1. The company has supposedly taken just under a billion dollars in venture capital and small secondary-market sales of stock. So the actual money that has changed hands is just 3% of the total evaluation of the company!"

Not true. Sure they have raised $1B themselves, but a lot of stock has changed hands on the secondary market. Facebook sanctioned employees being able to sell stock up to a certain amount, in lieu of going public (employee pressure was part of what prompted Google to go public).

2. "In other words, the evaluation is resting on the flawed assumption that Facebook could actually ever get 33 times as much money to change hands if they wanted to. There’s just no way, no how that’s happening right now. If it could, they’d IPO tomorrow."

Again not true. When you IPO you don't float 100% of your shares. In the case of Facebook, an IPO may not even see 10% of the company listed - ie. not a lot more than what is already being traded in secondary markets.

Most listed companies do not exchange 100% of their stock - not even close. By this reckoning then, no company in the world has a real valuation because at no time is all of their stock available for purchase. The author needs to go to Google Finance and lookup any of the Fortune 100 and see for himself that most have a lot of stock outstanding or not listed.

3. "If the supposed billion dollars Facebook is allegedly pulling in this year was happening at anywhere a decent margin, they wouldn’t have needed a series E round of $120 million from Elevation Partners just three months ago."

You should have read the link you posted, because the story is that Elevation bought $120M of stock from private holders. ie. Facebook didn't raise that money. The last money they raised was $200M (on $10B) from Digital Sky in May of 09[2]

(btw if you did read the story at the link you referenced, the 4th paragraph mentions that Facebook revenue for '09 was $700-800M, not the 200 'best guess, being generous' that you work on).

But anyway, the recent (cheap) money they raised went into CAPEX (building datacenters to lower your overheads) and cashing out some stock holders for a very high valuation for non-voting stock.

Facebook is still at the growth stage so every dollar is (wisely) re-invested in the company in ways that will improve the bottom line. $100M is a drop compared to the cost of building datacenters (the new Google datacenter in Iceland cost 250M - without servers).

Having their own datacenters will reduce their infrastructure costs over time. While it is a lot of money - it will pay itself off within a few years because atm they are leasing space and bandwidth. Not a bad use of what is 1% of their company.

4. "But let’s be charitable. Let’s imagine that Facebook miraculously made $200 million this year — a 20% margin. (I don’t think that’s true, otherwise why take another $120 million from Elevation Partners, but hey, let your imagination roam). That would put Facebook’s P/E at some 165."

How about we Get Real(tm) and say $1.1B this year[1], and that is before they start booking platform revenue from Facebook credits, which will be 30% of everything Zynga et al make (and Zynga made over $500M+ in '09). $700+ in 99, $1.1B+ this year, and at least an extra billion in the first year of Facebook credits. Not bad.

Each time they double revenue you can halve the PE - which is why it is so high atm.

"No outrageous profits after seven years and half a billion users"

They are profitable, and on a trajectory that will see them reach ridiculous numbers. See the more sane and informed discussion about Facebook revenue projetions and the business model here:

http://news.ycombinator.com/item?id=1718512

(if you are actually interested in learning why Facebook is valued so highly, what the business model is and where it is going - check this link, the conversation took place earlier today and it will save me re-hashing a lot of the points here)

Facebook has reached every corner of the world in short time. We can all agree that their ads suck - yet even with this shitty advertising, which is mostly for Russian brides, they have managed to hit a cool $1B - without even trying. Imagine if they had some real ad technology behind that site. They will do something that Google has failed to do, that is, have two sources of revenue. 1. the ads. 2. the platform - both of these are billion dollar businesses.

What is more depressing than just how mis-informed and terrible this article is? The number of fans in the comments who eat up every word and cheer them on.

(Edit: updated)

[1] http://techcrunch.com/2010/06/22/facebook-revenues/

[2] http://www.crunchbase.com/company/facebook