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Facebook's Revenues Leaked 295

Posted by Soulskill
from the all-about-the-benjamins dept.
eldavojohn writes "Think that Goldman Sachs spent too much on Facebook with the $450 million investment? Well, a very wealthy customer of theirs decided to leak Facebook's financials yesterday after receiving it over lunch: '... during the first nine months of 2010, Facebook generated $1.2 billion in revenue. Net income at the firm was $355 million. The financial statements were not audited and offered little detail about how Facebook generates its revenue, said the source, who did not want to be identified because he had signed a non-disclosure agreement.' Expanding this nine-month period to a year yields $1.6 billion in revenue and under half a billion in income. Given that, should Facebook be valuated at $50 billion?" Reader frontwave adds news that other social tech companies are hurriedly considering IPOs of their own.
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Facebook's Revenues Leaked

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  • by ls671 (1122017) * on Friday January 07, 2011 @01:28PM (#34793190) Homepage

    Is Facebook a viable long term business model ?

    I have never been using Facebook although I have heard a lot about it. Obviously some people, mostly mainstream from what I can understand, seem to enjoy it a lot.

    What would be the percentage of "Facebook penetration" amongst the /. users ?

    • by MightyYar (622222) on Friday January 07, 2011 @01:32PM (#34793262)

      What would be the percentage of "Facebook penetration" amongst the /. users ?

      If it's penetration you're after, Craigslist is far superior.

    • by Kenja (541830) on Friday January 07, 2011 @01:34PM (#34793322)
      Of course. Peoples personal information always has a market value.
    • by arth1 (260657) on Friday January 07, 2011 @01:34PM (#34793328) Homepage Journal

      Is Facebook a viable long term business model ?

      All internet companies are butterflies. Something newer and hipper will come around.
      Facebook too will one day go the way of MySpace and LiveJournal.

      (And Google will one day go the way of Altavista, Hotbot and ftpsearch.ntnu.no)

      • by ThinkWeak (958195) on Friday January 07, 2011 @01:50PM (#34793580)

        Is Facebook a viable long term business model ?

        All internet companies are butterflies. Something newer and hipper will come around. Facebook too will one day go the way of MySpace and LiveJournal.

        (And Google will one day go the way of Altavista, Hotbot and ftpsearch.ntnu.no)

        Normally I would agree, but I don't think so in this case. Facebook has done one thing well, and it's appealed to the masses across all demographics. MySpace was too quirky, convoluted, etc. Facebook has kept things relatively simple. As long as they don't result in mass bank fraud due to users' personal information being listed, they have a pretty safe model.

        Facebook also does not appear to be stagnating the way MySpace did when it thought it was the only option. They have a pretty good partnership with Zynga that supplies gimmicky, addictive games for Joe Public and they continue to add new "features." Whether those features are beneficial to the end-user or Facebook itself, it still comes across as innovating.

        I think companies have started to wisen-up after the dot-com burst. Investors are also going to be prone to stay with companies that have shown some resilience in the downed economy.

        • by arth1 (260657)

          Normally I would agree, but I don't think so in this case. Facebook has done one thing well, and it's appealed to the masses across all demographics. MySpace was too quirky, convoluted, etc. Facebook has kept things relatively simple. As long as they don't result in mass bank fraud due to users' personal information being listed, they have a pretty safe model.

          Surely the same could be said for Altavista?
          The problem with web apps is that anyone can do the same. If they do it better than you, your customers will migrate. At first just to test it, and then spending more and more time at the new site. This is what happened to LiveJournal, MySpace, Friendster and many others, and nothing Facebook does prevents people from trying out other services.

          • The problem with web apps is that anyone can do the same. If they do it better than you, your customers will migrate. At first just to test it, and then spending more and more time at the new site. This is what happened to LiveJournal, MySpace, Friendster and many others, and nothing Facebook does prevents people from trying out other services.

            Besides having a community base that includes more active users than all those you just listed combined?

