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How Facebook's Value Could Surpass $100 Billion

Posted Jan 27, 2011 01:51pm EST by Chris Nichols
Related: gs, msft, goog, intc, csco

Facebook isn't a public company yet, and maybe that's what makes all the speculation about its worth so intriguing.

With a recent investment by Goldman Sachs (NYSE: GS - News) and Digital Sky Technologies, a figure in the neighborhood of $50 billion has gained popularity. Trefis, a Massachusetts firm founded by MIT engineers and research analysts, is pegging the number at closer to $45 billion -- but it recently offered an analysis regarding how the social network could reach a valuation of more than $100 billion.

The idea behind Trefis is to give investors the ability to better understand a variety of companies by breaking them down and measuring the value of their parts. As is the case with publicly traded companies, the potential value of Facebook is built on certain assumptions. In order to achieve a market value of $100 billion or more, Trefis says the following would be needed:

--Revenue per page view from text and display ads doubles. Trefis estimates that Facebook's ad revenue per page view was about 45 cents per 1,000 page views last year. If it can reach the roughly $1 mark seen at large portals, the valuation model would increase by $35 billion.

--Page views per user rise by 50%. Trefis believes Facebook averages about 415 page views from each user every month. While a 50% increase is a bold number, Facebook has shown astonishing growth and reach since its 2004 founding. Should that expansion be realized, it, along with the first scenario, would push Facebook past $100 billion, Trefis says.

--Search market share reaches 10%. Facebook's estimated global search market share was about 2% in 2010, Trefis says. If it can take advantage of a partnership with Microsoft (Nasdaq: MSFT - News) to put a dent in Google's (Nasdaq: GOOG - News) search dominance, Facebook has the potential to total 10% of the market, which would add another 10% to the value.

--Games and applications revenue per user increases sharply. Trefis estimates that Facebook Credits, which are used in games and applications on Facebook, led to about 85 cents of revenue per user last year. That figure could rise to as much as $5 eventually, Trefis believes.

Should all four actually come to pass, Trefis says Facebook's implied valuation would stand at around $125 billion.

For the sake of comparison, that's more than the market caps of either Cisco Systems (Nasdaq: CSCO - News) or Intel (Nasdaq: INTC - News). Google is currently around $198 billion, and Microsoft is at $246 billion.

(For further details, you can click here to read more about the Facebook model Trefis has created.)

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