Facebook IPO: Q1 Sale Would Value It at 'North of $100 Billion'

Facebook plans an initial public offering in the first quarter of 2012 that is expected to value the company at "north of a shocking $100 billion," according to a report on Monday on CNBC.

CNBC cited unnamed sources for its information, but they almost certainly were people at Facebook or, more likely, existing investors who would have an incentive to talk up the value of the company. If the IPO price is actually higher, then it looks as if the stock is in an uptrend, and that will stimulate demand. If the price is lower, then it will look like a bargain, and that will stimulate demand, as well.

The only indication of Facebook's current valuation is the $85 billion at which the very thinly traded shadow market values it, but that probably overstates the company's worth. Not only are there few traders, but the buyers are probably investors so eager to own the stock that they couldn't wait until it actually existed before taking the plunge.

In January, the CNBC report pointed out, Facebook's value was estimated at $50 billion when Goldman Sachs (GS) invested in it. Even that may be too high based on the limited available information about Facebook's financial circumstances.

Facebook is forecast to produce operating earnings (earnings before interest, taxes, depreciation and amortization) of $2 billion in 2011 on revenues of about $4 billion. The company has reported nothing so far, so there's no way to know how accurate those figures are.

Let's say they're spot-on and let's say, too, that net income - what you get after deducting all the stuff that operating earnings don't - will work out to $1 billion. The net income of LinkedIn (LNKD), the latest social networking darling to float its shares, is less than 10 percent of its operating earnings, but let's give Facebook the benefit of the doubt. That would value Facebook at an astounding 50 times revenues and 100 times earnings.

Ah, but isn't it worth paying that much for a company with such fast growth?

Fast growth? What fast growth? Another report on Monday, from the Business Insider website citing the Inside Facebook website, highlighted a 3.7 percent drop in Facebook users in the United States in May, an 8.8 percent drop in Canada and declines in Britain, Norway and Russia, too. Growth elsewhere, particularly in Latin America, gave Facebook a net increase in users of 1.7 percent, the report said.

How the comings and goings affected revenues is unclear, but it's hard to imagine much growth coming from a small net increase in users resulting from losses in richer countries and gains in poorer ones. It certainly doesn't suggest an ever expanding juggernaut that would or should command a $100 billion valuation.

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