The bears are only looking at Facebook’s current revenue model. The bulls are thinking about all the potential revenue models Facebook could launch, given their (highly defensible) assets.
If you look at banner advertising and ~$0.25 CPMs, it seems hard to justify $100bn for Facebook. That’s over $100 per active user, more than 100 P/E and more than 10x revenues. As others have pointed out, the growth Facebook needs to justify that valuation can’t come entirely from the userbase—there literally aren’t that many people on Earth. A lot of the growth will have to come from increased CPMs, and there is no clear path to significantly increased CPMs from banner ads.
But if you look at Facebook’s assets and think of potential revenue models they haven’t even launched yet, you can understand a much higher valuation. Imagine banner ad retargeting based on your Facebook identity—across the entire web. Imagine turning viral distribution into a paid channel, with Facebook earning a commission on social referrals. Imagine the oft-rumored Facebook phone, which we can already see the beginnings of with the Messenger and Camera apps.
I have no position in Facebook and no strong opinion on their valuation. But to value them fairly I think you have to look at the full potential of their assets, not just their current revenue model.
(Some of the ideas in post came from a conversation with Andrew Chen.)