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How Much is Facebook Really Worth?

January 03, 2011
Daily Reckoning

Daily Reckoning

3 followers
01/03/11 Baltimore, Maryland – Welcome to 2011… Early this morning, we learned Goldman Sachs and a Russian firm called Digital Sky Technologies have pumped $500 million into Facebook. The deal values the “popular social networking site” at $50 billion… more than eBay, Yahoo! or Time Warner.

Ha. Ha. Ha!

This first nugget of fresh news makes our first official forecast of 2011 a slam-dunk: Facebook and Goldman will fleece millions of Americans of their retirement funds… maybe not this year, maybe not next, but before they are done with the whole charade.

Sure, we know the story. Social media exploded in 2010. Facebook passed Google as the most visited site on the planet, with one out of every four webpages viewed in the U.S. belonging to Facebook. Yeah, yeah, it’s a good story.

But we’ve also seen this movie before.

You have 500 million people playing Farmville and Mafia Wars and telling the world how wasted they got last night… but what makes them worth an average $100 in market value?

Our own social media maven suggests “the real value” of the company is in “leveraging all the user data they’ve collected on their members. The ability to develop tools, apps and targeted advertising will allow you to monetize. As they open up their API, it will allow developers to access this info and use this community to create more and more interaction.”

That’s possible.

But we think the real value is in the story itself, reflected in the company’s shares… which you can’t buy right now.

Barely a month ago, TechCrunch.com reported Accel Partners, an early-round investor in Facebook, sold off a big portion of their stock in the company at a $35 billion valuation — a return of “something like 247 times” on that sale.

Now Goldman intends to set up a special purpose vehicle (SPV) so its high-net-worth clients can skirt IPO laws and get their money in before Facebook goes public.

“While the SEC requires companies with more than 499 investors to disclose their financial results to the public,” says Andrew Ross Sorkin on his site DealB%k, “Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.”

Whether Facebook is profitable now – we don’t know because the books are still private – or whether they can figure out how to be profitable in the future is largely irrelevant. The big money is going to be made early in the “secondary market” for private shares.

If and when the IPO happens – like any good Ponzi scheme – retail investors, those last in the door, will get stuck holding very expensive paper.

Our advice: Steer clear.


Addison Wiggin

The Daily Reckoning


Rating: 3.6/5 (8 votes)

Comments

halis
Halis - 3 years ago
I wouldn't say that it's a Ponzi scheme, but it is pure speculation at this point as to what Facebook's revenue is, what it's profit is, what it's balance sheet looks like--how can you invest in something and not know these things? People always have and always will invest in these types of things, because it's easier than doing your homework.
kfh227
Kfh227 premium member - 3 years ago
I would love to see this thing go public. I'd love to short it.
energywonk
Energywonk - 3 years ago
user number curve has gone parabolic now. usually a warning sign for most asset/resources/biology/system. paradigms in tech sector seem to be shortening by the day. how long before facebook is the next myspace. im with author and the commentary. short this over longer term for shiz!
camda03
Camda03 premium member - 3 years ago
Last night I saw (on TV) that Facebook now (at least in theory) has a market cap greater than Boeing.

It reminds me of around 12 years ago when FreeMarkets had a market cap greater than U.S. Steel.

The media also covered this fact very thoroughly.

Of course, FreeMarkets is just a vague memory, and U.S. Steel continues to operate at about the same level it did back then.

I agree with the other comments I've read here (i.e. steer clear).

I see history repeating itself here in a big way.

Besides, it would be just like Goldman to get (dupe) a bunch of investors into contributing to the FaceBook "fund", and then short the stock at some point (the same game GS is alleged to have played with mortgages).

batalha
Batalha - 3 years ago
I love the fact that ppl are fighting for getting their hands on Facebook's shares, with some kind of exclusivity embedded on it. This reminds of the Madoff scheme, where one would beg Bernie to be "accepted" into the club. As always, those who got in early will be paid handsomly and those who got in late...well there are screwed. Using Einhorn's phrase when he shorted Allied Capital... there's a name for this.
stockreviewers
Stockreviewers - 3 years ago
We're not serving the hottest picks but has the potential to get great deals out of your investment.Try it here:http://elurl.com/tqk
batalha
Batalha - 3 years ago
its a quasi-ponzi design in the sense that: 1) there is no asset backing for a $50 billion valuation, 2) ppl who got in early will be payed off handsomly and those who got in late may get wiped out

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