WSJ: Facebook growth exceeds expectations, $100 billion valuation justifiable

Facebook's business is growing faster than forecasted several months ago. The social network is on track to top $2 billion in earnings before interest, taxes, depreciation, and amortization in 2011.

Facebook's growth is above the expectations that circulated earlier this year when Goldman Sachs and Digital Sky Technologies invested in the social networking giant. It's not clear by how much Facebook may exceed expectations, but the company's profits are, however, reportedly growing quickly enough to make a valuation of $100 billion justifiable, according to The Wall Street Journal:

The people familiar with the company's recent finances said they thought its profit was growing at a fast-enough clip to justify a valuation of $100 billion or more when it goes public. That would make Facebook one of the largest technology companies, and eclipsing Amazon.com Inc. and Cisco Systems Inc., among others. Those citing this big number cautioned that assessing Facebook's value is difficult because, besides objective matters such as earnings potential, much depends on market sentiment and the overall economic mood at the time of a public offering.

Because Facebook is not a public company yet, valuations are currently based off purchases and sales of shares on sites that allow trading of private companies. As a result, the numbers put forward are always mind boggling.

Last month, a private-market transaction of 100,000 shares of Facebook Class B Common Stock priced at $32.00 apiece gave the website a valuation of $80 billion. Two months ago, Facebook was valued at $65 billion, when investment firm General Atlantic reportedly bought 0.1 percent of Facebook by purchasing roughly 2.5 million Facebook shares from former Facebook employees. Three months ago, Kleiner Perkins Caufield & Byers (KPCB) invested $38 million in Facebook, which was only worth 0.00073 percent of the social network, but still resulted in a valuation of $52 billion.

All these valuations should be compared to $50 billion, because this is the only number that Facebook officially confirmed. Four months ago, the company announced that it had raised $1.5 billion at a valuation of approximately $50 billion, but that it had no immediate plans for the funds and would simply continue to build and expand its operations.

The transaction consisted of two parts: in January 2011, Goldman Sachs completed an oversubscribed offering to its non-US clients in a fund that invested $1 billion in Facebook Class A common stock, while in December 2010, Digital Sky Technologies, The Goldman Sachs Group, and funds managed by Goldman Sachs, invested $500 million in Facebook Class A common stock at the same valuation.

If the report from The Wall Street Journal is worth going by, Facebook's valuation may has doubled in the last four months. Facebook is expected to go public early next year. Only then will we be able to put all this speculation to rest, though the argument of undervalued versus overvalued likely won't stop.