Goldman's special purpose vehicle sounds like something you'd design if you wanted to piss the SEC off and get into trouble.
Also couldn't help but laugh at this line:
The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google.
One of Wall Street's savviest investors is investing in Facebook in 2011?
"if you wanted to piss the SEC off and get into trouble."
How many officials in the current administration are former Goldman Sachs employees? Do you think that affects the likelihood of them getting into trouble?
More than that- this type of deal could potentially greatly harm current Facebook equity holders, or much more likely potential buyers of the IPO. If Goldman Sachs is both an investor and the bank that eventually takes them public this deal is rife with conflicts of interest.
Ex: In order to invest at this "low" valuation Goldman had to promise to set the initial price of the IPO to be artificially high. People buy the IPO in Facebook excitement, and right when insiders are legally allowed to sell they dump stock and exercise options and later investors are screwed. Goldman makes huge profit in this situation- on both fees and their sale of stock.
'One of Wall Street's savviest investors', GS, put hundreds of millions into Webvan, too. Maybe they're savvy on Wall Street, but that doesn't mean they are savvy tech-wise. They do know how to make money, however, and ethics need not be an obstacle. Hey, that makes them a great match for Facebook!
Is that reasonable? Suppose that Facebook eventually needs to settle at a P/E of 10:1. Then it needs $5B/year of profits. If Facebook is like Microsoft in that it can maintain a high profit margin due to continuing to successfully exclude any competitors from its market, just as it has so far (in Microsoft's case, through a combination of government-granted monopolies, criminality, and consistently not fucking up; in Facebook's case, perhaps not) then it could have profits like that with as little as $6B/year or so of revenue. Presumably, within a couple of years, the majority of the internet's users will be Facebook users, which is something like two or three billion people.
Is it reasonable to expect Facebook to extract US$2 to US$3 per year per user? It's hard for me to imagine how they could fail to extract several times that. If nothing else, the blackmail value of the data they already have on hand ought to be larger than that. ("Upgrade to Facebook Premium today in order to have the option to keep your past private messages from being visible to all your Facebook friends!" But it probably wouldn't be done in such a public way, in order to dampen backlash.) They can probably also sell preprocessed datasets of people who read subversive literature online to national intelligence agencies: not just the US and UK, but also Egypt, China, Pakistan, Syria, Italy, and Russia. If laundered through some kind of data broker, they could even get plausible deniability.
That would be out of keeping with the kind of privacy invasion Facebook is currently well-known for, though, so it probably wouldn't happen without a change of control of the company first.
So the mere $50B valuation represents an assessment that Facebook's popularity could be short-lived, or that it could become subject to much more intense competition than it is today, driving its revenues down toward their costs.
10:1 would be a fairly low P/E anytime soon for Facebook. They might need to settle there when they're a 35 year old company like Microsoft (which is currently at 12:1). Google is at 24:1 right now and Amazon and Netflix are pretty hot at the moment with 66:1 and 72:1 respectively.
You're providing a hypothetical conspiracy theory business model, and assuming that FB has a high profit margin. FB's revenues seem to come primarily from ads. No one knows how much money they're actually making from virtual currency.
Take a look at what FB actually offers its users: core services: photo sharing, video sharing, blogging, micro-blogging, instant messaging, event/group management. non-core services (apps): quizzes, casual games, horoscopes.
Sounds like any other company everyone knows (Yahoo)? The difference is that FB offers all this with a single login, and the (perceived) greater privacy offered for things you post online. Yahoo never even managed to implement a single login across all of its sites and acquisitions.
The problem is that just like Yahoo and Myspace, there's nothing stopping Facebook from losing users to other sites. The business model is to have a lot of visits from a lot of users and serving them ads that don't bring in much profit. That's a lot of risk, and the upside isn't that great.
I don't see FB moving to a paid premium model. Even if it did that, it wouldn't be that different from what AOL had 10 years ago.
There's just not that much value in what FB does, and not much from preventing others from taking that value away from them.
Why in the world are you talking about Facebook blackmailing users to earn $2/$3 per user? Advertising (and maintaining what's left of their reputation) is clearly fall more lucrative. If each user just clicks on one Facebook ad each year, that's $2/user/year right there.
Given GS's recent history, do they even care about profitability, the long term safety of investors money, or how much the company will earn? All they're betting is that they'll be able to make a short term profit on this.
If these were $50M and not $50B your analysis would've been correct. But with such enormous amounts, it's not about money anymore, it's about power. And Facebook has the power to understand and influence what ppl think.
From later in the article, it's a total of $2 billion, with 1.5 billion being in a special fund designed to make a mockery of SEC regulations: "As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation".
Is that Google Spreadsheet publicly-viewable? Your page is showing either "User not signed in" or "Access denied" (if signed into Google), in the spot where I assume there should be an embedded spreadsheet.
