I wrote a post a while back where I did a back of the envelope calculation of Facebook's valuation - somewhere between $1.5 to $1.75 billion. I based it on revenue numbers of about $300M to $350M (5 times revenue was my rationalization) and if Facebook revenues are higher, I'll revise that estimate up.
 
I was watching Tech Ticker today where Sarah Lacy was interviewing Paul Kedrosky about Facebook's outlook for 2009. The question of valuation came up and Paul stated his estimate was about $500M to $600M. Though I don't agree with that valuation, I can see how he came up with this number. The online advertising market has contracted since last year so even though Facebook may be growing in revenue, I don't see how it can grow in the most important number of revenue per user. Sarah's response showed she was well on the other side of the fence in her defense of Facebook, which I don't agree with, as well. Her argument that Facebook was still an early stage private company in product development mode and not focusing on revenue is a bit off. Facebook has been around since 2004 and has made a few attempts at monetizing its traffic with no real success. Her other assertion that Facebook was similar to Google and that eventually they'll pull it off is also a stretch. Google did not raise $516M (it raised about $25M) and in its 5th year of operation made almost $1.5B in sales and over $100M in net income. I don't know what Facebook's revenues are like but I doubt it's more than $400M-$500M and they're most certainly not profitable (break-even at best). The fallacy in comparing Facebook with Google is that it costs Google far less to support each user on its system than Facebook AND it generates far more revenue per user than Facebook does. Until Facebook can find the magic bullet, I can't justify giving it a higher valuation.

As reported by the Wall Street Journal, Facebook has pulled its planned employee stock sale. This would have allowed the 800+ employees of Facebook to sell a portion of their stock to private investors - supposedly $900,000 worth or 10% of vested shares, whichever is less. Reasons that some outlets are stating was that Facebook couldn't find any private investors who wanted to buy the stock at a company valuation of $4 billion - a far cry from the $15 billion valuation Microsoft got for its $240 million investment.
 
I'm not really shocked that there were no takers at $4 billion. At the time of the original Microsoft investment, I thought Facebook's value was somewhere around $7 - $8 billion. Then when Techcrunch got a hold of some internal financials, I did a back of the envelope recalculation and stated that they should be valued at $4.5 - $5.25 billion which is 15 times projected 2008 revenues. Contrast that with Yahoo or Google which are valued at 2.19 and 4.13, respectively. These have gone down some recently but even if you calculate at January 2008 share prices, Yahoo and Google would still only trade at 4.44 and 10.91 times revenue, respectively. You can make the argument that these are more mature, slower growing companies but these are also PROFITABLE companies - in the case of Google, VERY PROFITABLE. Facebook, on the other hand has huge capital expenditures for servers/bandwidth ($200 million according to Techcrunch) and a hard to monetize audience. They may be GAAP profitable or break-even but most definitely not cash flow positive. Given the eventual slowdown in the online advertising market, I don't think it will get easier for them to squeeze more revenue from their users. However, the cost to support their growing legion of users is going to grow as they'll need more servers and bandwidth.
 
With that said, my new calculation of Facebook's value would only be at best 5 times revenue or $1.5 - $1.75 billion. Of course if they had allowed the employee sale to reset the value of their company, I doubt they'd raise enough through an eventual IPO to cover their growing capital expenditures. The more important question is, how much of the $516 million that they've raised is still there? My guess is that if they can't raise another $100+ million round soon, Facebook could be in for some tough times.

I guess we can't say this was unexpected. Though I have been critical of Yang in the past, I always maintained that he was only doing what he thought best for Yahoo. He can't really be blamed for the downturn in the online advertising market (everyone is hurting) or even losing market share in search to Google (Semel can take the brunt of that hit). The failure of the Microsoft deal will squarely fall on his shoulders but if it turns out a new CEO can turn Yahoo's fortunes around, the pain of that gaff will be greatly diminished.

Yahoo! is tanking on yesterday's confirmations from Jerry Yang and Steve Ballmer that the rumors of a new buy-out deal by Microsoft were indeed false. Yahoo!'s currently valued at about $16 billion, a far cry from the $46 billion that Microsoft had offered. The question now is, in this bad economic climate, how long will it take for Yahoo! (if at all) to reach that valuation on its own? 2 years? Maybe 4 years?