Is Facebook overvalued at $50 billion?

ONLY the other week we were wondering if another dotcom bubble might be forming. Now, Goldman Sachs is investing hundreds of millions of dollars in Facebook, and inviting its clients to invest further sizeable sums, at a price implying that the unquoted social-media company is worth $50 billion. That would make the firm, just seven years old and employing only around 2,000 people, worth about the same as Boeing, a 95-year-old aircraft giant with 160,000 workers.

Pricey as this sounds, the latest valuation will come as no surprise to those who were arguing back in 2007 that the company would come to dominate social media and could easily be worth $100 billion. Facebook now has more than 500m users worldwide and, last year, it overtook Google as America's most popular website. Google's shares are publicly traded and the stockmarket puts a value of around $200 billion on it. So why can't Facebook be worth a quarter of that amount?

Answering that question is not easy because Facebook releases few details about its financial situation. It is said to have annual revenues of around $2 billion, and presumably its huge numbers of users, and the long periods they spend logged in to the site, offer it much scope for boosting its earnings.

However, there are some reasons for scepticism. The Financial Times's Lex column notes that most of Facebook's revenue so far is coming from generic online advertising, which has not proved particularly profitable for other media organisations, and that it does not yet seem to have come up with a brilliant money-spinning plan, as Google did when it offered advertisers the ability to place their messages alongside search-engine results. One Facebook shareholder, Thomas Heilmann, a German advertising mogul, has cashed in his chips, saying that the current valuation of the company is "crazy".

Those clients of Goldman Sachs now being invited to put a minimum of $2 million each into Facebook might also consider the plight of Rupert Murdoch, who spent $580m on buying MySpace in 2008. The once high-flying social-media firm has been left behind by Facebook and Twitter, and Mr Murdoch is now said to be looking at offloading what has turned out to be a poor investment. Could Facebook also go from being the "next big thing" to "sooo last year"?

So is $50 billion too high a valuation to put on Facebook? Your views are most welcome.