The Goldman Sachs – Facebook deal

Goldman Sachs upped the ante for Facebook earlier this month with its investment of $450 million for 0.9% of the company, giving Facebook a notional value of $50 billion.  A Russian investment, Sky Digital, chipped in another $50 million for 0.1% of Facebook, giving the rapidly growing social networking company a total of $500 million to use for growth.  The consensus revenue estimate for Facebook for 2011 is $4.05 billion, giving it a revenue multiple of 12.3x.  (For comparison, the most valuable tech company in the world is Apple, trading at about 3x revenue.)  12.3x is mighty steep, and brings back memories of the tech bubble in 1999 and 2000, but it may be justified, given that nearly all of Facebook’s revenue comes from advertising, and the company has not even begun to tap into other, more lucrative sources.

 

It is likely that Facebook will attain a valuation north of $100 billion within 12-18 months, if the company executes perfectly and is able to capitalize on the 600 million users around the globe who spend 35 minutes per visit on the site.  With 3.5 billion visits per month, the website will have between 1-2 trillion user minutes this year.  Since Facebook passed Google as the world’s most visited website nearly a year ago, it has continued to grow in nearly every possible metric, and shows no sign of slowing down.

 

Goldman erred a couple of days ago when it was forced to pull the investment offering away from US clients, leaving only foreign clients in the investment.  SEC rules stipulate that certain private investments may have a maximum of 499 investors before additional disclosures are mandatory, and Goldman clearly created its investment vehicle to get around this requirement.  Nevertheless, the offering was 10x oversubscribed prior to this stumble, indicating how popular the company is right now.  Facebook indicated that a 2012 IPO is very likely, and probably won’t settle for less than a $100 billion valuation.

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