Lankan Ranger
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Facebook value hits $50 Billion
In 2009, Rolling Stone described Goldman Sachs, an investment bank, as "a great vampire squid" that likes to stick its "blood funnel" into anything that can make it money. This week the squid inked yet another high-profile deal.
Together with Digital Sky Technologies, or DST, a Russian group, Goldman invested a total of $500 million in Facebook, valuing the worlds most popular social network at a whopping $50 billion. The bank is also planning to set up a fund it will manage that will pump up to $1.5 billion more from wealthy investors into the company.
For Facebook, the deal provides a mountain of extra cash to invest in things such as new data centres and acquisitions. It gives it fuel for further growth without the hassle of listing its shares. For Goldman, the transaction represents an opportunity to stick its "funnel" into an Internet firm that makes investors drool.
As well as benefiting from any further appreciation in Facebooks value, the bank plans to suck up fees for managing the new fund. And it is no doubt hoping that by cozying up to Facebooks top brass it is boosting its chances of leading an eventual initial public offering of the companys stock.
News of the deal has sparked vigorous debate. Facebooks implicit value has risen fivefold since mid-2009, but skeptics doubt that a firm whose business model is unproven is worth more than established media giants such as Time Warner.
Since Facebook is not obliged to divulge financial information, it is hard to know for certain whether Goldman and DST, which already owned a sizeable chunk of Facebook stock, are overpaying. But Facebook bulls argue that the networks sheer scale is proving irresistible to advertisers. Debra Aho Williamson of eMarketer, a research firm, notes that Facebook has even begun to attract notoriously conservative and deep-pocketed advertisers such as Procter & Gamble.
The company is also starting to look more and more like a natural monopoly. MySpace, which used to dominate the social-networking arena, has come to look like My Empty Space. It is rumoured to be about to make yet more cuts to its work force. And networking upstarts such as Twitter, which has also seen its valuation soar (to $3.7 billion), have revenues that are a mere fraction of Facebooks, which are said to have hit $2 billion last year.
Still, at $50 billion Facebook looks rather expensive. If its sales really are $2 billion a year, that implies that Goldman and DST are paying 25 times current revenues for their shares. That would be a breathtakingly steep multiple, even by the giddy standards of the startup world.
Moreover, Facebook has nowhere near as robust an advertising model as, say, Google, whose search-related ads are served up to users when they are often on the point of making a purchase. Much of Facebooks revenue comes from low-end display advertising. And though it will benefit from marketers growing interest in word-of-mouth promotion, the company will have to scrap for those dollars with traditional media brands, whose rich content makes them attractive venues for social-media advertising too.
In spite of this, investors are still falling over one another to get their hands on Facebooks shares and Goldman is keen to help them, so long as they agree to abide by certain rules. Clients considering signing up to its proposed Facebook fund are reportedly being asked to commit at least $2 million each to it and to hold on to any shares they receive until at least 2013.
A different problem for Facebook and Goldman is that Goldmans planned fund could fall foul of the Securities and Exchange Commission. On Jan. 3, SecondMarket, a broker-dealer in private company shares, said it had been asked by the SEC for data about pooled investment funds formed to buy private company stock precisely the kind of vehicle that Goldman has in mind for would-be Facebook investors.
Facebook value hits $50b - Business - TheChronicleHerald.ca
In 2009, Rolling Stone described Goldman Sachs, an investment bank, as "a great vampire squid" that likes to stick its "blood funnel" into anything that can make it money. This week the squid inked yet another high-profile deal.
Together with Digital Sky Technologies, or DST, a Russian group, Goldman invested a total of $500 million in Facebook, valuing the worlds most popular social network at a whopping $50 billion. The bank is also planning to set up a fund it will manage that will pump up to $1.5 billion more from wealthy investors into the company.
For Facebook, the deal provides a mountain of extra cash to invest in things such as new data centres and acquisitions. It gives it fuel for further growth without the hassle of listing its shares. For Goldman, the transaction represents an opportunity to stick its "funnel" into an Internet firm that makes investors drool.
As well as benefiting from any further appreciation in Facebooks value, the bank plans to suck up fees for managing the new fund. And it is no doubt hoping that by cozying up to Facebooks top brass it is boosting its chances of leading an eventual initial public offering of the companys stock.
News of the deal has sparked vigorous debate. Facebooks implicit value has risen fivefold since mid-2009, but skeptics doubt that a firm whose business model is unproven is worth more than established media giants such as Time Warner.
Since Facebook is not obliged to divulge financial information, it is hard to know for certain whether Goldman and DST, which already owned a sizeable chunk of Facebook stock, are overpaying. But Facebook bulls argue that the networks sheer scale is proving irresistible to advertisers. Debra Aho Williamson of eMarketer, a research firm, notes that Facebook has even begun to attract notoriously conservative and deep-pocketed advertisers such as Procter & Gamble.
The company is also starting to look more and more like a natural monopoly. MySpace, which used to dominate the social-networking arena, has come to look like My Empty Space. It is rumoured to be about to make yet more cuts to its work force. And networking upstarts such as Twitter, which has also seen its valuation soar (to $3.7 billion), have revenues that are a mere fraction of Facebooks, which are said to have hit $2 billion last year.
Still, at $50 billion Facebook looks rather expensive. If its sales really are $2 billion a year, that implies that Goldman and DST are paying 25 times current revenues for their shares. That would be a breathtakingly steep multiple, even by the giddy standards of the startup world.
Moreover, Facebook has nowhere near as robust an advertising model as, say, Google, whose search-related ads are served up to users when they are often on the point of making a purchase. Much of Facebooks revenue comes from low-end display advertising. And though it will benefit from marketers growing interest in word-of-mouth promotion, the company will have to scrap for those dollars with traditional media brands, whose rich content makes them attractive venues for social-media advertising too.
In spite of this, investors are still falling over one another to get their hands on Facebooks shares and Goldman is keen to help them, so long as they agree to abide by certain rules. Clients considering signing up to its proposed Facebook fund are reportedly being asked to commit at least $2 million each to it and to hold on to any shares they receive until at least 2013.
A different problem for Facebook and Goldman is that Goldmans planned fund could fall foul of the Securities and Exchange Commission. On Jan. 3, SecondMarket, a broker-dealer in private company shares, said it had been asked by the SEC for data about pooled investment funds formed to buy private company stock precisely the kind of vehicle that Goldman has in mind for would-be Facebook investors.
Facebook value hits $50b - Business - TheChronicleHerald.ca
For me its worth 50 cents a third class time wasting site.
