Why, didn't you know, Facebook is worth billions and billions according to Goldman Sachs. 50 Billion to be exact. You may be wondering, 50 billion for a website? How is that possible? I say, it's a pretty sweet bargain..
Can Goldman Sachs, the profit-seeking missile of high finance, really make money by investing $450 million in Facebook, at a vertigo-inducing price that values the social-networking company at $50 billion?
On first blush, the answer would appear to be no. After all, in May 2009, the company was valued at $10 billion. Last August, Facebook was valued at $27 billion and now it’s $50 billion — for a company with a reported $2 billion in revenue and negligible profits. If General Electric, with 2010 revenue of around $150 billion, traded at a similar multiple of revenue, it would be worth $3.75 trillion instead of $200 billion. Facebook is now considered to be worth more than Time Warner, DuPont and Goldman’s rival Morgan Stanley.
Just last week, Facebook’s shares were said to be trading on a private-market exchange at a valuation of $42.4 billion. Thanks to Goldman’s imprimatur, Facebook’s value increased 20 percent virtually overnight. Can Goldman really expect to squeeze more water from this stone?
To understand why, we have to go to the heart of the many problems in the way the Wall Street cartel does business, despite the promised reforms of the Dodd-Frank law. With Goldman’s investment in Facebook, we have a front-row seat to the process by which Wall Street creates and inflates financial bubbles.
This bout of hysteria involves not only Facebook but other Internet companies including Twitter, the gaming site Zynga, the social buying site Groupon and LinkedIn, another social networking site. The valuation of these companies has soared in the past two years, leading some to worry that the American people bailed out Wall Street so that we could relive the Internet Bubble of 1999.
Despite the high price of its investment, Goldman sees in Facebook a business bonanza, a nearly perfect nugget of investment-banking opportunities. First, Goldman’s cost of capital is close to zero — as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates — so any capital gain it makes on its venture in Facebook will be sheer profit. Second, Goldman has almost certainly locked up the role of lead manager of the inevitable Facebook initial public offering.
Fees for underwriting public offerings are generally about 7 percent of the value of the stock sold. Facebook could easily sell $2 billion of stock or more, generating fees to Goldman and the other underwriters of at least $140 million. The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested.
Goldman has also won from Facebook the right to offer an additional $1.5 billion of the company’s stock to its private-wealth clients. According to The Times, Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits. While on paper it seems that these high rollers would be foolish to invest in Facebook at such a lofty valuation, they will still most certainly feel increased loyalty to Goldman for making such an exclusive opportunity available to them. On top of it all, there is the increased likelihood that Goldman will get to manage a good portion of the $12 billion fortune belonging to Mark Zuckerberg, Facebook’s founder, for yet more fees.
If Goldman does take all these roles at once — investor, salesman, money manager, I.P.O. underwriter — it would certainly raise the ugly specter of conflicts of interest. But probably not to Goldman executives, who have always prided themselves on being able to “manage” through such situations. (In fairness, there’s likely no investment-banking firm on the planet that would not eagerly take Goldman’s place in this scheme, if offered the chance.)
Even though Facebook is reported to have little need for Goldman’s money, having Goldman validate Facebook’s exponential increase in value gives Mr. Zuckerberg the ultimate Silicon Valley street cred, far more than he got from having Hollywood make a movie about him or from becoming the youngest billionaire on the planet.
With all these winners, who will the losers be? The average investor, of course, who will get left holding the bag when, someday, Wall Street realizes the firm’s financial performance doesn’t live up to its hyped valuation.
I have to laugh at all this. I mean, were the fuck do they come up with this trash and why does everyone sit there and believe it? Oh yeah, because Americans have a twisted relationship with capital and think something is worth what someone is selling it for.
Isn't that a famous quote from Civilization 4. "Everything is worth what it's purchaser is willing to pay for it" - Leonard Nimoy. It's really the case here. I mean, someone should buy this blog. Last I checked whatever made up assessors they stated that it was worth 95 million dollars.
You really have to laugh at all this "Private investment" models of gauging the value of something. You also shouldn't expect facebook to go public for some time since they are getting money pumped into them through backdoor shit like this.
It's really amazing that they're so blatantly setting up yet another bubble. And to think that it took this news story to get the SCC to start investigating them.
Just see what they did to fuck themselves in the ass..
Interest in shares of Facebook Inc. is so strong that Goldman Sachs Group Inc. plans to stop soliciting interest from potential investors on Thursday, after the securities firm received orders of several billion dollars, according to people familiar with the situation.Yes.. that's fucking right.. Facebook is having their IPO without the P before our very own eyes. If it was any company other than Goldman Sachs, who is very well politically connected, the SEC would have gone far past "investigating" and shut them them fuck down or required Facebook to publish their financial results already.
"It's a blowout," one Goldman employee told an investor who has considered trying to buy Facebook shares on behalf of a client.
Since the deal emerged over the weekend, wealthy Goldman clients have been scrambling for a piece of the equity offering that could be worth as much as $1.5 billion. In addition, Goldman agreed to invest $500 million in Facebook along with Digital Sky Technologies of Russia.
Goldman is mostly gauging interest from wealthy, individual clients of the company and their representatives. A small number of institutional firms such as hedge funds and private-equity firms that do business with Goldman also have been invited to participate in the investment, people familiar with the matter said.
