What you have to believe to believe Facebook is worth $9bn

A whole raft of hard-to-value companies are given "interesting" valuations - see the list here on TechCrunch - by that nice Mr Blodget. Tut.

I'll focus on Facebook, which is top of the pile and theoretically worth $9bn, or c 25x a theoretical $350m 2008/9 revenue. Facebook, like all private companies, are a riddle within an enigma etc etc - or at least their numbers are.

Latest data I can get is from early April - an active user base of c 66m and c 65bn impressions per month, up from c 60m and c65bn impressions in Jan 2008 - or maybe only 20bn impressions?at the turn of the year (thats some jump in impressions/person, from c 400 to c 1,000 pa !)

Let us assume initially however that 64m users is correct, and the $350m is correct, and the 65bn impressions per month (780bn pa) are correct - that implies:

(i) an ARPU of 350/64 = c $5.40 per annum per user, at c 12,000 impressions per user per annum - assuming they visit nearly every day thats c 36 impressions per day (72 impressions per user day, as only 50% of the users visit daily). That's on the high side to believe, as this "mean" active usage will be far lower than the heavy users. However, Facebook is horrendously impression intensive, requiring about 3 impressions to do anything, so lets assume 24 "tasks" a day is not too onerous - though I recall the guidance range was $250 - 350m, I'd be far more inclined to go for the $250m end for 2008 revenues

(ii) a CPM rate of 350/780 = c $ 0.45, which is in the order of magnitude of Facebook partners (see here). Bebo was running at c $0.5 - 1.00), EBITDA is estimated at c $50m on $350m)

So, on to Valuation.

- Assuming the revenues are more like $250m, Google's 10x revenue values them at c $2.5bn - and I'd argue that even though it is no longer a growth stock, GOOG has huge "800lb Gorilla" premium and a very profitable model so its hard to see why Facebook would be much higher multiples

- Assuming the $350m is (just about ) possible, Google is valued at c 10x revenue, putting Facebook at c $3.5bn

- If one looks at Bebo as a guide, it went for c $20-40 per user (depending on how you counted users). Facebook at that rate is (with say 100m users at out-turn to be generous) between c $2-4bn therefore, £1.4 to £2.8bn if it starts to top out at the c 70m user mark

- At $9bn valuation, spread over say 100m users, that's an assumed value of $90/user, which at c $5.40 ARPU is a 17 year payback on revenue alone, something like a 121 year payback on Margin of (50/350 = 14%).

So, attaching a 25x valuation on a business where much of the revenue is probably pass through is thus - interesting? But then again, this is Mr Blodget and we have been here before

(Update - Phil Bradley noticed I had made a maths error giving Facebook an order of magnitude benefit on CPM, which made me think they were counting 3rd party revenue as pass-through. At these CPM's I think thats is unlikely. I have since adjusted my calculations, but the conclusion stands - serves me right for doing maths fast in my head )