How can Facebook be valued so highly with such low profits?

[Ouroboros]

Apparently the net profit for Facebook in the year 2011 was around $1.5 billion, so how can it be valued at $100 billion?

[Bob The Builder]

Its famous

[SkyBlu✈]

You have to put in perspective the amount of people that migrated over from MySpace and other social networks, and then the more people the more affiliate links they placed on more pages, instant boost in revenue.
Also in essence you could say Facebook brings $1.5 Billion but would sell for $100 Billion.

[Walter]

One word, speculation. Remember the Internet/Telecom bubble, when companies with no profits and no coherent realistic business model were the stars of the market? When somebody invents a better or shall I say "trendier" mousetrap we'll be seeing FB in pump and dump penny stock spam.

[movngfwd]

Speculative demand.
Investors are 'hopefull' that FB will make more than 1.5 billion .... in the future.

Its a Gamble. Yes. However, like once upon a time Apple (before the ipod) was trading at $16 a share (kick myself for NOT buying it then).... but speculation at that time was worse off for Apple in 1990's than FB , today.

The gamble..... ipod's was new and had no guarantees. Like FB.... Twitter or some other social network may take its followers. If FB manages to hold its users for 5 more years.... there is potential to make a LOT of money in advertising or engine searches. +1.5 billion/year.

my 2 cents

[Bored Goblin]

that valuation is based on the assumption that profits will increase in the future, and increase a lot.

If assumption is wrong, it should be valued at maybe 20-30 billion. After all, it's 1.5 billion per year, every year, from now and until kingdom come.

[Spotty J]

Although that's a high valuation for that amount of profit, it's not totally outlandish or unprecedented. Companies that are growing their profits and revenues very fast usually have high multiples (ratio of market valuation vs. net income.) Facebook is growing very fast, and is expected to be very profitable and influential.

In other words, people are afraid they'll miss out on Facebook becoming as valuable as Apple (400+ billion dollars).