How much Facebook is worth and why we need them to IPO

If you’ve kept up on this blog over the last few months you know that I’m really not a fan of advertising based business models. It’s clear that very few companies can build truly robust and growing revenue numbers from advertising. As more niche web sites, news aggregation sites, iphone apps and other targeted advertising distribution mechanisms are created the value of advertising drops to near zero. Too many avenues competing for too few advertisers. Now it’s very important to note my subtle caveat: “very few companies” can build robust revenue from advertising. I think that today there are two companies that have proven they can and do build tremendous revenue engines from a relative pure advertising model: Google and Facebook.

Google just announced a “poor” quarter (for them) with revenue up only 3% to $4.07B. While advertising is becoming commoditized it’s good to know that the King of Online Advertising Distribution continues to take their percentage off the top. Facebook? Well, we don’t know for sure. We know they continue to grow their user / eyeballs which means that they continue to add value to advertisers eager to sell their wares to Facebook users. One thing that we can track however is Facebook market valuation. Everytime Facebook accepts outside investors we know how much they’re getting and how much equity they give up. Thanks to News.Com (C|Net) we can quickly see how this valuation has changed over the years:

http://news.cnet.com/8301-13577_3-10286111-36.html

So, while it’s been as high as $15B (thanks to a Microsoft infusion of $240M in October of 2007) it’s now around $6.5B. That’s a market valuation for a company that -- as far as we know -- has never been profitable and has never publicly announced revenue! There have been some rumors that Facebook may be considering a public offering as soon as 2010. Considering there is no expectations that there will be an tech IPO at all in 2009, we can keep our fingers crossed that Facebook does indeed look to IPO in early 2010. Remembering the Netscape IPO in the mid-90’s as the beginning of the Dot Com hysteria we can only hope that a wildly successful (as it will undoubtedly be) Facebook IPO will provide exactly the kind of market and investor enthusiasm as we desperately need right now.