Is Facebook Worth Half as Much As Yahoo! ?

The Wall Street Journal writes that Microsoft (MSFT) is in talks to buy 5% of social network website Facebook, putting a valuation on the whole company of $10 billion. Alley Insider makes the point that if Google (GOOG) gets involved in the bidding that the price tag for the company could go higher. Maybe it will. A price of $15 billion seems out of the question, but, in a competition between GOOG and Redmond, it could happen.

Internet Outside put together a revenue forecast for Facebook. For 2007, the analysis put revenue at $150 million, rising to $750 million in 2008 and $1.5 billion in 2009. Given the size of the Facebook audience, those numbers are plausible. Over 40 million people have set up their own "Facebook" pages. The site had 33.8 million unique visitors in the US last month.

World Microsoft or Google be paying too much? Yahoo! (YHOO) has a market cap of about $34 billion. Its revenue should hit $6.6 billion this year. Operating income should be about $750 million. Given Facebook’s size, it might not be worth $15 billion unless it shows that it can make its 2008 numbers and grow at 100% beyond that.

And, that is the key to it. Facebook is growing and Yahoo! is not. That gives an irrational aspect to its valuation.

Over at News Corp. old Rupert Murdoch must be a fairly happy fellow. He paid $560 million for MySpace, the largest social network site. A $15 billion valuation for Facebook would probably make his site worth say $25 billion. That would be more than a third of News Corp’s market cap.

Douglas A. McIntyre