If $US 810^8 (from http://economictimes.indiatimes.com/infotech/internet/Facebo...) is a good estimate of Facebook's revenue, then, assuming fairly stable advertising income (a reasonable assumption, as Facebook has a market share nearing saturation, and the market in social networking is mainstream enough that it probably won't grow too much), a valuation of $US510^10 is 62.5 years of growth. Facebook's brand has a lot of valuable goodwill, but they are still vulnerable to competition, and might not last 62.5 years - so the valuation seems way too high.
Anecdotally, I know a few companies spending between $15k and $50k+ per day on facebook's version of adwords to shovel the masses into games.
You know how people attribute worth to meaningless points in games? Kid CEOs these days attribute worth to the live-updating user stats (DAUs and MAUs, oh my) of their facebook casual-social-viral games. They'll do anything to make those numbers go up, including spending $200k to $1MM+ per month on ads.
I don't think Goldman's position is really revenue based. It looks more like they are pretty much trading on the value of the company shares. I think this is really a way for them to get in on what they believe will be a pretty large IPO, and a way to make money trading on Facebook shares by getting in sooner rather then later. At some time Facebook's revenues will become relevant but you can likely make some serious money having a position in Facebook before it reaches that point.
Valuation is always a dicey territory to be in, especially when done by an investment bank. Their interests are not exactly in line with putting the actual picture out there.
One of the companies I had worked for once had its valuation done by a pretty big i-bank at $1 billion. We were flabbergasted, but they were also going to be underwriters for the issue.
This deal comes 6 months after AOL (an experienced tech player, mind you) sells Bebo for about $10m rather than the $850m it spent to acquire it. The context is markedly different, of course, notably since Facebook was the reason for the collapsed value over at Bebo.
Are the extremely high Facebook valuations a result of the company's stock structure? I'll admit my only information on the subject comes from The Social Network, but it sounded like only ~35% of the stock was actually sold. So, since investors are fighting over 35% instead of 100% of the company, a more accurate valuation would be .35*50bil = $17.5 billion. Is this remotely reasonable, or am I way off?
I think Facebook will issue new shares to the new investors so who owns the existing shares doesn't matter. The new valuation is determined only by the total number of shares before the deal, the number of shares being issued, and the size of the investment.
Valuation = new value per share * total shares = (amount invested / # new shares issued) * (# existing shares + # new shares issued)
Although they probably agree on the valuation and the amount of capital to be invested first. Then the number of shares to be issued is set so those numbers to match.
Well, Google has essentially the same number of users and is traded at 190B capitalization. So, a Google user is worth over $300. As people spend more time on FB then at Google, I can understand why FB user is seen as $100 asset.
Now that you put it that way, why not? Maybe not all of them, but the high-spending ones offset the poorer ones, no? That being said, I've read earlier that Fb actively dangles the $100Bn valuation post-IPO scenario to lure new hires. So perhaps it's not entirely a surprise that GS wants in on some action.
By that logic you should stop doing business with any company that Goldman Sachs has invested in, which I think you'll find is just about every major company in the world.
Social media in general seems to be a fad. Maybe I'm wrong, but I just have to wonder out loud. When Farmville and fart apps are worth 50 billion dollars and everyone is into it, I just have to shake my head and wonder if we are squandering some great technology while this fad passes
Don't get me wrong, there's a time and place for this sort of thing, but it seems too front and center today.
Fellow HNers, a real question - what would be the risks of buying Facebook shares in an IPO? Facing (no pun intended) past IPOs like Google's and other tech dears, where the stock multiplied in a very short time and profits in hindsight seem practically guaranteed, what are the risks?
For some reason I find it hard to love facebook and I am not sure I understand why. I am certainly not jealous of their (relatively) easier path to glory or I am too suspicious about their lapses in user privacy (most companies had their fair share, including google). Yet I find it easier to like google as a companies and not like facebook at all.
Anyone else feels like this?
I think, to me, facebook reminds me of microsoft too much. They have similarities in the way they work by selectively closing everyone off of their pretty little garden.
> For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.
[+] [-] brown9-2|15 years ago|reply
Also couldn't help but laugh at this line:
The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google.
One of Wall Street's savviest investors is investing in Facebook in 2011?
[+] [-] pmorici|15 years ago|reply
How many officials in the current administration are former Goldman Sachs employees? Do you think that affects the likelihood of them getting into trouble?
[+] [-] meterplech|15 years ago|reply
Ex: In order to invest at this "low" valuation Goldman had to promise to set the initial price of the IPO to be artificially high. People buy the IPO in Facebook excitement, and right when insiders are legally allowed to sell they dump stock and exercise options and later investors are screwed. Goldman makes huge profit in this situation- on both fees and their sale of stock.
[+] [-] code_duck|15 years ago|reply
[+] [-] adrianbye|15 years ago|reply
[+] [-] kragen|15 years ago|reply
Is it reasonable to expect Facebook to extract US$2 to US$3 per year per user? It's hard for me to imagine how they could fail to extract several times that. If nothing else, the blackmail value of the data they already have on hand ought to be larger than that. ("Upgrade to Facebook Premium today in order to have the option to keep your past private messages from being visible to all your Facebook friends!" But it probably wouldn't be done in such a public way, in order to dampen backlash.) They can probably also sell preprocessed datasets of people who read subversive literature online to national intelligence agencies: not just the US and UK, but also Egypt, China, Pakistan, Syria, Italy, and Russia. If laundered through some kind of data broker, they could even get plausible deniability.
