- Goldman’s $450 million investment in Facebook is a win/win for both companies as the smartest investment bank on the planet is effectively partnered with the most transformational internet company the world has ever seen.
- While we believe Facebook could be free cash flow positive in 2011, even as it rapidly scales its cap-ex, the investment gives Facebook ample cash to accelerate its pace of acquisitions for both the technologies and talent it needs to continue to drive its growth.
- Facebook will now also be receiving advice from Goldman who will help Facebook acquire the right companies, the right talent, and partner with the right companies around the world.
- Goldman is also a huge winner as it now gets a seat at the table as Facebook strategizes who to acquire, partner with and hire. Goldman’s reputation is also enhanced as it’s seen as Facebook’s banker. Goldman also gets a 15%+ discount on Facebook shares relative to where its trading at in the increasingly liquid private market, and a 50% discount to where we think Facebook would trade if it were public.
- We believe social media will continue to emerge as an increasingly critical part of every advertisers marketing campaign, to the benefit of Facebook and hundreds of other companies providing unique ways to reach, enable, and engage the global audience immersed in social media.
After more than tripling revenue in 2010, to almost $2 billion (in our estimate), we believe Facebook is poised to more than double revenue to $4 billion+ in 2011. We believe this growth is coming largely from offline budgets, with the rest coming from online display budgets that would have been spent on other leading online properties.
We estimate Facebook could generate $1B+ in EBITDA from $4 billion in revenue, but will likely have $1B+ in capital expenditures as it continues to ramp its infrastructure to meet unprecedented demand. Therefore, the $500 million investment announced today, as well as the reported additional $1.5 billion to be raised by Goldman, positions Facebook to both invest in its infrastructure as well as acquire the technology and talent it will increasingly need as it continues to scale its operations and enhance its technology at a pace the world has never seen.
It’s interesting to note that in a recent poll conducted by Covario, a leading search marketing platform, showed that 95% of search marketers are advertising on Facebook, and they are budgeting “10-20% of their paid search advertising” for running ads on the Facebook social media platform in 2011. The budgets are coming from the display mix, not from paid search budgets, and the budgets are increasingly global.
We believe the $50 billion valuation is attractive for Goldman as it is at a 15%+ discount to the latest auctions run by SecondMarket and Sharespost in December, which both valued Facebook at over $60 billion. The ramp in Facebook’s value accelerated in the last few months as the private auctions became more transparent:
In our recently conducted bi-monthly poll of 2,500 U.S. consumers 18+ (to be released in detail later this week), everything continues to go up and to the right for Facebook, as Facebook memberships continues to grow (at a 22% CAGR the last two months), and the percentage of people logging in every day also continues to grow (at an 11% CAGR the last two months).
Lastly, while members are on Facebook, they are increasingly engaged with marketers/brands, which bodes well for future Facebook monetization opportunities. In fact, as the chart below indicates, our research indicates that Facebook recently passed a milestone with more than half of all U.S. adult members now fans of a brand.