          • by hoggoth (414195)

            > nothing Facebook does prevents people from trying out other services.

            You are overlooking the fact that Facebook, unlike your other examples, benefits spectacularly from the 'network effect'. Each connection between people adds value to the network as a whole. Why would you join 'BetterBook' if your friends weren't on it?

        • by A nonymous Coward (7548) on Friday January 07, 2011 @02:13PM (#34793912)

          How silly! EVERY company loses favor. Styles change, customs change, companies bet on the wrong horse or stay the course and stagnate.

          EVERY company loses favor sooner or later. Facebook is not going to be the first immortal company.

          • by amentajo (1199437) on Friday January 07, 2011 @02:55PM (#34794460)

            How silly! EVERY company loses favor. Styles change, customs change, companies bet on the wrong horse or stay the course and stagnate.

            EVERY company loses favor sooner or later.

            Some Japanese hotels like Hoshi [wikipedia.org] have literally been around for ages.

            Also, check out Tower Publishing [towerpub.com], around since 1772, and JPMorgan Chase [jpmorganchase.com], with us since 1799.

            Take a quick peek at Wikipedia [wikipedia.org] sometime. Though I can't prove that all of these companies will be around forever, I think that companies that have been around through several generations come close enough for me.

            Facebook is not going to be the first immortal company.

            I doubt any company can truly be immortal, but the companies on that wiki page are as close at it gets.

      • Is Facebook a viable long term business model ?

        All internet companies are butterflies. Something newer and hipper will come around.
        Facebook too will one day go the way of MySpace and LiveJournal.

        (And Google will one day go the way of Altavista, Hotbot and ftpsearch.ntnu.no)

        I respectfully disagree, sir.

        Altavista was not much more than a Search Engine. Google has obviously gone beyond that, by penetrating the phone market, email and other web services, its own web browser, operating system, and is rapidly expanding into other markets.

        Much in the same way - Facebook has grown much farther than the "This is my profile, this is my journal, msg me plz" teen fanfare sites. Kids as young as you can imagine having facebook profiles, elders nearing their end, and everyone in between. M

      • The financials sound interesting and validate Sach's valuation short term, but these results are unverified and disclosed in a shady way. I'm still of the mind that if America is hoping to replace heavy industry with IS as an economic base its in for a rude awakening in due time.
    • Is Facebook a viable long term business model ?

      I have never been using Facebook although I have heard a lot about it. Obviously some people, mostly mainstream from what I can understand, seem to enjoy it a lot.

      What would be the percentage of "Facebook penetration" amongst the /. users ?

      Among /. users, lower than average because we have a lot of privacy nuts here.

      However, among the general population, Facebook is huge. Go on, sign up and see how many of your friends are on there (you can always put fake details in and delete the account afterwards). If you're in an English speaking country and younger than 50, I bet it's more than half. ... and it's a medium that lends itself well to ads etc.

      My biggest issue is, penetration is so high already, how much bigger can it grow? How can it monetize the existing user base more, without alienating them? Possibly by "replacing" the internet. I already see things like nightclubs choosing to have a Facebook page *instead* of their own dedicated site. There are lots of people who send each other FB messages instead of using email. Will we see an Amazon-like store hosted inside Facebook -- with a cut going to Facebook on every sale?

      • by Americano (920576)

        penetration is so high already, how much bigger can it grow?

        THey have 500 million users. Estimates put the number of humans on earth at ~7 billion.

        By my count, they could grow by another 6.5 billion people. This also ignores the potential for business & social organization sites, clubs, one-shot events, and a host of other entities which *could * use Facebook as a platform for keeping connected. Plus, the 7 billion people alive today will *not* be the same 7 billion people alive tomorrow. New births

        • by BobMcD (601576)

          penetration is so high already, how much bigger can it grow?

          THey have 500 million users. Estimates put the number of humans on earth at ~7 billion.

          By my count, they could grow by another 6.5 billion people.

