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Estimated Value: $9 billion

Business: Social networking site with over 64 million active users.

Location: Palo Alto, CA

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More Info: Facebook

CEO: Mark Zuckerberg

Investors: Microsoft ($246M), Hong Kong billionaire Li Ka-Shing ($60M), Greylock Partners and Meritech Capital Partners ($25M), Accel Partners ($12.8M), and PayPal co-founder Peter Thiel ($500,000).

Analysis: Facebook is worth less than the $15 billion valuation Microsoft paid when buying a few percent of it, but it's also worth more than some skeptics think. In every Internet wave, a pre-eminent company and brand have emerged, and in social-networking, it's Facebook.

Facebook's $15 billion valuation, you may recall, was set in the months before Facebook launched "Beacon," its controversial social-marketing system. After a resulting press- and user-privacy flap, Facebook was forced to back off on some of the features that would have helped make Beacon a financial juggernaut. We think if Facebook had conducted its latest round of financing after the Beacon launch instead of before, it wouldn't have persuaded Microsoft to pay $15 billion. We also don't think many rational US investors buying their stakes with depreciated US dollars would have paid that much.

Valuation

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So how much is Facebook worth? According to figures CEO Mark Zuckerberg tossed out on a company conference call, the company will do about $300-$350 million in revenue in 2008, up more than 100% over last year's $150 million. With regard to profitability, meanwhile, Zuckerberg is said to have estimated $50 million of 2008 EBITDA and negative free cash flow due to $150 million of capital expenditures.

Facebook's top-line growth is impressive, but it's not yet Google-like. Until Facebook discovers its own version of AdWords, therefore (a killer app that it can exploit better than anyone else), we don't buy the argument that Facebook is "the next Google." It may be someday, but not yet.

Facebook's strong network effects, low cost of goods sold, strong growth rate, and dominance of social networking should command a hefty revenue multiple--say 25X. Applying this multiple to our 2008E revenue of $350 million, we estimate a current value of $9 billion.

See Also:
Facebook Revenue Growth Less Than Expected: Not The Next Google

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