In recent months, as investors in secondary private markets have bid up Facebook’s value to ~$56 billion, many folks had begun to wonder whether it was silly season again.After all, the investors buying Facebook stock at these levels weren’t even seeing the company’s financials. All they were going on was the amazing growth of Facebook’s user base and press reports about its ~$2 billion in 2010 revenue.
Well, all that has changed now.
Goldman Sachs just bought $450 million of Facebook common stock–common stock, not preferred stock–at a $50 billion valuation.
In order to make a bet that big, Goldman would almost certainly have been given access to Facebook’s detailed financial information (full financial statements, etc.). This suggests that Goldman liked what it saw enough to put nearly half a billion of its own dollars on the line at a $50 billion valuation. And by buying common stock, not preferred stock, Goldman is also accepting the downside risk of this investment. So one suspects that it is at least reasonably confident that there is big upside to Facebook’s stock from here.
True, Goldman could presumably quickly turn around and sell the Facebook stock it bought to its own clients, thus laying off the risk (and making a quick profit on the stock at the same time.) After all, one of the reasons Goldman did this deal was to get the ability to buy another $1.5 billion of Facebook stock for its own clients. But if Goldman did this, and Facebook’s stock tanked, Goldman would get slaughtered for, once again, putting itself ahead of its clients. And here’s hoping (dreaming?) that, at least for now, Goldman has decided that it is better to bet with its clients instead of against them.
And it is also true that Goldman will rake in huge fees from managing its clients private investments in Facebook. (The “special purpose vehicle” Goldman will create to pool its clients’ investments will almost certainly come with big fees attached. Goldman’s not doing this out of the goodness of its heart).
But, still, $450 million is real money. And Goldman, a well-informed and sophisticated investor, just stepped up to the tables and made a bet on Facebook at a $50 billion valuation.
So that’s a pretty good indication that Facebook is actually WORTH $50 billion.