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Comment by Frocer | Hacker News Reader

I think the argument is flawed to begin with... $/user is just a bad comparison. I am no investment banker but I'd think valuations are calculated via a combination of revenue + growth.

If we look at Facebook's estimated 2009 revenue, which is $550M reported by TechCrunch, the valuation is about 20x. It's a bit overvalued at this point but not unreasonable, especially since Facebook's project revenue almost doubled 2008's.

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Revenues are nothing without earnings though. Facebook spends more than it takes in, which can easily be accomplished by anyone (especially as of late!). The valuation is purely on a bet that in the future Facebook will be have more revenue generating capacity. It's a bet, albeit a big one. With so many users it doesn't take a whole lot of profit per user to get to big revenues, but it's far from a sure thing that Facebook will end up worth anything substantial.

Revenue is much harder to get than profit. As an ex-consultant, you can always cut cost to achieve better profit margin. Revenue is a different story.

You are right that valuation is on a bet that Facebook's revenue will continue to grow. But judging from past performance, and Facebook is still a startup, I think it's a pretty safe bet (comparing to Twitter anyway!).

Actually I was a Corporate Finance / M&A guy. Per user multiple is pretty standard for pre-profit companies. Not saying it is the most accurate way to value a company but at this stage of profitability it's a good comparison measure. (to clarify, I'm the author of the post)

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