The New York Times has reported that Goldman Sachs (Of the Republican bailout everyone blames on Obama fame) and a mysterious Russian investor have sunk $500 million of other people's money into Facebook.
Facebook, you know as a social network with it's face being Mark Zuckerberg. But there's more to it. Facebook is a privately-traded company, meaning that only large firms and early investors can buy and sell shares on their own exchanges like SharesPost and SecondMarket. The purchase suggests that GS hopes that Zuckerberg will go public, something which he is against doing at this point in time. It also suggests that Facebook is worth in the neighbourhood of $57 billion at a $25 per share SharesPost valuation. Following me, so far?
Companies can stay under the SEC radar if there are fewer than 500 shareholders. According to Canada's Globe and Mail " Goldman is planning to create a “special purpose vehicle” that may be able to circumvent the 500 shareholder 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. As part of the deal, Goldman could raise as much as $1.5-billion total based on the $50 billion valuation."
But what of the $50+ billion valuation? According to eMarketer, Facebook will earn roughly $1.8 billion in advertising revenues in 2011, a significant jump from the $1.3 billion made in 2010. Yet, Facebook has a speculative value of double that of Yahoo. Yahoo has more than a brand- it has social networks and gaming to be sure, but also owns numerous interests that include blogging services, hosting services, software companies, and many more. Yahoo is also constantly acquiring other products and services, recently buying up Maktoob.com and Associated Content. The point is- Yahoo is big business, with a diverse array of products and services in their portfolio.
Facebook is Facebook. It's a social network based on framework that can be replicated very easily. If you take that away, you have 500 million peoples' information which Facebook claims not to share. 500 million profiles and a brand that means very little, as the folks at MySpace discovered. Without users, Facebook has an actual value of close to zero.
Goldman Sachs is trying to sidestep the SEC with their SPV exception which will make the little guy feel "special" because he can have part of Facebook. Facebook is not going to go public, and certainly not for a puny $500 million investment. Goldman wants to create market interest because prices will rise, but they know that Facebook is not Google or even Yahoo. They're hoping that nobody will notice that Facebook has little real value to sell off Facebook stock to little guys for big profit; stocks that they manage and charge fees to do so. Thusly, if Facebook stock skyrockets, Goldman Sachs wins, if stock prices tank or Facebook never goes public, Goldman Sachs wins.
Guess who loses?