Facebook's new value: $1.3 billion?S

With more than 120 million users, Mark Zuckerberg's social network continues to grow, kudzu-like. And yet it is worth far less today than the $15 billion it commanded a year ago. Why is that?

One could talk about Facebook's fast-growing headcount and farms of servers, spending on which may now have reached hundreds of millions of dollars a year. Or the difficulty it has had at producing what Zuckerberg once predicted would be a once-in-a-century shift in the business of advertising.

But the ultimate arbiter of Facebook's worth is what investors are willing to pay for a piece of it. And as Google has fallen almost two-thirds from its high last fall, Facebook's price, too, has slumped.

Facebook is not publicly traded, but an informal market exists for its stock. Employees who have vested their stock options and others who have gotten their hand on Facebook shares sell them to wealthy investors and a handful of obscure outfits which specialize in buying private-company shares, like MTVLP and Apercen Partners.

The market price is falling fast. We've heard of shares trading for $5.50, which suggests a valuation for Facebook of around $2.3 billion, but that's the highest. There's plenty of interest for shares at prices between $2.50 and $4 — though those are distressed prices. At the low end of that range, Facebook would be worth a mere $1.3 billion — less than a tenth of the price at which Microsoft invested its $240 million last year.

Oh, how the mighty have fallen! Facebook's value has jumped dramatically with every investment, from $100 million in 2005, to $550 million in 2006, to $15 billion in 2007. The drop has been almost as sharp.

Would Zuckerberg sell his company at that price? No. He still has Microsoft's $240 million, plus $120 million from Hong Kong investor Li Ka-Shing; Facebook has arranged to lease $100 million worth of servers, which has spared the cash pile. And Microsoft is still paying Facebook large guarantees in exchange for the right to sell advertising on the site.

It's worth pointing out that Facebook's earliest investors, Accel Partners and Peter Thiel's Founders Fund, have done phenomenally well even at the $1.3 billion price, seeing a paper gain of 10 times their original investments. It's just Microsoft that's screwed, and no one will shed a tear for Bill Gates's billions.

Where Facebook runs into trouble is in raising more cash, or using its stock for additional investments. Like a homeowner whose mortgage is underwater, Facebook executives won't part with shares at a valuation of less than $15 billion; they can't afford to, lest they enrage Microsoft and other investors who put in money at that price. A disagreement over the value of Facebook's shares helped sink an acquisition of Twitter. Facebook CFO Gideon Yu's efforts to charm money from Middle Eastern sheikhs at the $15 billion valuation have also proved fruitless.

So where does Facebook go from here? Given Zuckerberg's fetish for control of his creation, it's hard to see him selling out, especially at these discounted prices. But he faces a swift uphill climb to get Facebook's value up to the fanciful heights it reached in 2007. Just one problem: Will his employees stick around for the long march?