Russian bank: Facebook worth $76.4bn

Facebook is now worth $76.4bn - that's the latest extraordinary valuation put on a company which is becoming the poster boy for a new dotcom bubble.

Facebook's value just keeps on inflating

Just a few months ago, an investment led by Goldman Sachs valued the social network at $50bn. Now, a group of analysts at an investment bank has looked at how the business is growing and come up with something 50% higher.

To put that figure into context, it makes Facebook worth more than the likes of Kraft Foods, Honda, Disney or Barclays. If, that is, you believe it and many will be sceptical, not just because of the outlandish figure but because of its source.

The analysis comes from a Russian bank, Otkritie - in a report on Mail.ru [944KB PDF], a Russian social network operator which is an investor in Facebook. That 2.38% stake in Mark Zuckerberg's business, made in 2009 at valuation of $10bn, is the biggest asset of a business which floated in London in November.

If investors take the latest valuation seriously, shares in Mail.ru - formerly known as Digital Sky Technologies - could leap ahead, though it's interesting to note that the bank's analysts put a Sell recommendation on their report.

So how did the Otkritie analysts reach their conclusions? The bank decided to look at where Facebook might be in 2015, given its current rate of growth, both in user numbers and revenues. Four years ahead is a very long time horizon for a business like this. But when I spoke to Tibor Bokor, one of the report's writers, he explained their methodology: "The faster it grows, the further ahead you have to look."

By 2015, Otkritie reckons Facebook will have 1.2 billion users and revenues of nearly $17bn. That means that the bank is making two key assumptions - that Facebook's user numbers will continue to grow more rapidly than the global online audience, and that its share of a growing online advertising audience will race ahead. Here's how it puts that:

"We estimate that Facebook captured just 2.7% of ad budgets in 2010. We expect vast improvement in the company's ad monetization, with its share increasing to 20% in 2015."

Otkritie concedes that this will be a huge challenge. What it does not say is that it would also involve a major change of tack from a CEO, Mark Zuckerberg, who has always put growth in the user base ahead of earning advertising dollars.

I put it to Tibor Bokor that many would see his report's conclusions as outlandish. He demurred, insisting that if anything it was conservative: "I would say the risk is on the upside, to be honest."

I also asked him how his team had come up with new figures for current Facebook users - 620 million - and he conceded that this figure and the revenue numbers were garnered from various websites, rather than from the company itself.

But he said it was up to investors to judge: "It's an extrapolation of recent trends. The question is how far investors are willing to extrapolate." Right now, it seems that investors are just desperate to get their hands on shares in Facebook, and the easiest way is via shares in Mail.ru.

On its press release about the report Otkritie says it is "among the top 30 most reliable Russian banks", not a description that will impress everybody. But is its work on valuing Facebook any less rigorous than that undertaken by a rather better-known bank Goldman Sachs when it decided on its $50bn figure?

By 2015, that $76.4bn valuation may have been shown up as Russian pie in the sky, like the figures investment banks plucked from the air to value dotcoms in 1999. Or perhaps we will look back on it as just another landmark in Facebook's journey to world domination...

Source: http://www.bbc.co.uk/blogs/thereporters/rorycellanjones/2011/03/russian_bank_facebook_worth_76.html

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