25x revenue is a company valuation? Huh?

I was reading the article by Mark Evans that laid out how Flickr could have an independent valuation of $4 billion dollars.  He used a multiplier defined by Henry Blodgett in determining the value of Facebook: 25 times a company’s annual revenue is their valuation.

Wow.

I decided to apply this to a few other companies that have been in the news lately: Yahoo!, Microsoft, and Google.

Based on 2007 10K filings for each company:

Company Annual Revenue Valuation Market Cap (as of 5/8/2008)
Yahoo! $6.425B (2006) $160.625B $36.08B
Microsoft $51.122B (2007) $1.278T $272.60B
Google $16.593B (2007) $414.825B $182.92B

This gives between 2.5 and 4.5 of over-estimate in independent publicly traded companies.  I’m not a finance guy, but it seems like that 25 times number is quite a stretch, to me.