What's Facebook Really Worth?

08/19/2010 12:00 pm EST

Focus: MARKETS

Michael Brush

Columnist, MSN Money

Michael Brush of MSN Money puts a number on the value of the still-private social networking giant, whose IPO—if it happens—would be the hottest since, well, Google’s.

Is Facebook finally ready to "friend" the stock market?

Speculation about the vast social-networking Web site going public is nothing new, and, officially, Facebook doesn't have any plans for an [initial public offering]. "But Google said the same thing a month before they filed," says Paul Bard, an analyst with Renaissance Capital, which specializes in IPOs.

The market for IPOs has been heating up, and experts wouldn't be surprised to see an IPO filing by the world's biggest online clubhouse as soon as September or October.

The big question: How much is Facebook really worth, anyway?

Recent leaks published by Reuters put Facebook's 2009 revenue at $800 million. A shop called Next Up Research believes Facebook brings in about $100 million a month. Based on those numbers and projected rapid growth, Next Up estimates the company is worth $11 billion to $12.5 billion.

But I think Facebook is actually worth at least $30 billion. That's a little bigger than eBay (Nasdaq: EBAY) and 50% bigger than Yahoo (Nasdaq: YHOO), but just a fifth the size of its closest US competitor, Google (Nasdaq: GOOG).

The company most like Facebook is a social-networking site called Tencent, listed on the Hong Kong exchange and based in China (where Facebook is banned). Tencent has 428 million users, very roughly the same number as Facebook. (Facebook is expected to announce shortly it has topped 500 million users.)

Tencent has a market capitalization of $32 billion, and that's about what Facebook should be worth.

Other valuation methods suggest a similar or higher number:

First, consider the value of private shares of Facebook based on transactions carried out by independent brokers and at SharesPost.com, a platform that connects buyers and sellers in shares of private companies.

According to Larry Albukerk, who brokers Facebook shares, its value stands around $30 billion.

Analysts at Gordon Brothers Asset Advisors, which specializes in putting values on brands, think Facebook could be worth $40 billion to $60 billion.

Whatever you think Facebook is worth, the fact that estimates of its value are rising sharply confirms that there's a huge appetite for a Facebook IPO.

To avoid paying too much, Bard [of Renaissance Capital] suggests avoiding Facebook stock if it trades for more than 12x projected sales for the following 12 months.

That, in fact, sounds pretty rich, given that most stocks trade for about two to five times forward sales. But it's an acceptable valuation on a high-growth Internet company, and it's similar to the valuation on Tencent.

[Still,] Facebook would have to make $2.5 billion in revenue next year to justify that price.

That's twice the $1.2 billion annual revenue that Next Up Research estimates currently. But given how many users Facebook has, how much time they spend on the site, and how much Facebook knows about them, that looks doable.

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