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I think the argument is flawed to begin with... $/user is just a bad comparison. I am no investment banker but I'd think valuations are calculated via a combin
by Frocer 17y ago
I think the argument is flawed to begin with... $/user is just a bad comparison. I am no investment banker but I'd think valuations are calculated via a combination of revenue + growth.
If we look at Facebook's estimated 2009 revenue, which is $550M reported by TechCrunch, the valuation is about 20x. It's a bit overvalued at this point but not unreasonable, especially since Facebook's project revenue almost doubled 2008's.
- STW 17y agoActually I was a Corporate Finance / M&A guy. Per user multiple is pretty standard for pre-profit companies. Not saying it is the most accurate way to value a company but at this stage of profitability it's a good comparison measure. (to clarify, I'm the author of the post)
- jonknee 17y agoRevenues are nothing without earnings though. Facebook spends more than it takes in, which can easily be accomplished by anyone (especially as of late!). The valuation is purely on a bet that in the future Facebook will be have more revenue generating capacity. It's a bet, albeit a big one. With so many users it doesn't take a whole lot of profit per user to get to big revenues, but it's far from a sure thing that Facebook will end up worth anything substantial.
- Frocer 17y agoRevenue is much harder to get than profit. As an ex-consultant, you can always cut cost to achieve better profit margin. Revenue is a different story. You are right that valuation is on a bet that Facebook's revenue will continue to grow. But judging from past performance, and Facebook is still a startup, I think it's a pretty safe bet (comparing to Twitter anyway!).