          Since there are between one and two billion computers presently in use on the entire planet, how do you figure? How much of the third world would place Facebook ahead of not being raped or forced to starve to death?

          • by KhabaLox (1906148) on Friday January 07, 2011 @02:15PM (#34793938)

            How much of the third world would place Facebook ahead of not being raped or forced to starve to death?

            Dude, have you seen Facebook's new profile page?

      • How can it monetize the existing user base more, without alienating them? Possibly by "replacing" the internet.

        Annnnd we're back to an AOL-style universe.

      • see how many of your friends are on there

        Difficult to judge. I think a lot of my friends are (I'm not, so I can't judge), but I've heard quite a few conversations between non-geek friends recently along the lines of 'I sent you an invite on Facebook, didn't you get it?' 'Oh, I haven't logged in to Facebook for ages, can you send me an email?'

        Two of my friends also got banned from Facebook recently (one for joining a group whose aim was to get banned from as many Facebook groups as possible, the other for providing fake data in his profile, so

    • Their book value is certainly worth more than revenue, where revenue only makes a small part of a companies worth. Their brand value must be massive, which the summary doesn't even cover.

      • by bsDaemon (87307)

        What good is a brand if your company doesn't make enough in earnings to meet expectations? Just because people know how you are doesn't mean they're buying your shit.

    • by AvitarX (172628)

      In my circle it's well over 66% (probably closer to 90% honestly).

      It's a great way to share activities (such as vacation) with families, and see interesting things to maybe do.

      It's a great address book too. Even the people I know that didn't have one over concerns of getting burned by an employer have relented, as any employer that is checking those things will find lack of account odder at this point.

    • by Carewolf (581105)

      In Denmark the facebook penetration is around 90%, just a few percent point short of broadband penetration. If I remember correctly this is also the highest percentage of facebook users in the world, and the statistics about a year old.

      I dont think facebook is going to die that easy, it has reached critical mass, and is beyond the normal tech-cycles. Now replacing facebook is more like replacing Google or Internet Explorer, not impossible, but very difficult.

    • by Jugalator (259273) on Friday January 07, 2011 @01:56PM (#34793678) Journal

      Is Facebook a viable long term business model ?

      If you ask me, social networks become more viable the longer the exist in a successful form, and the more people adopt it. FB would've been useless to me if only a fifth of my friends and relatives used it, but now even my mom and aunt use it. Suddenly it becomes a *very* strongly founded network. A new social network pops up? Well, ask Google how well Google Buzz went, and that was Google being the challenger. Why switch? We're already on one. We and 500 million others.

      Yes, Facebook is a viable long term business model, and it becomes more viable by the day.

      I'm not joking when I'm saying that to many, Facebook is already their central website, and the rest of the sites on the web mere "sidetracks".

    • by wjousts (1529427) on Friday January 07, 2011 @02:07PM (#34793826)

      There was an interesting piece on MIT's Technology Review site [technologyreview.com] about how Facebook is doing something that VeriSign, Microsoft, Yahoo, and Google have all tried and mostly fail at, which is providing a single id and single log in for the internet. There are, distressingly, a whole bunch of sites that have jumped on the Facebook Connect service as a way to sign in to their website for, for example, posting comments. And, of course, there's also all those annoying "Like" buttons that keep popping up everywhere. So long-term? I don't know, but I don't think we are getting rid of Facebook any time soon.

      Fully disclosure: I briefly played around with Facebook a couple of years ago, but quit after a couple of months after getting sick of seeing spam about which Sex in the City character somebody I barely knew back in high-school is supposed to be. Or how they scored in a "know your one-hit wonders of the '80s" quiz.

      • Facebook will NEVER put porn on their site-thus they will not become "The Portal".

        Porn is the great equalizer, the guarantor and canary-in-coal-mine of free speech, and the last bastion of privacy. As long as there are porn sites (and 4chan/ED for the trolls and squick-junkies), the internet will continue to be free.