Goldman partners can get in on the deal, too, and at slightly better terms than clients of the New York company, these people said. For example, Goldman partners aren't being required to invest at least $2 million in Facebook, one person said. Other potential investors have been told that the minimum commitment is $2 million.
Investors also must agree to lock their money up for several years if they agree to participate in the offering, according to investors who are weighing the deal. To get Facebook shares, clients must agree not to sell them until 2013. The ban includes secondary markets that allow investors to buy or sell private-equity ownership stakes.
Facebook is one of the hottest companies in the technology world, and many analysts expect revenue to surge as the Palo Alto, Calif., capitalizes on its Internet ubiquity.
Still, the frenzy to get in on the deal is striking because investors are being provided scant information about Facebook's operations and finances. Prospective investors also must pay hefty fees that amount to 4% upfront and 5% of any gains, according to people familiar with the matter.(AHAHHAHAHAHAHAHAHHAHAHAHAHAHAH)
It isn't clear exactly how many Facebook shares will be sold as part of the deal. Goldman has gone back to Facebook several times to test the company's interest in expanding the size of the sale, according to a person close to the matter, though the tone of the requests was informal. Goldman declined to comment.
Facebook likely will decide how many shares to sell based on how many company shares employees want to unload, according to one investor briefed on terms of the transaction.
Employees at Facebook aren't currently allowed to sell shares. Last year, though, Facebook arranged a deal in which employees could sell a total of at least $100 million in shares to Digital Sky. The Russian investment company also invested $200 million directly in Facebook.
—Geoffrey Fowler, Steve Eder and Aaron Lucchetti contributed to this article.
As it is - I still give it no more than six months before Facebook is required to start announcing results publicly. But you need to tip your hat to them for attempting to dodge regulatory and reporting requirements though -using Goldman as the "investor of Record" to keep their numbers in the upper 500
But really, how could people read all this and act like the last 2 years didn't happen. I hope that this means that the next financial crisis will probably drag facebook down with it in some sort of social networking-bank-advertising mega collapse.
Or maybe it merely means that when facebook inevitable collapses or is revealed to have no real value, there's a slim chance that some politically connected Russian oligarchs who dumped a couple hundred million into it might get a few retired goldman execs snuffed.
But the more worrying point is the whole issue of what happens if the whole market (or a large proportion) moves to what is is essentially a "Private IPO" vehicle. Why go through all the hassle of public reporting and scrutiny of your accounts, just get (bailed out) banks to give you large lumps of (nationally subsidised) money. No worries about a trade sale either, and all those inconvenient due diligence studies and new managers telling you what to do. This is Bubble 2.0 behaviour, and if it was repeated over and over you wind up with a large number of impenetrable investment vehicles in large companies that are "too big to fail", backed up by banks that are "too big to fail".James Governor makes an interesting point here regarding private control of tradeable Facebook shares creating an artificial scarcity:
The valuation of these companies has soared in the past two years, leading some to worry that the American people bailed out Wall Street so that we could relive the Internet Bubble of 1999.Baw ha ha ha ha ha ha! I unironically hope this happens, just to see how many popped bubbles in a row it takes for people to stop trusting bankers altogether. It's such a scame to have these website valuations by venture capitalist taken as anything more than a fucking joke.
This is how what it looks like when others wipe there own ass with all of our tax dollars. This over valuation of facebook and social networking is going to be the funniest joke of the 21st century.
At current time, facebook still doesn't make any real money. They report that they made something like $20 million in a year and they projected they'd be making $2 billion in the year after by Goldman.. How is that even logically plausible?
The only thing going for them is that they have targeted advertising... Don't you realize? TARGETED ADVERTISING! Well, I'm off to make more fake facebook accounts to cheat at mafia wars and farmville.
Do you remember when New Corps bought Myspace for 2 billion dollars? Hee, yeah... That worked out pretty well for them.
They take a 50% cut of the coupon price also. So the store gets literally 25 cents on the dollar for every dollar spent with that coupon. Pretty crazy. And they still pay their employees shit in the grand scheme of things. But again, the place thinks that once they see the great customer service of the store/joint, that they'll be repeat customers and make their money back.
But anyway, if Facebook goes public you should probably buy a lot of shares and get out before the bubble burst. Investment banks have historically made huge money in pushing pie in the sky tech dreams on the investing public. So you might as well make a buck or two off of it while you can.
If you're too young or just don't pay attention, all the money that was made on the ridiculous first day IPOS in the late 90's neither capitalized the companies or made retail investors wealthy.
I mean, social networking websites made for children are completely serious business. You should remember that the difference between Facebook's revenue model compared with googles is that google's ad network is on nearly every site on the internet. Facebook has Facebook.. and people generally don't click the ads because they're not actually searching for anything other than their friends
If anything, Facebook won't be making money off ads like Google does. Everything worthwhile facebook can sell will be their tracking information on their users. Though Nielsen is their exclusive partner in market research and companies are throwing giant piles of money at social media research. None of it is really worth a damn though.
I have to wonder if second life is still around and making money or have people finally realized it was stupid to spend money on fake shit and allowed it to implode on itself.