Facebook: ‘Irrational exuberance’ all over again?
By Leo Valiquette
The verdict is still out as to whether Goldman Sachs’ investment in Facebook heralds an IPO, but the $50 billion valuation it places on the popular social media platform is nonetheless a scary portent.
While Alex blogged last week about what this deal could mean for those who use Facebook and other social media tools for work and play, I couldn’t help but think that history may be repeating itself.
Late last week, CFRA’s John Budden and Rob Snow discussed the logistics around Goldman Sachs’ “special purpose vehicle” intended to skirt around the U.S. Security and Exchange Commission’s 500-shareholder rule. Rob characterized the US$500 million being put into Facebook by Goldman Sachs and Russian investment firm Digital Sky Technologies as a venture capital round, for lack of a better term.
“It’s just a staggering multiple for a private company,” Budden said of the lofty valuation the investment places on Facebook. Consider that $50 billion against the hard numbers: For 2009, Facebook had revenues of around US$777 million and net income of around $200 million.
“It has the feelings of the bubble that we experienced in year 2000, but it is different in character,” Budden said.
