The recently announced $1.5 billion investment in Facebook by Goldman Sachs, Digital Sky Technologies and selected clients of Goldman Sachs has once again fanned the flames of valuation speculation when it comes to Facebook. We’ve taken the time to analyze each of Facebook’s current revenue streams and even some potential future ones to determine what the key drivers of Facebook’s valuation will be and how those drivers may trend in the future.
The result is a $45 billion Trefis estimate for Facebook’s value, based on our discounted cash flow valuation analysis. Facebook has seen a 400% increase in valuation in the past 18 months – increasing from DST’s $200 million investment at a $10 billion valuation in May 2009 to the current $1.5 billion investment at a $50 billion valuation in January 2011. As of June 2010, Facebook was valued at $25 billion based on the exchange of privately held Facebook shares on SecondMarket. Since the investment by Goldman and DST, valuations on SecondMarket and Sharespost have exceeded $60 billion.
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How Facebook Makes Money
Facebook currently has 3 revenue streams:
- Text & Display Ads on Facebook.com
- Facebook Credits for Games & Applications
- Search Advertising on Facebook.com
Furthermore, we expect that Facebook will generate revenues based on eCommerce in the future leveraging the Facebook Credits payments platform. Based on our analysis, we estimate that Facebook’s $45 billion valuation breaks-up roughly as follows:
- Text & Display Ads: $27 billion (60%)
- Games & Applications: $8 billion (17%)
- eCommerce: $5 billion (11%)
- Search Advertising: $4 billion (8%)
A Few Key Insights:
- With an estimated 2.7 billion page views for 2010 globally, Facebook generates more page views than any other website and we expect this figure to increase to 13 billion page views by the end of Trefis forecast period. According to Hitwise Intelligence, Facebook generates 1 in 4 page views in the US. 
- Facebook already generates more searches than AOL,  and we expect it to catch up to Yahoo over our forecast period. We estimate that Facebook’s search market share for 2010 will be around 1.9%, which could increase to 5.6% by the end of Trefis forecast period, compared to 5.5% for Yahoo.
- We estimate that Facebook had about 595 million registered users by the end of 2010, up from 500 million earlier in 2010 and this is expected to grow to 2.1 billion registered users by the end of our forecast period. With such a presence, we expect revenues from Facebook credits through games and applications to reach $6 billion by the end of our forecast period.
Below we highlight how our valuation stacks up with some of the others including the recent investment by Goldman Sachs and Digital Sky (“GS Investment”) and recent trading activity on private markets such as SecondMarket and SharesPost.
Facebook Valuation vs. Market Caps of Peers
Besides surpassing the market caps of storied internet stocks like Yahoo and AOL, Facebook’s recent valuations (including our own) indicate that Facebook is worth more today than Google was at the time of its IPO in August 2004. Furthermore, Google had an annual revenue run rate of nearly $3 billion at the time of its IPO compared to about $2 billion for Facebook in 2010.
Facebook is comparable to Google in the amount of revenue it generates per employee.  Amazon is high as well but would likely rank much lower than Facebook and Google on a profit per employee metric.
Valuation per Unique Visitor
Valuation per Unique Visitor is highly correlated with the lifetime value of a user for a company. This metric is very for Google which is able to capture significant ad revenues as a result of click-through on sponsored search ads. Google benefits significantly from the intent-based nature of search and its ability to connect internet searchers to businesses that offer products and services related to specific types of search queries.