (except in a competitive bidding situation).

Now, the last time money went in to Facebook, the valuation is rumoured to have been around $550M. If that’s correct, I’m thinking that those last investors would set their happy bar somewhat higher than $2B - at a guess, it’s probably somewhere around the $4B level. I guess that means everyone at Facebook may to have wait a while to sell the company (and hope revenues continue to grow rapidly), because, based on the numbers above, $2B seems a pretty generous valuation for Facebook as of today. That being said, there’s always a chance there’s a company that would see the acquisition of Facebook as a strategic purchase.

Now, I imagine the reason why Facebook is seemingly on a trajectory towards an IPO isn’t because they really want to IPO the company. Rather, I suspect it’s because they need to have other genuine options available to them when they come to negotiate a trade sale for real, so that their negotiating position is strong (you’re always in a weak position if you only have one realistic option on the table).

Anyway, the bottom line of all this is - I don’t see how the Facebook owners value themselves at $7-10B. Doesn’t make any sense to me at all… unless all my revenue numbers are wildly out…