Goldman Sachs recently invested Rs. 500 million in Facebook – implying a valuation of US $ 50 Billion! Now this can mean many things – let us speculate!

1. Goldman Sachs (GS)  genuinely believes that FB has a valuation of $ 50 billion.

2. There is a FB IPO in the offing and GS has upfront paid $ 500 Million to get the mandate.

3. The market is reaching its peak of funny valuations

It is funny that the Russians are investing in a private company – FB need not tell you what it is doing. GS in its mandate says ‘you cannot ask F B’. GS is also acting as a principal (beware when GS is selling it need not tell the other investors what it is doing).

I have no clue about what % age of the proceeds is fees for GS….

OMG if this is not scary………..what is?

for those of you who are serious Google for Ashwath Damodaran’s view on the valuation – as usual it is a well done article.

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  1. Subra,

    I would place my bets on option 2. Even if the IPO happens after 2 years, and even if it happens for 20-30% of its equity, Goldman would make a nice return on its investment from all the underwriting fees.

    There is no way Goldman is valuing Facebook at more than 100 times it’s earnings. Mark Zuckerberg knows that if you try to monetize a ‘cool’ site, you kill it. Even if he is able to monetize it well, he’ll have to capture 25% of the overall market share, to make this valuation worthwhile.

    $40 billion = projected online overall ad spend
    => $10 billion = Facebook Share
    => $3 billion = Net income (current profit margin = 30%)
    => P/E ratio = 16-17

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