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Even more fictitious than Facebook's revenues is its valuation. A market value, after all, requires a willing buyer and a willing seller, and Facebook CEO Mark Zuckerberg, and his board members have repeatedly said they don't want to sell. (Facebook has a valuation as a private company, of course, but trust me, it's nothing near the numbers insiders are bandying about.) So why make up multi-billion-dollar valuations for the company, seemingly out of whole cloth? Because it saves them from having to hear out lowball offers, I imagine — and it also sounds mighty fine in the press. Here's a thought for newly hired number-fudger Gideon Yu, however, as well as that stock-plan administrator Facebook wants to hire: The higher a private company's value, the harder it is to dole out lucrative options to new employees. After the jump, my theory on what Facebook's worth, and why.

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My assumptions:

  • Facebook turned down multiple offers from Yahoo, reported variously as $1 billion, $1.4 billion, and $1.6 billion. Call it $1.6 billion, and let that be the floor for Facebook's value.
  • Peter Thiel, the former PayPal CEO and early Facebook investor, like many PayPal insiders, believes PayPal sold out to eBay far too cheaply for $1.5 billion. Thiel certainly won't settle for a headline number less than twice his eBay deal, so tack on another $1.5 billion.
  • Never underestimate the hubris of a 20something first-time CEO. For Mark Zuckerberg's wishful thinking alone, shovel on another $5 billion.
  • Everyone believes that Facebook is going to come up with some magical new business model. They may be wrong, but for the fairy-dust hopes of the Valley, add another $0.9 billion to bring the total to a nice, round $10 billion.

And Facebook's real value? It will be set on the first day of trading after an IPO, of course — or when Facebook makes a liar out of Zuckerberg, Thiel, and the rest, and sells out.