    • by mozumder (178398) on Friday January 07, 2011 @02:26PM (#34794082)

      They have 500 million viewers, yet they ONLY make $1.6 billion from them?

      Conde Naste makes $4 billion a year from just a few million viewers.

      There are some fundamental problems with Facebook that would prevent major-brand advertisements from purchasing ads there, namely, that it's a viewer-driven site - content comes from the viewers, which is a big no-no among advertisers.

      Why would a major advertiser, like Calvin Klein, place their high-end ad right next to some picture of a college kids barf? They would much rather have their ads placed next to a picture of Lara Stone.

      THIS is why Facebook only pulls in a few cents CPM, whereas an ad in Vogue goes for $150 CPM.

      The more democratic you get, the less interesting you are to advertisers.

  • 50 Billion, really? (Score:5, Interesting)

    by SoVeryTired (967875) on Friday January 07, 2011 @01:36PM (#34793360)

    Facebook has five hundred million users. Is each user really worth a hundred dollars? Facebook is going public soon. What are the chances that this 'leaked' report is designed to pump up the stock, and therefore Goldman's profit?

    • by nedlohs (1335013) on Friday January 07, 2011 @01:42PM (#34793448)

      This report makes the $50 billion look to high - that's a P/E of over 100 - which is really high even for tech stocks.

      So exactly the opposite...

    • by eldavojohn (898314) * <eldavojohn@nOspAM.gmail.com> on Friday January 07, 2011 @01:43PM (#34793468) Journal

      Facebook has five hundred million users. Is each user really worth a hundred dollars?

      I'm not a businessman but I'm not so sure this is the correct way to think about this.

      Everything depends on how much the market is penetrated for social in two ways: users and advertisers. Can they grow that revenue/profit? And if so, to what point? If Zuckerberg sneaks it into China [slashdot.org] then I think you're looking at a potential to increase that significantly. Facebook hosts its statistics [facebook.com] so you can guess if it's got a half billion in revenue yearly at half a billion users and it scales perfectly, that's a dollar per year per user. Can it get up to a billion users? It's probably clear that in the long run as the younger generation matures, that penetration will slowly expand ... but there's no guarantee that Facebook remains the de facto standard that far out. You need to consider future growth.

      The other factor, advertisers and game publishers, could also be troublesome. Is this a "Honeymoon Period" for advertisers where they're paying an unsustainable amount to Facebook for the time being just to gain exposure? Could the above assumptions about scaling with userbase actually be false if advertisers aren't willing to spend more than they are now once more users join?

      Consider that these numbers put Facebook's Net Profit Margin at almost 30%. That's very high for the industry [cnn.com]. They're in the same region as Google and Microsoft but as I stated above can it scale?

      One last thing, you seem to think that Facebook's worth is only its users. They are also a large company with almost two thousand employees and are building infrastructure [datacenterknowledge.com]. Include that on your assets sheet.

      Facebook is going public soon. What are the chances that this 'leaked' report is designed to pump up the stock, and therefore Goldman's profit?

      I think the SEC would come down pretty hard on GS if they did that [telegraph.co.uk] -- they have before for less [sec.gov]. Misleading investors is very serious.

      • by khallow (566160)

        If Zuckerberg sneaks it into China then I think you're looking at a potential to increase that significantly.

        IMHO China is a dead market for such things. It's too easy for Facebook to get officially replaced by a Chinese-owned firm like Baidu.

      • by DCFusor (1763438)
        I think you missed it eldavojohn -- Goldman didn't do the leak, and undisclosed customer of theirs supposedly did; but perhaps at their behest, astroturfing is well within their "ethical limits". I trade for a living and watch Goldman pretty close. There's nothing they won't do, trust me -- even if it gets them a fine of a couple weeks profits like last time...on which deals they of course made far more than the fine anyway. Best law money can buy!
    • by DogDude (805747)
      "What are the chances that this 'leaked' report is designed to pump up the stock, and therefore Goldman's profit?"

