What does this say about online cousin Facebook? It actually offers several valuable data points, and suggests the king of social networking could receive a market cap ranging from $50 billion to $80 billion as a public company.
Following are my calculations using per revenue and per user formulas. But first some quick context. I don’t need to remind you that Facebook’s valuation has been the subject of rampant speculation for months.
When Goldman Sachs invested $500 million in the company in January, the inference was that Facebook deserved a market cap of $50 billion. That estimate rose to $52 billion when a month later Kleiner Perkins Caufield & Byers put $38 million into the company.
General Atlantic put more chips on the table in March when it reportedly purchased about 2.5 million shares of the company at a $65 billion valuation. All the while, online secondary market place SharesPost has been offering its own signals. Recent transactions at $32 a share suggest a value close to $80 billion.
Seems like all these inputs were offering useful data.
That’s because LinkedIn sets a bar of similar height. The popular social network for business professionals floated shares Thursday morning that quickly surged from a $45 offering price. By late afternoon, they were trading close to $100, giving the company a market capitalization of $9.8 billion.
With sales of $243 million last year, LinkedIn has a price-to-sales ratio of about 40x (find data in SEC docs here). Facebook is estimated to have had sales of $2 billion last year. So a similar 40x ratio would suggest a market capitalization of just over $80 billion.
A slightly less elevated way to get at a market capitalization is to look at a per-user comparison. LinkedIn has more than 100 million users, and therefore a value-per-user of about $98. Apply this metric to Facebook, with more than 500 million users, and the company’s value comes to $49 billion.
Obviously these estimates are guesstimates. When Facebook begins to trade, anything could happen.