Sunday, September 30, 2007

Microsoft buying Facebook?

I just read on BBC that according to WSJ Microsoft is considering buying a 5% stake in Facebook.

Nothing surprising, Facebook has had many suitors, including Google and Yahoo. Microsoft would be probably happy (in addition to getting Facebook) to take revenge for the lost of Doubleclick (snapped by Google after several weeks of serious talks between Doubleclick and Microsoft).

What I find shocking is the valuation generally associated with Facebook. Just what kind of growth Facebook would need to justify getting a valuation of 10billions of US dollars, if its current profit is meek 30 million?

They boast 40 million of user profiles. Fine. That's less than dollar of profit per user profile. They must either grow profit per user (but there are limits to it, since most of its revenue is ads related. You can only push limited amount of banners and text ads before the users run away) or grow the number of users (but there are limits to it too, language, demographic and other). Or both, but still, the limits apply.

Can anybody provide me with some insights of what I am missing? How can you justify by any normal valuation method a P/E ratio of 300???

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