What Is Facebook Actually Worth?

Holy cow, Facebook is worth $10 billion? That may be how the social networking Web site would like the world to interpret its latest capital infusion. But don’t be fooled. While that may represent a target valuation for Facebook, the actual worth, today, of Mark Zuckerberg’s dorm room creation may be much lower.

That’s not to completely dismiss the headline figure. Under terms announced Tuesday, the Russian Internet investment group Digital Sky Technologies is plugging $200 million into the company for about a 2 percent stake. By that arithmetic, Facebook would indeed be worth $10 billion.

For a company that, by its own admission, won’t generate positive cash flow until sometime next year, that’s an impressive figure to bandy about. True, Facebook’s last capital-raising 18 months ago, which brought Microsoft and the Hong Kong tycoon Li Ka-shing in as investors, put a $15 billion price tag on the company. But considering the trajectory of financial markets since then, the valuation attached to Digital Sky’s trade actually looks even more robust.

Shares in the technology bellwethers Microsoft and Google have plunged about 45 percent since November 2007. Assume a similar decline in Facebook’s value and, on a market-adjusted basis, Digital Sky is arguably paying at least a 20 percent premium to Microsoft’s entry price, ignoring growth in Facebook’s business in the meantime.

Either way, though, for those trying to value Facebook, there’s a catch in these headline figures. The company didn’t sell just regular stock to Digital Sky or to Microsoft, for that matter. It sold preferred shares. The company won’t talk about the details, but these shares confer rights and privileges not attached to common stock. They are therefore worth more.

So while $10 billion could be a valuation Facebook and Digital Sky Technologies are aiming for, it probably doesn’t reflect the company’s market worth right now. But Digital Sky has also agreed to buy $100 million in shares held by Facebook employees. The price it pays for these shares — and the price at which insiders are willing to part with them, bereft as they are of special privileges — will reveal more about the company’s value today than any press release it might create.