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 |
| $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.
Comments
2 responses to “25x revenue is a company valuation? Huh?”
Being a finance guy as you put it, I would say that 25X revenue is kind of a stretch. If that is the case then ExxonMobil should be worth almost $9 Trillion.
Now ExxonMobil and the companies you mentioned don’t probably have the growth potential of Facebook but still that is a big hill to climb to justify that type of valuation.
What did Microsoft buy part of Facebook for?
Michael –
MSFT bought a 1.5% stake in Facebook for $240M – http://www.microsoft.com/Presspass/press/2007/oct07/10-24FacebookPR.mspx – which gives them a $15B valuation (higher than Blodgett’s $9B valuation for Facebook).