That would be out of keeping with the kind of privacy invasion Facebook is currently well-known for, though, so it probably wouldn't happen without a change of control of the company first.
So the mere $50B valuation represents an assessment that Facebook's popularity could be short-lived, or that it could become subject to much more intense competition than it is today, driving its revenues down toward their costs.
I hope to God that Goldman is right.
[+] [-] wheels|15 years ago|reply
[+] [-] brown9-2|15 years ago|reply
[+] [-] sedachv|15 years ago|reply
Take a look at what FB actually offers its users: core services: photo sharing, video sharing, blogging, micro-blogging, instant messaging, event/group management. non-core services (apps): quizzes, casual games, horoscopes.
Sounds like any other company everyone knows (Yahoo)? The difference is that FB offers all this with a single login, and the (perceived) greater privacy offered for things you post online. Yahoo never even managed to implement a single login across all of its sites and acquisitions.
The problem is that just like Yahoo and Myspace, there's nothing stopping Facebook from losing users to other sites. The business model is to have a lot of visits from a lot of users and serving them ads that don't bring in much profit. That's a lot of risk, and the upside isn't that great.
I don't see FB moving to a paid premium model. Even if it did that, it wouldn't be that different from what AOL had 10 years ago.
There's just not that much value in what FB does, and not much from preventing others from taking that value away from them.
[+] [-] 2arrs2ells|15 years ago|reply
[+] [-] code_duck|15 years ago|reply
[+] [-] bsk|15 years ago|reply
[+] [-] powera|15 years ago|reply
From later in the article, it's a total of $2 billion, with 1.5 billion being in a special fund designed to make a mockery of SEC regulations: "As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation".
[+] [-] aothman|15 years ago|reply
Just a couple years too early...
[+] [-] jdp23|15 years ago|reply
[+] [-] organicgrant|15 years ago|reply
Facebook is a great company, with tremendous prospects. Its growth curve is going to slow significantly, however.
[+] [-] jayzee|15 years ago|reply
[+] [-] erikpukinskis|15 years ago|reply
http://snowedin.net/blog/2011/01/03/up-up-and-away
Unrelated: The "trend" graph type in Google Spreadsheets is pretty awesome. I don't know when they added it, but it rawks.
* http://newstimeline.googlelabs.com?date=2004-04-01&zoom=...
[+] [-] mtigas|15 years ago|reply
[+] [-] stretchwithme|15 years ago|reply
[+] [-] A1kmm|15 years ago|reply
[+] [-] anta|15 years ago|reply
[+] [-] seiji|15 years ago|reply
You know how people attribute worth to meaningless points in games? Kid CEOs these days attribute worth to the live-updating user stats (DAUs and MAUs, oh my) of their facebook casual-social-viral games. They'll do anything to make those numbers go up, including spending $200k to $1MM+ per month on ads.
[+] [-] dotcoma|15 years ago|reply
[+] [-] mikeryan|15 years ago|reply
[+] [-] codelust|15 years ago|reply
One of the companies I had worked for once had its valuation done by a pretty big i-bank at $1 billion. We were flabbergasted, but they were also going to be underwriters for the issue.
[+] [-] flipbrad|15 years ago|reply
[+] [-] Abid|15 years ago|reply
http://37signals.com/svn/posts/2585-facebook-is-not-worth-33...
[+] [-] radicaldreamer|15 years ago|reply
[+] [-] nitrogen|15 years ago|reply
[+] [-] scottmp10|15 years ago|reply
Valuation = new value per share * total shares = (amount invested / # new shares issued) * (# existing shares + # new shares issued)
Although they probably agree on the valuation and the amount of capital to be invested first. Then the number of shares to be issued is set so those numbers to match.
[+] [-] anigbrowl|15 years ago|reply
[+] [-] yurylifshits|15 years ago|reply
[+] [-] vamsee|15 years ago|reply
[+] [-] motters|15 years ago|reply
[+] [-] dagw|15 years ago|reply
[+] [-] 16s|15 years ago|reply
Don't get me wrong, there's a time and place for this sort of thing, but it seems too front and center today.
[+] [-] maayank|15 years ago|reply
[+] [-] 2arrs2ells|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] organicgrant|15 years ago|reply
[+] [-] a1k0n|15 years ago|reply
[+] [-] Tycho|15 years ago|reply
[+] [-] codyguy|15 years ago|reply
[+] [-] dave1619|15 years ago|reply
[+] [-] pavs|15 years ago|reply
Anyone else feels like this?
I think, to me, facebook reminds me of microsoft too much. They have similarities in the way they work by selectively closing everyone off of their pretty little garden.
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] kayoone|15 years ago|reply
[+] [-] tybris|15 years ago|reply
> For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.