More on the math in a minute. First, the news: TechCrunch's Michael Arrington reports that Facebook recently repurchased shares at $25 apiece for an implied valuation of $11 billion. Yet the price may be inflated, more a consequence of contractual demands than market demand.
"This transaction was initiated by a third party and was going to be run through Second Market," Arrington writes. "When common holders indicated they wanted to sell, Facebook had to let the sale happen or exercise a right of first refusal. They exercised that right."
Maybe this isn't so bad. Microsoft (Nasdaq: MSFT ) purchased an earlier stake in Facebook at a $15 billion implied value. Twitter is already worth $1 billion, and Web-based companies are gaining steam in the IPO market. Recent examples include OpenTable (Nasdaq: OPEN ) , LogMeIn (Nasdaq: LOGM ) , and Changyou.com (Nasdaq: CYOU ) .
What worries me is Facebook's run-up in price. In January, investor Paul Kedrosky mused that Facebook's value had topped out at $600 million. Say he was off by 100%. Say Facebook was worth $1.2 billion at the dawn of 2009. Longtime investors would still have seen a nine-fold gain in their holdings this year. And if he was right, those same investors are now sitting on -- yep, that's right -- an 18-bagger.
All of this is problematic if Facebook wishes to go public in 2010. CEO Mark Zuckerberg can't price his company at $11 billion if that's what private equity investors are paying now. They're looking for a mark-up. A big mark-up, if possible.
You know what 2009's biggest IPO to date was worth? Brazil's Banco Santander (NYSE: BSBR ) came public in October at just over $4 billion. Rocket stock A123 Systems (Nasdaq: AONE ) , one of September's newbies, is still worth only $2 billion, and that's after a 56% run-up.
In the end, it really doesn't matter what anyone says Facebook is worth. All that matters is the pricing the IPO market will tolerate. Right now, $11 billion looks too rich.
Have a different view? Let's hear it. You can weigh in using the comments box below.