Dumb Money Drives Facebook Past $80 Bn, Now Investors Want Out

So, you think all those transactions on SharesPost and SecondMarket haven’t been making a difference? Well, the action among traders says otherwise.

Some Facebook shareholders are looking to move $1 bn in company stock, according to a Reuters report. At first, they were shooting to do so based on a valuation of $90 bn, but the urge to exit has been sufficiently powerful to pull them down to a valuation of $70 bn … “according to five sources with direct knowledge of the situation,” says Reuters. 

This follows an implied valuation of $80 bn in the last Facebook auction on SharesPost.

If the $1 bn transaction goes through, it would be among the largest in the company’s history. Now seems like a good time to get out, especially for early investors. They’ve had their capital tied up for a few years – and they may see the writing on the wall. Does anyone think Facebook can maintain a valuation that is higher than the combined market caps of Time Warner and News Corp?

We all know that Facebook has something special going on, but with projected ad revenue of $4.05 bn this year (estimated by eMarketer to be 90 per cent of the company’s total 2011 take), a valuation approaching $100 billion is a bit tough to stomach. 

Potential new entrants are starting to turn down opportunities to invest in the hottest of social media start-ups, which makes sense at this stage of the game. After all, the $90 bn valuation initially sought for the recent $1 bn transaction would represent an 80 per cent surge from the implied valuation resulting from the Goldman Sachs transaction back in January.

Part of the reason for the rapid increase has been secondary market activity, smaller deals of a few million dollars each, that reflect an eagerness of high-net-worth investors to gain admission to the party. It seems, however, that this won’t be sufficient to move the institutional crowd (or even sophisticated wealthy individual investors). 

One hedge fund manager who spoke to Reuters about the deal put it best: ‘By the time T. Rowe Price is investing, you know it’s too late.’

Source: Reuters

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