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At work, I'm doing a ton of research on the current state of the online market in America.  It's quite fascinating actually to go from a passive news glancer, to someone who actively seeks hard evidence of what's going on.  The other day, I got hold of the little note off of Facebook's finances as indicated by TechCrunch.  I'm certain many readers found the note to be of shock.  They key point for me was that Facebook operates at a negative value.  Not just a negative but roughly $150 million in losses. 
How can you go from being valued at $15.7 billion to -$150 million?????????

Some people talk about projections when it comes to these types of numbers.  Currently, Facebook sees growth at over 100% (I forget the exact number).  That's great because it seems that people are simply migrating from places like Myspace to Facebook (all my friends are doing this).  Right now, they have a user base of over 63,000,000 registered users according to Wikipedia.  According to the TechCrunch article, they are generating $300 million in revenue for 2007.  These numbers are fairly impressive for such a young company run by a 23 year old college drop out.

Still, I have to ask how do you achieve the value of $15.7 billion?

I'm not a big fan of projected growth.  We've seen the dot com ludicrous valuations from people like Henry Blodget.  Heck, I've coined my own term the other day calling these numbers "Blodget Values."  Remember the whole Amazon at $400/share?  Was that simply the wrong company and Blodget talking about Google in 2006-2007?  (Now, he's calling Google at $2000/share).  Again, where do these numbers come from?

Is it market cap?  If market cap were to determine a company's intrinsic value, then we'd all be paper millionaires.  I mean, isn't Facebook just another form of the portal site?  That's what Myspace became, except that News Corp/Murdoch focused on media content with a target demographic of 13-35.  But going by that philosophy doesn't Facebook belong in the same market cap as Yahoo?  I mean, I must be missing something when it comes to these numbers.

For myself, I'm someone who looks at the fundamentals of a company.  Reading a book like the Intelligent Investor helps you realize where to look for some of these numbers.  In my case, I look at things that go beyond simple market caps.  I look at things like overall revenue, operations cost, debt, and market behavior.  When I see things like negative operations cost, it tells me that a company is desperate for money and needs to go to other sources like VC (i.e. Microsoft).  I've been through this before and it's made me incredibly cynical, causing me to look at theoretical valuations as inside political hype or certain people with agendas.

I like looking at the bottom line.  For instance, Google is a very smart company.  While their stock price is outrageous, one key fact is that they have tons of money in their piggy bank.  This is important because when it rains, they can grab some of that money and deploy it strategically.

According to this report, Facebook has no money.  The VC money that companies like Microsoft, etc. are giving them are the only factors driving the company's ability to grow.  Perhaps, one day Facebook can be worth $15.7 billion, but many agitated investors have to go beyond projections and find out when they're going to get their money.  That's the bottom line that I look at.

The thing is that I don't believe a lot in SNS business models.  It's a massive fad.  I do understand why it's important in the world of online advertisement.  But I completely disagree that these companies can make significant money purely off these models, especially with so many duplicate/me-too companies around.