Facebook appraisal pegs company's value at $3.7B

One simple question… based on what?

The article indicates that the share value is just under $9 ($8.88) – lets call it $9 to make the math a little easier. That gives us roughly 412m shares outstanding. (that’s a lot for a privately held company). Now let’s look at revenues which are roughly a $200m a year – we have no idea of what costs are but they are north of the $200m – so therefore Facebook is not yet profitable and is negative cash flow. So it’s hard to use a discount to future cash flows to value the company.

Let’s look at the number of users it has – let’s say 150m. We could divide that into the $3.7 billion to get a value per user = $24.67 (This is low because Twitter just got a deal at $42 a user)

Facebook loses money every month. Without VC capital it could not stay afloat. It cannot go public because it doesn’t make a profit – it never has.

So why can something that has never made money, probably will never make money be worth $3.7b ?

As they say, only in America – but not for long. Unless they turn the corner and get to sustainable profitability they are not a real business. Just something propped up by VC’s. And we all know how that ends.

Facebook appraisal pegs company's value at $3.7B