Is Facebook Overvalued?

Facebook has last reported to trade on the secondary market at 75 Billion Dollars, which is trading at 35 times the last reported revenue of 2 Billion Dollars.  To better understand the valuation, we will compare it to Google at its IPO.  Like Facebook, Google’s revenue has double almost every year growing up to 1.4 Billion for its first half of the fiscal year leading up to its IPO in August 2004.  I was at Morgan Stanley at the time and even my colleagues were divided on whether the Post IPO market pricing after the auction was a result of media hype or from true fundamentals.  At the time of Google’s IPO, the initial market cap was at 23 Billion Dollars, trading at about 7 times the year end 2004 revenue and 58 times the earnings.  Even at the height 2005 when Google was trading at $430 per share, it was only trading at 21 times the revenue and that is even after their margins drastically improved.  Here is closer look at the comparison points.