I think I may have heard somewhere that Facebook has raised $740 Million at an, “Oh my goodness, we’re investing in the Internets!” valuation of $15 Billion. Since this only seems marginally more sane than the MySpace platform, I thought I’d take a look at exactly what investors are buying.

First, see a few other companies that have managed to get this sort of incredible valuation. For the sake of argument, I’ll limit my search to the tech sector.

This Is Madness!

Microsoft: With about $51 Billion in revenue and a market cap of $294 Billion, Microsoft leads the pack. This might not be an entirely fair comparison considering Microsoft produces honest to goodness brick and mortar products outside of the web space. What have they made? A bevy of eyeballs, an Operating System, an Office Suite and about a metric ton of other products covering a huge range of industries.

Google: Gmail, Adsense, Adwords oh my! Not to mention a publicity machine that rivals that of a small country and 124 Million monthly users generating $10 Billion in revenue. All of this considered, Google is a titan in its field. Other than their hiring binges, I can’t think of a good reason that a company with more cash than an island dictator and enough brain capital to move into any industry that they choose should not be worth $211 Billion.

eBay: The web’s leader in online auctioning also popularized Paypal and now controls one of the more interesting companies on the web (Stumble Upon). This coupled with the fact that eBay makes almost $6 Billion in revenue and attracts 77 Million monthly visits to its site makes it well worth its $48.6 Billion valuation.

Yahoo: This search giant owns more useful web products than almost any other player in this space. Not only that but they also have the only search engine that comes close to rivaling Google. There is always a question about how relevant they are in the Web 2.0 space, but no one can deny that they are a spectacularly valuable company. According to the leaderboard, they have about $6 Billion in revenue and a market cap of $41.1 Billion.

Amazon: They are the Internet’s department store. Through S3 they have enabled hundreds of startups and monetized offsite storage, and now they are launching a music store to take a crack at iTunes. Amazon attracts 42 Million people to its site, makes about $10 Billion in revenue and is worth $37 Billion.

No..This…Is…

Now lets look at Facebook.

They have managed to capture the college market and an expanding market of marketers and business people. The overwhelming source of their undisclosed revenue comes from advertising, quite a bit of it in the form of Microsoft revenue guarantees. They have made a few brilliant moves in the form of their photo album and platform, and they serve about 24 Million users. The biggest draw that I can see for investors beyond pure hype is the hope that they can turn their ad serving business around by using their user’s public data to target ads that someone might actually click on. Unfortunately, unless they also find a way to white label the entire thing and let other publishers use it effectively, their ability to scale their revenue is locked to their growth rate.

At a market cap of $15 Billion, every user is worth about $625 to Facebook.

Web 2.0 Roundup

What is my point? Unlike every other company with this kind of astronomical market cap, Facebook produces nothing. Not only that but their real value proposition is still in the pipeline. The question becomes, could Facebook’s latest round of investors be seeing their new baby through rose-tinted glasses?

Facebook is a fantastic company and it has a lot of potential to “change the way we view the social graph,” but it’s not there yet. Until we see a little more proof that their revenue model can work, maybe we would do well to be careful how we throw around billion dollar valuations.

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