Bankers hyped up Groupon to get the deal done fast. Beware Facebook's banker who do the same for their IPO. Test the key assumptions built into the business model.
Read the full Forbes Post
Despite RenRen's big run yesterday, Sina (SINA) to me is still the "Facebook of China" until proven otherwise.
Read my full post in Wall Street Journal China here.
Eric Jackson says Goldman's Special Purpose Vehicle to allow its high-net worth clients to invest alongside it in Facebook is a work-around basic securities laws.
Fri, 7 Jan 2011 - Eric Jackson
By Eric Jackson This means that Goldman expects to win the underwriting business for a $100 billion IPO. Typically, banks get 7% in fees for an IPO. You know that Facebook won't pay full price, though, given the size of the IPO. So let's knock the bankers' fees down to 4%.
RealMoney Contributor
1/6/2011 4:59 PM EST
Click here for more stories by Eric Jackson
This week's biggest news by far was the announcement that Goldman Sachs (GS - commentary - Trade Now) was putting $450 million of the firm's capital into Facebook. The part of the deal that sent tongues wagging was the $50 billion valuation that Goldman placed on Facebook. However, there's a smaller aspect of the deal that's getting increased scrutiny, which is letting Goldman's high-net-worth clients put in some of their money too.
There are many reasons for Goldman to have done this deal with Facebook, even at this rich valuation. First, Goldman has put itself in the pole position to win the Facebook IPO. This is Goldman Sachs, so you know it wants to get a return on its $450 million investment -- and not a 10% return either. I doubt Goldman would do it unless it expected to double its money.
Companies going public typically issue 15 – 30% of the company’s shares to the public. So, at 4% fees on 30% of a $100 billion company, Goldman would get a $1.2 billion payday in fees.
You think I'm being unrealistic thinking that Facebook would be worth $100 billion by 2012? OK. Let's say the company stays valued at $50 billion. So Goldman has made nothing as a firm on its $450 million investment. Too bad, so sad. In that worst-case scenario it will have to comfort itself with $600 million in fees from the IPO underwriting.
Heads Goldman wins, Tails Goldman wins.
I'm surprised no one has discussed this point. It's a no-brainer investment for Goldman. And we haven't even talked about the goodwill that Goldman will bring to its best institutional and high-net-worth clients when they start distributing the pre-IPO Facebook shares like Santa Claus.
Sphere: Related ContentBy Eric Jackson Facebook is reported to have $2 billion in revenue this year. Google (GOOG -commentary - Trade Now) had $27 billion in revenue for the last 12 months. On the surface, it appears way out of whack that Facebook should have a valuation that's one-quarter Google's (which is just under $200 billion). The market must be wrong, some assume. Obviously though, the market believes that Facebook will grow at a much faster pace than Google over the next five years. The market believes that in five years, Facebook's revenue will be much bigger than $2 billon a year. This argument has been going on for some time, between the value investors who complain about a highflying stock with piddly revenue and profits, and the growth investors who argue that you need to look ahead. Amazon (AMZN - commentary - Trade Now) was the subject of such an argument for 10 years. It's clear now that the growth investors won that one. Just this morning, Morgan Stanley raised its price target on Amazon to $225 because it believes its revenue will triple from here by 2015. Amazon has gone up only 180x since its IPO close.
RealMoney Contributor
1/3/2011 5:00 PM EST
Click here for more stories by Eric Jackson
The investment world is abuzz today with news that Goldman Sachs (GS - commentary - Trade Now) has made a $450 million investment in the popular social networking site Facebook, a deal that values Facebook at $50 billion. A few weeks ago, Facebook's private shares were reported to be trading on market exchanges such as SecondMarket and SharesPost at levels that valued Facebook at $56 billion. Some people didn't believe it -- or else they were on Christmas break and didn't pay attention. Several pundits said that a $56 billion valuation for the company wasn't real because Facebook wasn't trading publicly. "Wait until it goes public and there's real liquidity," the critics said.
After last night's news, those critics are going to have to face facts: Facebook's valuation is real, and Goldman's investment last night means that valuation will likely double in the next 12 months, whether or not there is a Facebook IPO. According to the New York Times article, Goldman is "considered one of Wall Street's savviest investors," so the value must be real! In all seriousness, though, Facebook's value is real, and people are just going to have to deal with it. Just because it's private and fairly new, the terminal value of the company is rich.
