How much (financial) room does Facebook have to grow?
Matt Yglesias does the math:
After all, if $205 million per quarter—$820 million per year—represents Facebook’s steady state operations then a $100 billion valuation would give the company a price/earnings ratio of over 120. That would be absurd for a mature company, but the idea would presumably be that Facebook is going to grow a lot. Where the math gets tough for Facebook is that it’s already a really big company with 900 million users. If its profits double then double again then double again then at $100 billion it would have a PE ratio of 15, which conveniently is the market’s long-term average. On the other hand, if Facebook’s user base doubles then doubles again and then doubles again it would have 7.2 billion users. That is approximately the entire current population of the planet. And of course some of those 7 billion people are small children, subsistence farmers, or toiling in North Korean labor camps, while a rather large fraction live in the People’s Republic of China where they’re already on an in-house Facebook substitute.