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Facebook really worth $50b

or are we heading for another bust?

January 31, 2011 – 9:18AM

Facebook is not worth $US50 billion, according to a poll of global investors that shows skepticism about Goldman Sachs’ recent estimate of the largest social networking site’s value and concern that a bubble may be forming in the technology sector.

Sixty-nine per cent of investors say Facebook is overvalued after Goldman Sachs invested $US450 million in a deal that put the company’s worth at $US50 billion, according to the quarterly poll of 1000 Bloomberg customers who are investors, traders or analysts. Only 10 per cent of respondents say Facebook’s valuation is appropriate; 4 per cent say it’s worth more.

The Bloomberg Global Poll conducted January 21-24 shows that investors disagree with Goldman Sachs’ assessment that Facebook is worth more than web pioneers such as Yahoo!, the biggest web portal, and eBay, owner of the biggest online retail marketplace. Palo Alto, California-based Facebook surpassed Yahoo! in October as the third most visited website in the world.

“Those investing in Facebook, expecting it to be the next Google, might be in for some bad news along the way,” says poll respondent John J. Lee, a portfolio manager at PGB Trust & Investments in Morristown, New Jersey. Mountain View, California-based Google went public in August 2004 and the shares more than tripled in the first year to $US279.99 from $US85. The stock price averaged $US617.2 this month.

‘Cheaper copycat lookalikes’

“Eventually, all fads get cheaper copycat lookalikes,” he says. “While being first to market makes Facebook a winner, another faster, stronger company with more something will come along and dilute its value.” Lee says his firm owns Google shares in some portfolios.

Facebook raised $US1.5 billion in a Goldman Sachs-led financing round this month. In addition to Goldman Sachs’ $US450 million investment, Russia-based Digital Sky Technologies put up $US50 million and Goldman Sachs clients outside the US snapped up a $US1 billion stake in the company. Goldman Sachs, which retained the right to sell $US75 million of its stake to Digital Sky, had originally offered Facebook shares to its US clients in a private placement. That was called off after details became public because the offering risked running afoul of US securities laws.

Stephen Cohen, a spokesman for New York-based Goldman Sachs, declined to comment. A Facebook spokesman, Jonathan Thaw, declined to discuss the valuation. “We’re focused on creating a useful service and building our business for the long term,” he said in an emailed statement.

‘Dangerous new bubble’

The Bloomberg poll shows that the Facebook deal has made investors uneasy about internet companies in general. More than half the respondents say the firm’s valuation signals the “beginning of a dangerous new bubble” in the market, while only 17 per cent saw it as the foundation of a lasting boom.

“More than a bubble, Facebook is a manifestation of the rational excesses that only the financial markets are capable of when confronted with something without precedents and more importantly unexpected,” said Luigi La Ferla, co-founder of LTP Trade in London. ‘

Investors worldwide have doubts about the Facebook deal, and those outside the US were most pessimistic. Seventy-two per cent of non-US respondents say the company was overvalued. Among US investors that number is 63 per cent.

“There’s too little financial information and track history to value the company like this,” says La Ferla. “Besides, you do not want to buy any of Goldman’s proprietary positions that they’re willing to sell.”

China’s tencent

The $US50 billion valuation puts Facebook in league with publicly traded Tencent Holdings. The Shenzhen, China-based internet company, whose services include online games and instant messaging, is worth more than $US42 billion on the Hong Kong stock exchange. Tencent trades at about 15 times revenue. The Facebook valuation is about 25 times its 2010 revenue. Google’s price-to-sales ratio is 9, analysts estimate. eBay’s market value is $US40.5 billion and Yahoo!’s is $US21.2 billion.

At the end of last week, Facebook’s valuation on SharesPost, a San Bruno, California-based online marketplace for trading shares in private companies, reached $US82.9 billion, an increase of 40 per cent since mid-December. That put the social-networking company in second place among US internet companies after Google, which is worth $US192 billion.

Supplanting Amazon

Facebook supplanted Amazon.com, whose shares dropped as much as 9.5 per cent last week after a disappointing sales forecast, pushing its stock market value down to $US75.2 billion.

Amazon, the biggest online retailer, went public almost 14 years ago. The Seattle-based company said last week that sales in the first quarter will be as low as $US9.1 billion, trailing the average analyst estimate of $US9.36 billion in a Bloomberg survey.

LinkedIn, a Mountain View, California-based professional networking firm, filed last week with the Securities and Exchange Commission to raise as much as much as $US175 million in an initial public offering. The company is valued at $US2.5 billion on Sharespost.

Among European investors in the poll, 56 per cent say the Facebook deal signals a bubble among online firms, while less than half of US-based respondents agree. About a quarter of Asian investors see the deal as the start of a new boom in online companies, while overall 17 per cent of those polled are positive.

‘Lasting boom’

“The current uptrend in e-commerce companies is a lasting boom, with or without Facebook,” says poll respondent Henry Littig, owner of Henry Littig Global Investments AG in Cologne, Germany.

In 2008, Mark Zuckerberg, Facebook’s founder and chief executive officer, became the world’s youngest billionaire at 23 when Forbes Magazine listed his wealth at $US1.5 billion. The magazine now says his net worth has reached $US6.9 billion. Zuckerberg is the central character in the hit movie “The Social Network”, about the founding of Facebook, which was nominated for eight Academy Awards this month.

Facebook’s social network has more than 500 million members and trails only Google and Microsoft as the world’s most visited website, according to ComScore.

The company had revenue of $US1.2 billion in the first three quarters of last year, up from $US777 million, according to a person who had viewed documents sent to potential investors by Goldman Sachs. The company reported profit of $US355 million in the first three quarters of last year, compared with profit of more than $US200 million for all of 2009.

The poll was conducted by Des Moines, Iowa-based Selzer & Co for Bloomberg and has a margin of error of plus or minus 3.1 percentage points.

Bloomberg

Sourced & published by Henry Sapiecha


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