It’s common knowledge now that Yahoo has made several attempts to buy Facebook over the past year, valuing the company at US$750m initially but reaching US$1.6bn before negotiations apparently broke off. Techcrunch has screenshots of a leaked Yahoo presentation and their US$1.6bn valuation. Below is Yahoo’s ad revenue assumptions and a sensitivity table of valuations at various discount rates and EBITDA margins.
This presentation by Yahoo was apparently prepared in the second half of last year so is quite dated, but an equity research report by Needham in April 2007 suggests that Facebook’s value has increased substantially since then. The report says that Facebook’s 2007 YTD performance has exceeded Yahoo’s forecasts in terms of both registered users and monthly page views/user.
The Needham report doesn’t give a revised valuation so I’ve attempted to back-out Yahoo’s valuation model using the screen-shots as guidance and update them with the figures in Needham’s report. I’ve had to make a few assumptions of my own (tax, capex and in the revenue assumptions) but I was able to get my DCF within 5% of all of Yahoo’s valuations. The end result is an updated valuation of $3.4bn, but I think this could be even higher! I want to heavily caveat this analysis as I’ve had to make a number of assumptions and I’ve done it rather quickly, but I think no matter what, Yahoo screwed up by not buying it already.
High level assumptions:
– 24m registered users by the end of 2007 (vs. 22m expected by Yahoo)
– 2,255 pageviews/active subscriber (vs. 2,329 Facebook had by Q1/07)
– In the years following 2007, I’ve assumed the same trend as Yahoo