      I think that the chances are so good, that I'll be shorting Facebook immediately after the IPO!
      • by SCPaPaJoe (767952)
        I don't know, momentum could propel the stock for a while. I wouldn't consider it a long term play, but it could be a Yahoo type of play. I made a lot of money on that in the 90's.
    • by Khashishi (775369)

      Facebook has improved my life significantly. Looking at the revenue of $1.2 billion, that's $2.40/person/9 months. That's peanuts. I would totally pay for that. I think it's easily worth 100 bucks.

      Facebook should sell a subscriber mode with no ads and a don't-sell-your-private-data-to-marketers option to users. Charge a few bucks a month. I'd be down.

  • by DoofusOfDeath (636671) on Friday January 07, 2011 @01:38PM (#34793400)

    The reports fail to disclose that I just deleted my account.

    So, I'm just saying, the valuations need to take that into consideration.

  • The assumption... (Score:5, Insightful)

    by metrometro (1092237) on Friday January 07, 2011 @01:39PM (#34793418)

    The only explanation for the valuation is the belief that Facebook will be more valuable over the long term than it is now. Unless you think Facebook will still be a wise investment in 15 years, the valuation is a little bonkers. In the technology space, this seems to contradict observed experiences -- a decade is a very, very long time.

    This is particularly so with something as ephemeral as a community-powered product. Diaspora was a disappointment, true. But do you really think no credible Facebook alternative will come along in ten years? And once that crowd leaves, exactly what is Facebook's value? Some PHP? Server farms? Yeah, ok.

    • by neoform (551705)

      You could ask whether google is a wise investment? Also, who invests in tech companies for 10-15 years? Your premise is a little strange.

      Yes, competitors might come along, but right now facebook owns social media much the same way google owns search. I don't a lot of talk about google slipping up.. even though all their revenue comes from the ads on their search.

  • Can someone explain to me how they manage to make $1.6 billion in revenue a year? Who is paying and for what? Because I just went to my FB page for the first time after months and I could not see any ads, not a single one.
    • by pmontra (738736)

      Did you install AdBlock? My facebook never had any ads :-)

      But yes, it would be interesting to know how they're making those money.

    • by metrometro (1092237) on Friday January 07, 2011 @01:45PM (#34793500)

      You're not the customer. You're the product.

      • True, but people have to be making money from the sales through facebook ads (not likely) or buying demographic data (a little more plausible) to justify that. Where does the money ultimately come from?

        • by Peeteriz (821290)

          A significant chunk of money (100-200 million/year) would come from facebook's cut of the money (30% IIRC) people are paying to online game companies - farmville & friends.

      • by neoform (551705)

        What a trite (and false) expression. How am I the product? To whom am I being sold? Facebook's revenue is generated via targetted ads. Yes, they use the information from my profile and my viewing habits to show me ads, however it's very clear that facebook's product is their ads, much the same way google's product is adsense/adwords. Facebook does not own me or my information (according to the laws of my country), therefore they have no rights to sell that information. I am not the product.

        • Facebook does not own me or my information (according to the laws of my country), therefore they have no rights to sell that information. I am not the product.

          I'm going to guess that theft is also illegal in your country and that it never ever happens?

        • Hi.

          I sold your info to Primo Amore restaurant down the street. They say they got some new cheese in for their lasagna. I ordered you a batch. Expect the doorbell to ring tomorrow at 7PM.

    • It is not just the ads that are being displayed to you. It is the ads they display to you, your friends, your family, people who view your profile frequently, etc.
  • A relatively high net income is nice (albeit unaudited!), there are other factors to weigh into valuation.

    While the numbers in the financial statements are important, this is only part of the overall picture of a company's present and future.

    I think for a company like Facebook, the risks stemming from competition and legal liability are tremendous. While Facebook is the biggest social media network out there, you can't be sure it'll be the last. It can get slammed by legal conflicts over privacy issues. Fac

  • The source signed a non-disclosure agreement, on the basis that he was trustworthy, and then disclosed the document anyway. What an unsavoury character.

