Facebook $50 Billion Valuation Means No IPO Anytime Soon

For the second year running “Facebook” was the number one search term on the web. In 2010, a movie “The Social Network” was released, documenting the origins and rise to international domination (save for parts of Asia) of Facebook, as the social network of choice. Late Sunday night the New York Times’ DealB%k , broke a story about Goldman Sachs offering their clients the chance to invest in Facebook, in a deal that values the company at $50 Billion.

According to the DealB%k article… “the email sent to Goldman clients warns recipients who trade in secondary markets where private firms like Facebook trade may want to steer clear of participating because if they opt-in they may receive material non-public information on the unnamed company that will restrict future trading.”

Essentially, private investment in a non-public company gives the investor access to company information, and secondary market information that would exclude the investor from trading in the company are they to go public. Whilst Goldman decline to comment, DealB%k reference a source stating that investors “would be prohibited from selling their shares until 2013”.

On the subject of IPO Zuckerberg has been characteristically unforthcoming, saying in May and November of last year; “…don’t hold your breath”. Of course it wouldn’t be wise to refute the question completely and Zuckerberg is apparently going to be far too busy helping other industries that need to be rethought “and designed around people”; as quoted in the Wall Street Journal, speaking at Web 2.0 in November.  Even setting aside the companies agenda, what practical reason do Facebook have to IPO? It seems the condition of the super-star social network is one so healthy, that the usual reasons for IPO just aren’t there.

Normally a company will IPO, so that they can raise funds to attract talent. In the case of the super-star social network (I’m including Twitter and Linkedin and social gaming businesses like Zynga) neither attracting talent, nor raising funds to do so has ever been an issue. Secondly; acquisition funds have never been hard to come by, with many of these social networks and social gaming companies attracting phenomenal first- round investment. So; with no practical, logistical or financial reason to IPO – what is all the money for? What is on the 2011 roadmap for Facebook that requires to free up $500 Million via Goldman Sachs and Digital Sky Technologies (a Russian Investment firm and incumbent investor.)

At Search Engine Land, Greg Sterling considers the likely moves towards mobile, ecommerce and reportedly some big new offices as a direction for growth for Facebook. In addition, Sterling also ponders search, as a possible direction stating “Given the Microsoft relationship and Facebook’s lack of core competency in search it would not seem logical that the company would go there. But the “gravitational pull” of search may ultimately prove too great.” To my mind an aquisition of Blekko would seem the best, most logical direction for Facebook should there be any foray into search. Whatever the immediate future holds for Facebook, 2011 is certainly going to be an exciting year for tech stocks, (social media, social gaming and search specifically).

About Nichola Stott

Nichola Stott is owner and co-founder of theMediaFlow; online revenue optimisation and audience services (including SEO, SEM and SMM). Prior to founding theMediaFlow, Nichola spent four years at Yahoo! as head of UK commercial search partners.

4 thoughts on “Facebook $50 Billion Valuation Means No IPO Anytime Soon

  1. $50b? Really? I’d have thought that after countless valuation fiascos of ‘Web2,0’ businesses (do we even call them 2.0 any more?) the investment community would have learned its lesson. I should have known that was too much to ask from an industry that thrives on hype, disinformation, and pure ignorant gambling. (Can you tell that I believe the stock market is a gigantic heap of bullshit, lies, and unrestrained greed?)

    But yes your point is well-made: Facebook doesn’t have to go public. In fact, they’re probably better off not going public as it’ll allow them to keep their finances opaque, which has all kinds of benefits with attracting funding. How long that strategy will continue to work depends on how long Facebook manages to maintain its own hype.

  2. They are currently under investigation by the SEC, as it is suspected that Facebook Twitter et al are actually trading privately via secondary markets and using this as some sort of loophole to avoid fair disclosure.

    In terms of the market valuation at first sight a 50BN valuation may seem at odds with a 2BN annual revenue (according to facebook), however with 500 million users, thats a lifetime revenue of $100 a user and when considered like that, perhaps not so inflated?

  3. Interesting Nichola. It does raise the question of FB’s relationship with Bing, versus a possible desire to go into search. To do so would seem to necessitate either a partnership or a total break… neither one of which seem very likely. But then, I’d never have predicted the Bing/Yahoo thing, either. My crystal ball gets all fogged up on this one.

    To Barry’s comment, I think that FB has gotten big enough at this point, that from an investment standpoint, they’d look pretty stable. I do agree, however, that avoiding an IPO is in their best interest, for the same reasons you mention.

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