Facebook at 50bn
Cross Posted from Get Great Results @ Mediavest Blog.
Electronic trading platforms have been connecting desperate buyers and eager sellers, ever since Facebook first agreed to find a way for former employees to cash out. Facebook shares are now out there being traded in the speculative world. The most worrying development has come in the last few months, with the creation of a number of so-called "single-asset funds". These funds buy up as much Facebook stock as they can and then sell shares in the fund to investors. It is like being granted access to an elite club.
So, if Google was the poster child of the dutch auction IPO, Facebook is the poster child for this new phenomenon of private investor marketplaces and will only see much more hyped early stage ventures soaring to similar such models. Conversations have already started for Twitter, Groupon, etc.
Why is this a bad thing? We are moving away from the principle of transparency of widely traded shares that make public companies accountable. Lack of financial disclosure of companies being traded outside of formal regulation is surely not a positive step forward.
Some may say it’s just another way our financial friends are looking to boost lost bonuses. Is this another bubble waiting to be burst.
According to New York times, Facebook has raised $500 million from Goldman Sachs and Russian Internet investment group Digital Sky Technologies in a deal valuing the social networking site at $50 billion, Goldman has invested $450 million and Digital Sky Technologies, which has already invested about half a billion dollars in Facebook, put in an additional $50 million. This values the company more than Ebay and Time Warner.
More interestingly. Goldman is planning to create a special purpose vehicle to allow its high-net worth clients to invest in Facebook, the paper reported.
The question really is, Is this the true reflection of Facebook's profit potential? Or is it just artificial inflation for some of its private investors. The Securities and Exchange Commission, the American investment watchdog, also announced it is investigating the frenzy of trading in Facebook shares. Facebook is a private limited company but that hasn't stopped the stock that it has privately issued so far, to employees and early-stage venture capital investors, from changing hands at higher and higher valuations.
Electronic trading platforms have been connecting desperate buyers and eager sellers, ever since Facebook first agreed to find a way for former employees to cash out. Facebook shares are now out there being traded in the speculative world. The most worrying development has come in the last few months, with the creation of a number of so-called "single-asset funds". These funds buy up as much Facebook stock as they can and then sell shares in the fund to investors. It is like being granted access to an elite club.
So, if Google was the poster child of the dutch auction IPO, Facebook is the poster child for this new phenomenon of private investor marketplaces and will only see much more hyped early stage ventures soaring to similar such models. Conversations have already started for Twitter, Groupon, etc.
Why is this a bad thing? We are moving away from the principle of transparency of widely traded shares that make public companies accountable. Lack of financial disclosure of companies being traded outside of formal regulation is surely not a positive step forward.
Some may say it’s just another way our financial friends are looking to boost lost bonuses. Is this another bubble waiting to be burst.
So, is the valuation realistic? Facebook estimate conservatively they will be able to make $100 per user. At 500mn users that equates to the current valuation of $50 bn. May not be that unrealistic after all. Mark Zuckerberg in a recent conversation said he expects to be at 1bn members by the end of 2012!
Two interesting developments to keep your eyes on. 1) The trading mechanism applied by Facebook, 2) The valuation and whether realistically facebook can convert it to profit.
Time will tell!
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