
Goldman Sachs invests in Facebook at $50 Billion valuation - organicgrant
http://dealbook.nytimes.com/2011/01/02/goldman-invests-in-facebook-at-50-billion-valuation/
======
brown9-2
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?

~~~
pmorici
"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?

~~~
borism
How many officials in any administration are former Goldman Sachs employees?
What does that have to do with anything anyway?

~~~
yummyfajitas
The implicit assumption is that people are willing to subvert their current
employer for the benefit of their former employer (perhaps with the hope of
being rehired by the former employer).

~~~
borism
Yup, let's judge people by their former employers, not by their actions. I
mean, Hank Paulson's decision not to bail out Lehman would have been totally
OK, have he not been former Goldman CEO...

~~~
afterburner
Not sure how many (if any) layers of sarcasm to strip away, so I'll just say:
Hank Paulson's decision not to bail out Lehman was not OK regardless. His
former employer simply might have informed that incorrect (for the US/world in
general) decision. Simple bias; had GS been on the chopping block, I can
personally guarantee he would not have advised letting it tank.

~~~
jongraehl
How are you so certain (that he would have treated GS differently)? What
evidence would make you change your mind?

~~~
afterburner
Human nature; exceptional behaviour from Paulson, which seems unlikely given
the kind of person he had to become and loyalty he had to exhibit to get to be
at the head of both GS and the Treasury.

------
kragen
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.

I hope to God that Goldman is right.

~~~
2arrs2ells
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.

~~~
mynameishere
_If each user just clicks on one Facebook ad each year, that's $2/user/year
right there._

CPCs are not 2 dollars on facebook.

~~~
2arrs2ells
$1.50/user/year? That's what CPC was for my most recent Facebook ad campaign.

~~~
il
That speaks more to the quality of your Facebook campaigns than Facebook's
profitability.

The guys actually spending significant money on Facebook are not paying more
than 30-40 cents CPC.

------
powera
Did somebody say bubble?

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
<http://www.youtube.com/watch?v=I6IQ_FOCE6I>

Just a couple years too early...

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organicgrant
At this valuation, I want to put money into SecondMarket stock, not Facebook.

Facebook is a great company, with tremendous prospects. Its growth curve is
going to slow significantly, however.

~~~
jayzee
The SEC may catch up with SecondMarket and plug the leak at any time and
possibly quite soon.

~~~
bhousel
What's the leak? They are a holding company and a member of FINRA. I'm
genuinely interested in how you think the SEC might shut them down.

Besides, SecondMarket is growing fast in Europe and Asia too.. They trade
stocks all over the world now, so it's not just one 'leak' that the SEC can
plug.

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erikpukinskis
I was curious how their valuation has changed over time, so I hit up Google
New Timeline* and put together a spreadsheet with a nice graph:

<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=...](http://newstimeline.googlelabs.com?date=2004-04-01&zoom=3&subs=anews.facebook+valuation%2Cperiodical.Time%2Cevent)

~~~
mtigas
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.

~~~
erikpukinskis
Sorry, should be working now. Had the spreadsheet on "Anyone with the link can
view" but apparently the embedded chart is only available if you make the
spreadsheet public to everyone.

~~~
mtigas
Works now, thanks!

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stretchwithme
It looks like GS found a place to spend all those billions we gave AIG to give
to them.

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A1kmm
If $US 8 _10^8
(from[http://economictimes.indiatimes.com/infotech/internet/Facebo...](http://economictimes.indiatimes.com/infotech/internet/Facebook-09-revenue-
neared-800-mn-Sources/articleshow/6063819.cms)) 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 $US5_10^10 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.

------
anta
Can someone explain how fb is worth 50B? I.e. how much revenue are they
making/projected to make, and how was this number arrived at?

~~~
seiji
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.

~~~
jacquesm
How do those companies make back their ad investment?

~~~
shiftpgdn
More ads.

------
flipbrad
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.

------
Abid
Has DHH exploded yet (again)?

[http://37signals.com/svn/posts/2585-facebook-is-not-
worth-33...](http://37signals.com/svn/posts/2585-facebook-is-not-
worth-33000000000)

~~~
radicaldreamer
How did DHH become an authority on company valuations?

~~~
vamsee
I don't think he needs to be. It's just a standard tactic at their blog. They
always come off as being a bit contrarian for the sake of it. Or they just
want more traffic.

~~~
blasdel
While talking to Jason Fried after Startup School 2009, I realized that
trolling on their blog is what they do instead of adding features to their
products.

Everybody needs a creative outlet! Letting everyone at 37signals post directly
to SvN is a way to keep the minimalists sane.

------
nitrogen
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?

~~~
scottmp10
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.

~~~
nitrogen
Right, but if the movie is to be believed, then Zuckerberg and several others
have non-diluting shares. I'm wondering how much that restriction on the
circulating share pool affects the valuation.

------
anigbrowl
Are Facebook's users worth $100 each to the company - all 500m of them?
Really?

~~~
yurylifshits
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.

