Tencent Holdings Ltd, which provides Internet services, such as social networking, instant messaging and blogging, is often compared to US-based Facebook. However, investors and analysts say that the two serve different markets. [Photo / China Daily]

San Francisco - Compared with Google, Facebook at $50 billion looks expensive, say some analysts. That valuation, by Goldman Sachs Group Inc and Russian investor Digital Sky Technologies, is about 25 times its 2010 revenue, almost triple Google's price-to-sales ratio of 9, based on estimates.

"Right now, there is a lot of buzz, there's a lot of bloom on the rose, there's a lot of hype," said Robert Ackerman, founder and managing director of California-based Allegis Capital. "Expectations are probably running somewhere ahead of reality."

Investors are betting that Facebook, which has surged fivefold in value over two years, will parlay its lead in social networking into sales of online advertising. While Facebook's revenue more than doubled last year to about $2 billion, the company has yet to tap the mobile advertisement market, start selling ads on partner sites or take full advantage of services such as e-mail and location features.

Instead, Facebook at present more closely resembles Tencent Holdings Ltd, China's top Internet company by market capitalization, which is valued at about 15 times revenue, according to Bloomberg data.

Tencent, based in Shenzhen, has 600 million users and is worth more than $42 billion on the Hong Kong Stock Exchange. Its services include online games and instant messaging. It also owns a stake in Facebook.

Baidu Inc, China's most-used search engine, trades at about 31 times revenue, while Youku.com Inc, China's largest online video site, is valued at about 90 times revenue after selling shares to the public last month.

"When you look at the Asian comparables, there are companies that are at scale in social networking," said Hans Swildens, founder of Industry Ventures LLC, a San Francisco-based investing firm that owns a stake in Facebook.

"There are companies in Asia with high valuation multiples and somewhat similar growth and reach characteristics, but where monetization is still largely to come," said Clayton Moran, an analyst at Benchmark Co.

Goldman Sachs and Digital Sky Technologies, an investment firm based in Moscow, having seen Facebook's financials, may be expecting the social network to grow more like Google did five years ago, said Larry Albukerk, founder of EB Exchange Funds LLC, a San Francisco-based firm that specializes in private share sales.

"They know the financials, they know the prospects, they know what deals are coming down the pipeline," Albukerk said. The valuation "tells me that Goldman and Digital Sky and other insiders see huge growth prospects in terms of monetizing the business."

"I have been in the Internet space since the early days of display and the early days of search, and I have not seen anything grow as fast (as Facebook)," said David Karnstedt, a former Yahoo executive who is now chief executive officer of Efficient Frontier, a California-based company that helps clients advertise online. "The most important thing is that participating advertisers are finding it's working."

Facebook may have taken about 9.4 percent of the display-advertising market in the United States last year, up from 6.6 percent in 2009, according to EMarketer Inc in New York. Yahoo, which leads the market, was expected to grab about 16.2 percent, down from 16.5 percent, the firm estimates. Google, which is stronger in search ads, may have had 6.7 percent, up from 4.7 percent.

Some advertisers are just starting to spend money on Facebook. Dunkin' Brands Inc's Dunkin' Donuts had 1 million fans on its Facebook profile page by the end of 2009 without buying any ads, said David Tryder, director of interactive marketing at Dunkin' Donuts.

Last year, the food company began buying banner ads on Facebook to drive traffic to its fan page, where it promoted products like its Coolatta frozen coffee drink.

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Dunkin' Donuts now has more than 2.9 million fans on its Facebook page and plans to continue spending this year to market new products and promotions.

"It's become a great place for fans to give us feedback, discuss with each other and give us ideas," Tryder said. "Where we've tried to intervene are in places where we think we can add value, places where we feel like we can promote our products and things important to our business in fun and interesting ways."

While Facebook and Tencent may look similar in terms of revenue and number of users, the comparable valuations may not be justified, said Ackerman at Allegis Capital. Tencent is serving the world's most populous country and largest Internet market. It makes money from online ads and mobile services in addition to instant messaging and games.

"There probably is a valuation premium because of the market," said Ackerman. "Those premiums probably aren't applicable to things in the United States. You're talking about a new category, and trying to evaluate a new category and come up with good rational comparisons is not easy."

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