    • by Chapter80 (926879)

      The source signed a non-disclosure agreement, on the basis that he was trustworthy, and then disclosed the document anyway. What an unsavoury character.

      Yeah, why would we trust these numbers, since they are provided by a source proven to be untrustworthy, about a company proven to be untrustworthy, led by a guy proven to be untrustworthy?

    • by timeOday (582209) on Friday January 07, 2011 @03:03PM (#34794574)

      The source signed a non-disclosure agreement, on the basis that he was trustworthy, and then disclosed the document anyway.

      I prefer to say, "the investor made a revision to their privacy policy."

  • by Anonymous Coward on Friday January 07, 2011 @01:59PM (#34793710)

    a rocksolid stable company like Walmart pays 2.24% dividend out of profits ($4.5 Billion on a valuation of $200 billion). A less stable company like AT&T pays 6% ($10 billion OUT OF PROFITS on a marketcap of $170 billion). Growth companies have the same sort of profits or larger, but they tend to reinvest all of the profits in expansion so they don't pay dividends.

    If you think Facebook has as solid a future as AT&T, then at $50 Billion valuation Facebook would need to see $3 billion in excess PROFIT. So, they are tremendously overvalued by today's alleged revenues of $0.5 billion. The only outstanding question is whether they can grow to much greater than $3 billion profits in the next year. I don't see that happening, you are free to smoke whatever crack you can find.

  • by ericdano (113424)

    Explain why facebook and goldman sachs are going to get away with their bypass of reporting this income to the SEC? With that sort of revenue, they should be playing by the rules like apple, google, and other companies are.

    • by nedlohs (1335013)

      because facebook is a private company and hence doesn't have to meet all the requirements of a public company.

      • by ericdano (113424)

        Except that they are doing something with goldman which will allow allow public investing but not the transparency required by the SEC....so...

    • Re:SEC (Score:4, Informative)

      by KhabaLox (1906148) on Friday January 07, 2011 @02:34PM (#34794186)
      Read Matt Taibbi's blog post [rollingstone.com] over at Rolling Stone. They are using what's called a "Special Purpose Vehicle." Basically, the SPV invests in Facebook, and Goldman's hand-picked clients invest in the SPV. You don't have to disclose financials if you have less than 500 investors, and the SPV only counts as one.
  • Let's see... very wealthy customer receives NDA covered financial document over a recent lunch and decides to violate the NDA he/she signed and publicly disclose it.

    I can't imagine it will be very hard for Facebook to track down this customer and use their $500 million profits from this year to sue this customer out of their 'very wealthy' status, perhaps permanently and or sue Goldman Sachs for disclosing the information publicly.

    IF that does not happen, I would be very suspicious of the validity of the do

  • Superfluous article. Obviously Goldman are in on just another pump and dump scam. They'll talk up the IPO, make a few billion on it and then dump their stock.
    • Great observation. With Goldman's track record there's no coincidence in their making a huge investment with private information, followed by exaggerated claims of fast money for the unwashed masses to consume.

      BTW, I found this *great* penny stock called TTLBS that you should invest in!

  • Looks like an appropiate name for everything that comes out from facebook
  • It's really no surprise Facebook is the prom queen in Goldman Sachs' eyes. Both companies don't produce anything and make money from being the middle man, connecting people. They basically are both in the "transaction" game, just a different one. A traditional market will trade money or commodities, this one trades eyeballs.

  • I was expecting 5-10X the revs and double the margin given the extrapolation from Goldman's price.

    Facebook is worth $10B market cap, tops.

  • by fizzup (788545) on Friday January 07, 2011 @02:28PM (#34794102)

    Price:revenue is 50:1.6 or 31+. Nope, not worth it.

    Price:earnings is 40:0.355 or 140+. Nope, not worth it.

    Price:book is not specified.

    Price:quick is not specified.

