Culture

Is Facebook Worth $50 Billion?

Goldman Sachs blocks Facebook on their employees’ computers, but that hasn’t deterred them from investing $450 million in the website. It was quickly revealed they were internally valuing Facebook at $50 billion. (We’ll get to whether that valuation makes sense in a moment.)  Goldman was quickly inundated with orders of Facebook shares, with investors trying to order far more than the $1.5 billion in shares that was estimated to be available in that equity offering.

In order to buy the stock from Goldman, investors had to invest a minimum of $2 million and agree not to sell the stock (including secondary market sales) until 2013.  Goldman “partners” (the top 470 or so of Goldman’s 35,000 employees) were exempted from the $2 million minimum.  Goldman is charging hefty upfront fees of 4%, plus 5% of any gains, on the stock offering.  They are also likely to charge private-placement fees of at least 2% for arranging the deal.  We should have gone into finance.  Nobody pays us that much for hooking them up with pictures of cats wearing hats.

But does the $50 billion valuation make sense?  Facebook makes it difficult to find out, as they have yet to publicly release their financials, but information is starting to trickle out.  It’s been revealed that Facebook likely turned a profit of $200 million on a revenue of $777 million in 2009 and are rumored to have made half a billion in profit on a revenue of $2 billion in 2010.  If these numbers prove correct, this means the $50 billion valuation Goldman Sachs is trading Facebook under is 100 times last year’s earnings.  For comparison, most of the other large tech companies are selling for ten to twenty times their earnings (Microsoft’s P/E is 12.27 and Apple’s is 22.19, for example).

To have a comparable P/E to other tech companies, Facebook will have to ramp up their earnings (and their revenue) by 500% to 1000%.  Is it possible they could raise yearly revenue from $2 billion to $10 billion or more while maintaining that 25% profit margin?  Sure.  They’re rumored to have raised their revenue about 250% between 2009 and 2010 while keeping their profit margin up.  Another 15 months of that astounding growth would position a $50-billion-valued Facebook at 20 times earnings.  The valuation might prove reasonable in the near future, but is Facebook likely to outperform that already huge growth by a wide enough margin to give a new investor an enormous pile of F.U. money?  Nah, probably not.  There’s only so much room for growth left with this already-huge company.  Then again, if you can afford to invest in Facebook at Goldman’s $2 million minimum, you’ve already got the pile of F.U. money.  Spare some change?

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  • Goldman Sachs invests $450 million in Facebook, still blocks Facebook at work. (SAI)
  • Goldman Sachs flooded with orders for Facebook shares, shouts “awww yeah” and shoves money in their ears. (WSJ)
  • Goldman investment reveals Facebook financials and analytics. (TechCrunch)
  • Henry Blodget runs the numbers on Facebook’s valuation.

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  • Heidi, a cross-eyed opossum at the Leipzig Zoo in Germany, has become a star. She already has over sixty thousand Facebook fans and has garnered so much attention that the zoo created a new page on their website to answer questions about the opossum. (Spiegel)
  • The makers of Super Scoop (Arm and Hammer) have filed a false advertising lawsuit against the makers of Fresh Step (Clorox) over an ad claiming cats prefer the smell of Fresh Step. Their complaint includes, among other things, the argument that cats can’t talk. Wait, hold up, cats don’t talk?  Everything I know is a lie. (NYDailyNews, view the ad in question at Arbroath)
  • Telegraph is predicting that Quora will be bigger than Twitter.  Being bigger than Twitter may still include devolving into another spamming platform or Yahoo Answers style wasteland.  How is babby formed?

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  • Bloggers may be going crazy over Quora right now, but all the cool people know Cwora is where it’s at.
  • Goldman Sachs has been telling clients Facebook has “600 million+ monthly active users”.  This is impressive considering there are about two billion people with some form of internet access.  On the other hand, it also means there isn’t huge room for growth.  Most of the highest-value potential customers are likely already familiar with Facebook. (MSNBC)
  • Business Insider pulled together eight charts to show why Facebook is worth the $50 billion value Goldman Sachs placed on it.  For example, 10% of all minutes spent on the internet in the US are estimated to be spent on Facebook, and the site currently reaches 70% of all internet users in the U.S. (up from 48% in August of 2009).

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