How would this be rational? Facebook is not Google. Google's primary market (search) is nothing like Facebook's (personal communication).

Both of them market in advertising. The delivery method is different, but it's still advertising.

That's like saying that because Fry's and The Olive Garden both accept cash that they are in the same business.

Just because Facebook and Google both make money by selling advertisements doesn't mean they are in the same market.

For example, Google makes so much money from advertising because they can show users ads pertinent to their search query at the point they are often making a buying decision.

However, Facebook users are on the site because they bored or communicating and not even considering buying something. Not to mention that a large portion of Facebook users have very little discretionary spending money or ability to purchase online anyway.

The market and motivation involved between the two companies is completely different and not comparable.

Bingo! I purchase a lot of online ads, and I can tell you, I give nearly all my ad budget to Google. I tried Facebook for a while, with the exact same ads and the exact same product, and the result was shocking. Nearly 10x less conversions than with Google. I think the reason is simple. Google users were already searching for me, facebook users were just bored looky-loos. When people start to realize this about fb it could be the short of the century.

>more rational

At it's highest, I recall Google's was around 100:1. This puts Facebook's at 250:1.

Correct me if I'm wrong, but it looks like you're using (rumored) 2009 income numbers with the Jan. 2011 valuation in your calculation. Income surely would have changed since then.

Yes, that's true. Assuming 2009's valuation of 25 billion, that would mean a P:E ration of 125:1.

You're comparing their 2010 year-end valuation with their 2009 year-end net income...

In December 2009, Facebook repurchased shares at $25 for an implied valuation of $11 billion. That's a 55 P/E.