What's Facebook really worth?

There’s ben a lot of hype about Facebook’s real worth going into its fabled IPO, but a comparison with Google suggests that even $75 billion - at the low end of the talk to date - is a stretch, reports Richard Beales in www.slate.com. Google’s revenue of $3.2 billion in 2004 was not far off from Facebook’s $3.7 billion in 2011. “Assume the social network grows on the same trajectory as the search engine did seven years earlier. Then it’s consistent to assume EBIT margins settle at something like Google’s average 33 percent level,” says Beales.

“Add a 30 percent tax rate and modest outlays for investments, and out pops an annual free cash flow figure to plug into a discounted cash flow model. A 15 percent discount rate seems rational for a business in the fast-changing Internet world, resetting lower - along with revenue growth - after 2021,” he continues.

Run those numbers, and Facebook values at $75 billion, or about $30 per pre-IPO share. “But the pricing of run-of-the-mill floats is supposed to leave something - say 15 percent - on the table for incoming shareholders,” Beales added. That would knock the figure down below $65 billion. And with nearly two-thirds of the value stemming from cash flows more than 10 years hence, Facebook is a risky bet.”