Finance: Valuing social networking

This blog raises the rather interesting question of how you value a company that has negative cash flows and no current plan to have positive cash flows.

One interesting method mentioned is a multiples analysis based upon Yahoo's market capitalization to unique visitors ratio...

Yahoo’s market capitalization is now about $35 billion. With about 506 million unique visitors in March, that translates to about $71 per visitor. Apply that same metric to Facebook’s 109 million unique visitors and the company would be worth $7.7 billion, about half the value implied in the Microsoft deal.

In context, that information is only provided to show that MS's valuation is way over the mark. Still, I'd think such a technique would way over estimate Facebook's value given that Yahoo has thought up proven ways of turning at least some of its unique visitors into considerable revenue - whereas Facebook is still attempting to perfect that art. Yahoo, after all, has a positive revenue of ~ $7 billion, while Facebook only made $150 in revenue last year (while still bleeding around $150 MM in cash).