Mark Zuckerberg’s digital fiefdom multiplies again with Goldman Sachs chipping in $450 million.
Facebook’s $50B value is extraordinary
Mark Zuckerberg has made a lot of noise about maintaining control of Facebook—that is, protecting it from the old Wall Street vipers who would have loved nothing more than to buy him out and own the precious personal information themselves. Zuckerberg, as we well know, had other plans in mind (even if we aren’t exactly sure what his ultimate vision is for Facebook, aside from keeping people on the website).
What does the fresh infusion of Wall Street money mean for Facebook and its users?
Many are predicting that Goldman Sachs’ investment virtually assures that Facebook will go public. Further, Goldman’s move is being interpreted as maneuvering to secure the right to make Facebook’s IPO (initial public offering). The investment instantly increased the value of Facebook to $50 billion dollars.
Think of Goldman Sachs as the Bank of Facebook now.
Many Facebook users and casual observers might be wondering how Facebook could be valued at $50 billion. It is a rather baffling notion because despite the impressions and data of Facebook and its investors, users aren’t as enamored with the social media giant as they imagine. The reality is that users hop on once in awhile, “Like” a few photos, post an update in the news feed, and maybe chat for a bit with friends. Some may stay logged in for significant amounts of time, but that doesn’t prove that any of these users are actually doing anything.
Right now, in fact, I have 11 tabs open on Google Chrome. Let us pause and dissect my present online experience briefly.
I am using Google’s browser and Google’s search engine, through which I arrived at half of my 11 tabs (the other half I typed into the address bar). As I type, there is no Facebook tab. Granted, at some point today I will log back on, post something (this article most likely), give a cursory look to the news feed and log off again. And that will be my Facebook experience for the day.
We could apply this user experience to the digital world–multiply it across the aether and across a good percentage of Facebook’s 500 million active users. How then is this company worth $50 billion? A good question to consider.
It reminds one of the Tulip Bubble, or Tulip Mania, in which Tulip speculation drove the prices up on the flower simply because some people were willing to believe the price was an accurate market value. Maybe some conglomerate would buy Facebook for $50 billion, but that price tag does not necessarily make the value accurate. Facebook has survived and flourished longer than many other Internet start ups that imploded (see Myspace), but there will be a plateau at some point and maybe even a burst.
Back to Goldman’s investment in Facebook, though.
Is there any clearer sign that Facebook is being cannibalized by the old boys than Goldman Sachs investing $450 million in order to secure the IPO rights? And when the IPO comes—when Facebook’s initial private investors will make a killing selling to a ravenous speculators—will Zuckerberg be able to resist stockholder ire over his Steve Jobs approach? Will we start seeing bigger and more intrusive advertisements?
Hard to say until it is actually happening.
With Goldman’s tendency to ride bubbles and travel in the slipstream of popular mass delusions like remora fish, expect the bank and their investors to make a killing on the IPO. And when Goldman Sachs makes a killing, a spectacular unraveling is sure to follow.
Call this the Facebook Bubble of 2011 with Goldman Sachs perched upon its crest. Goldman and the other private investors will sell the illusion to others who will be left with an overvalued social media website. In fact, it is likely that the $50 billion valuation is most likely a reflection of these investors artificially inflating the stock, which happens in all investments but most especially in bubbles. The Facebook shares will be sold initially to the most elite investors, then down the line to unwitting investors who will be unaware they are buying an illusion.
Good luck, Zuckerberg, and welcome to the machine.
January 06, 2011 at 2:52 am, QXDesigns said:
I like how you threw in the reference to Tulip Mania from Wall Street. Classic!
January 06, 2011 at 4:33 am, D. J. Pangburn said:
No. The Tulip reference is from a book I own called “Extraordinary Popular Delusions & the Madness of Crowds” by Charles Mackay.
You should read it. Great book.
January 07, 2011 at 9:40 pm, QXDesigns said:
Maybe that's where they got it from, it was in Wall Street, the new one I think
May 21, 2012 at 1:41 pm, Facebook stock nosedives: No sympathy for foolish stockholders | Death and Taxes said:
[...] investors (including Facebook employees) and underwriters like Morgan Stanley created a bubble, as I noted nearly a year and a half ago, to sell when expectations were artificially high.Some will say that [...]