    Margin is 0.355:1.6 or 22%. Worth looking.

    Revenue growth is the wild card. For this to be a "good" buy, Price:future revenue should be about 5, or four doublings in revenue. 30% revenue growth for 8 or 10 years would do it. Buy and hold - it's the only option that I can see. That must be what everyone is planning to do...

  • From what I've learned from a CFO in the past, an offer to purchase on a good company is usually somewhere between 7-10x the revenue of the company annually. If that holds true, then FB could be bought for up to $16 billion reasonably. $50 billion is assuming 3x that much value. This is ridiculous. No wonder the investor was scratching his head.

    • by iammani (1392285)

      Unless of course you expect the revenue to change rapidly in the next few years. Which is what people expect to happen to facebook. I would say $16B is undervalued, for such a company (i also believe $50 is really over valued though)

  • by Animats (122034) on Friday January 07, 2011 @02:33PM (#34794164) Homepage

    Facebook may be maxing out on number of customers. They have 500 million accounts. Tencent's QZone, in China, is slightly larger; Facebook isn't going to take over China.

    If they're near max growth, they have to be priced as an ongoing concern, and should have a P/E around 15 to 20. (Microsoft's P/E is around 12, Apple is around 21, Google is around 25.) So if net income is $355 million, market cap should be around $7 billion.

    $50 billion, no way.

  • by prostoalex (308614) * on Friday January 07, 2011 @02:50PM (#34794392) Homepage Journal

    ...should Facebook be valuated...

    We should have more financious intellectious discussions like this.

    • by bobdotorg (598873)

      ...should Facebook be valuated...

      We should have more financious intellectious discussions like this.

      As silly as it sounds, valuated is the correct term for appraisal / valuation. Probably a derivative of evaluated.

  • Valuation is wrong. (Score:3, Interesting)

    by knowsalot (810875) on Friday January 07, 2011 @03:25PM (#34794884)
    The valuation of a pre-market company is biased. I am surprised this is not more widely known.

    Ordinarily, (and according to all the market analysts at the WSJ and elsewhere), a "valuation" is performed by market-driven factors when an equity interest is purchased in an arms-length transaction. The calculation of valuation is easy: If you buy 1% of the company for X, then the company must be worth 100X, right? Here, Goldman bought 0.9% of FB for $450M, creating a valuation of $450M/0.009 = $50B.

    Wrong. It's not an arms-length transaction. Goldman is getting a lot of value out of the deal aside from the value it expects to earn purely as a shareholder.

    (1) Goldman is setting itself up to be the underwriter for Facebook's IPO. That's worth a lot.
    (2) Goldman is getting a lot of press, advertising, good will, bragging rights, etc. That's worth a lot.
    (3) Goldman may get other business opportunities associated with Facebook such as contacts, financial services for FB & related companies & executives, a potential talent pool for ppl looking to jump ship (esp. at executive level?), etc.

    If Goldman put a value of $441 million on all those "extras", the intrinsic amount paid for the 0.9% stake in FB is only $9M, putting Goldman's valuation of FB at a measly $1B.

    Looks a lot different now, doesn't it? That Goldman's "internal" valuation of FB must be so different from the "external" market valuation just goes to show you how ignorant most financial types (and reporters) are.

    The reported valuation (or any valuation based on an investment) is only accurate if you know the full extent of what was purchased.

  • by Maltheus (248271) on Friday January 07, 2011 @05:50PM (#34797220)

    Everyone I know uses Facebook less. I won't even touch an app anymore. I hardly update my status. And everyone is so angry at the never-ending privacy changes that it won't be hard to get them to switch once there's a viable alternative. I just don't see a rosy future for them when their only asset is a ticked off user base.

    Actually, thanks to android, I'm giving up most of my privacy to google these days. I know a number of people, who won't touch FB with a ten foot pole, give in to owning a smartphone once they see how much easier it can make their lives (privacy be damned). I predict a much rosier future for them.

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