Is Facebook worth $10 billion?

A recent article in Business Week discussed at length Facebook seeking additional funding. Seeking funding is nothing new, but Facebook is seeking funding at a valuation near $10 billion. When owner Mark Zuckerberg turned down Yahoo's offer to purchase the social networking site at $1 billion, some people questioned his motives. However, according to the article, Microsoft is seeking to purchase a 5% stake in Facebook for $500 million.

If this purchase were to be completed, that would be a value of Facebook near $10 billion. The article also states that Yahoo and Google want a piece of the Facebook pie.

The reason is centered on the "Myspace" model. Facebook is a popular (40 million users) social networking site that will bring in anywhere from $150 to $300 million in ad revenue this year (Business Week). In theory, you are not only buying an effective social networking site but the advertising outlet of 40 million users. "With so many advertiser-coveted users, Facebook could command higher advertising rates than search ads and other forms of advertising command now," from Business Week article. This is a very important aspect to look at. If these 40 million users are in fact solid consumers, spending $10 billion for 40 million doesn't seem so bad.

Let's do the math. To be safe, let's say Facebook adds on another 10 million users before the deal is struck, leaving the base at 50 million. Business Week states that it could be closer to 200 million in the next few years.

For $10 billion, you get 50 million advertisers online time. $10 billion divided by 50 million equals $200 per person. That $200 per person cost delivers you direct advertising forever. This is the same model I assume Rupert Murdoch and Fox News Corp. followed with their acquisition of Myspace.

No doubt that $10 billion is a price tag no one imagined would be associated with a social networking site, but when you look at the cost per user, it makes much more sense. And if Business Week's estimation of 200 million future users comes true, you now are buying each visitor's advertising time for $50.

I'll take those numbers any day. Then again, I don't have $10 billion.