~~~
anigbrowl
A reasonable point, but Google has several years' worth of results under its
belt. When the IPO was conducted I think the company was valued at about $25
billion; now it has net annual earnings about $6-7 billion - so while the P/E
ratio is still high, at least it's based on actual numbers. I'm not saying FB
couldn't be worth even more than Google - it's just that since they've never
had to file earnings statements etc. yet, all such estimates are far more
speculative.

<http://www.google-ipo.com/>

[http://en.wikipedia.org/wiki/History_of_Google#Financing_and...](http://en.wikipedia.org/wiki/History_of_Google#Financing_and_initial_public_offering)

[http://blogs.wsj.com/digits/2010/03/04/investors-bet-on-
pric...](http://blogs.wsj.com/digits/2010/03/04/investors-bet-on-price-of-
facebook-ipo/)

~~~
2arrs2ells
I imagine Goldman Sachs has access to numbers that are a lot less speculative
than the ones we have access to.

~~~
DuncanIdaho
Or Goldman is so loaded with money that they have to put it somewhere -
anywhere.

~~~
DuncanIdaho
Oh another (more probable?) possibility.

Goldman invested into FB - so they can now act as marketmaker for their
customers.

------
motters
I think this is a sign that I should get off of Facebook ASAP. I don't want to
be doing anything which boosts the bonuses of Goldman Sachs.

~~~
dagw
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.

------
16s
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.

------
maayank
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?

~~~
2arrs2ells
[http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...](http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1230930000000&chddm=258387&chls=IntervalBasedLine&q=NYSE:VG&ntsp=0)

------
organicgrant
Google has users. Facebook has watchers. What did Yahoo have?

~~~
a1k0n
Eyeballs?

------
codyguy
Ah, the new year. People are gambling away to glory again. Maybe they are sure
someone will bail them out.

------
dave1619
Congrats to Facebook and their team. Well-deserved for building a site
millions love.

~~~
pavs
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.

~~~
hackinthebochs
I know I'll get downvoted for this, but honestly I think it's all just
hivemind at work. There's no reason to hate facebook as much as people do.

Facebook's core business is closed, just like Microsoft's, and yes Google's.
People just get seduced by all the 'free' and open services Google provides
and forget that their core business is search, which is just as opaque.

------
kayoone
how much does Zuck still own of FB ? I read 25% percent somewhere, is that
true ? Hes almost up with the google guys in terms of net worth then.

~~~
tybris
From the article:

> 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.

~~~
kayoone
Thx, they even compare it with the googlers aswell :)

------
1010011010
Where's the scam? The vampire squid is involved.

------
curtisspope
clear sign of an ipo. also why are they raising more capital?

------
curtisspope
money in the bank counts. not valuation.

------
iphoneedbot
Apples to Oranges comparison:

Porsche -> Mkt cap 11.72B Volkswagen-> Mkt cap 54.59B

~~~
organicgrant
Yet Porsche owned/owns 75% of VW. Do your research.

~~~
iphoneedbot
You've missed the point. btw, VW owns Porsche now- after Porsche's failed
take-over attempt.

------
chailatte
Ah, yes. The magic of dollar printing. It's a shame it will all come to an end
soon.

------
aditya
Interesting. Does anyone know how many options a newbie engineer gets at
Facebook?

at $50B, 0.1% of the company == $50M and 0.01% = $5M not a bad payout vesting
over four years, when the stock is probably going to go up... no wonder Google
is having trouble keeping talent!

EDIT: This might shed more light: [http://www.quora.com/Is-this-a-good-offer-
for-working-at-Fac...](http://www.quora.com/Is-this-a-good-offer-for-working-
at-Facebook-as-a-Software-Engineer-120-000-year-salary-and-125-000-stock-
options) (that says 125k options)

~~~
beagle3
0.001% is still probably a generous estimate -- given Facebook's 3000 or so
employees and the fact that all not-very-senior employees should add up to 2%.

Also, stock _options_ need to have a hardly-discounted exercise price
attached. That is, an employee that gets a stock option package reflecting
shares worth $500K will have to shell out (at least) $450K to exercise them
when the time comes. So based on this valuation, if facebook is worth "only"
$70B in 4 years, the profit is going to be $250K or ~$60K/year. Nothing to
sneeze at, and definitely a nice bonus -- but not more than that. And if
facebook is worth $30B at the end of 4 years, today's stock option grant is
worth virtually nothing.

~~~
far33d
My understanding is that all new hire grants @ facebook are given in
restricted stock units (RSU) not options, in part to avoid the 500 shareholder
rule.

~~~
beagle3
I don't know how RSUs count against the 500 shareholder rule -- but for tax
purposes, they count as an UNrestricted grant. That is, if you get $1M
equivalent shares in RSUs, you get taxed immediately on that value, regardless
of the restrictions. So you have to pay $350K (and that's just federal!),
which you have no way to recover until the restriction is lifted. Worse, if
you get fired the next day, you're out $350K with no way to reclaim them.

Pay attention to tax laws. If you are well off, that is your single largest
expense.

