How big does Facebook really have to get?

May 14, 2012, 10:29 PM UTC

FORTUNE — The Facebook IPO scheduled for this week is generating a rush of exhilaration on Wall Street. But big excitement doesn’t necessarily translate into big money for investors. So let’s pull out our calculators and take a sober, just-the-numbers look at what Facebook needs to achieve to enrich the fans who buy its shares after what is being billed at the debut of the decade.

If Facebook is priced at the mid-point of the estimated $28 to $35 a share range, it will start with a market cap of around $86 billion. That’s 86 times its 2011 earnings of $1 billion. So let’s assume shareholders want 10% annual returns from their investment, then look out seven years from now. What earnings and revenues does Facebook need to produce those 10% returns?

In our experiment, by mid-2019, Facebook must lift its price per share 95%, assuming it pays no dividends –– normally the case with fast-rising players in tech. It’s also reasonable to assume that Facebook adds at least 1% to its share count each year, mainly by issuing stock options to employees. “That’s an extremely conservative estimate,” says Steve O’Byrne of consulting firm Shareholder Value Advisors. So with 7% more shares outstanding, and a stock price that grows by 95% (that’s 10% a year), Facebook would reach a market cap of $180 billion.

MORE: What Facebook IPO says about venture capital

It’s impossible to know what PE multiple Facebook will garner in 2019, but we’ll assume it’s 20. That figure is generous since it means investors are expecting more years of faster-than-average growth, even after seven years of frenzied expansion.

Hence, Facebook would need earnings of almost $9 billion to hand investors nice — but hardly spectacular — 10% gains. That’s a compound annual growth rate of 37%. From mid-2018 to mid-2019 alone, Facebook would have to generate an additional $2.5 billion in profits. It would also require extraordinary, 37% gains on each dollar of retained earnings it reinvests to reach our milestone. That’s three times the average return on equity of America’s large companies.

Now let’s extend our horizon another five years and forecast that the 10% returns keep coming. By then, Facebook’s PE should fade a bit to, say, 18, reflecting its status as a maturing giant. So in 2023, Facebook’s market cap would need to rise another 66% to $297 billion. Its profits would hit $16.5 billion at our 18 PE.

For context, Facebook would be worth more than Microsoft (MSFT) is today. It’s also interesting to note that only nine Fortune 500 companies earned $15 billion or more in 2011.

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If Facebook maintains its 2011 margin on sales of 27%, its sales would need to reach $61 billion by 2023. Global advertising revenues are projected to grow to from around $430 billion today to well over $700 billion by 2023. So Facebook would need to go from a glamor name to capturing something like 8% of all of the world’s ad market in 12 years, grabbing business from the likes of Google (GOOG) and News Corp (NWS).

Can it happen? Sure. But nothing spoils a Wall Street party like a sermon on the math.