Facebook is worth $52 billion, and that’s not a good thing.
Another week, another surge in Facebook’s putative valuation.
Facebook is now worth $52.1 billion, according to AllFacebook.com, up from $50 billion two weeks ago when someone bought a large chunk of its shares on SecondMarket, an online exchange for privately held stocks.
At $52 billion, Facebook is worth more than eBay, Time Warner and News Corp. It’s worth two Yahoos, and worth nearly a third of Google’s $191 billion valuation. Which may not seem unrealistic, until you recall that Google’s revenue will top $20 billion this year, or ten times Facebook’s estimate.
And Facebook may end the week being worth substantially more, because another secondary exchange, SharesPost, is holding an auction with a minimum bidding price of $23 per Facebook share. That values Facebook at $52.1 billion, and demand for the auction is almost certain to push the winning bid higher than that.
The valuations are specious, though, because they aren’t derived by the wisdom of the crowd in the public markets, or even the wisdom of a group of seasoned venture investors. Instead, the valuation is set on a series of fragmented secondary exchanges that sell Facebook stakes piecemeal, in highly illiquid auctions that can drive up the bidding prices when demand outstrips supply.
These exchanges serve a valuable function of matching buyers of alternative assets with sellers. But when a highly coveted asset like Facebook comes into play, they can inadvertently offer an ideal platform for gaming the selling price of the stock. The auctions make Facebook’s worth seem exaggerated, but must be welcome to existing Facebook shareholders as well as company recruiters who want to entice new talent.
They also have unwanted ripples into the rest of the web industry, by telegraphing to investors at large that web companies are one of the few sectors of the economy that are seeing rapidly appreciating valuations. And also by encouraging startup founders to resist going public or being bought out, or to argue for higher valuations themselves. All of that will only feed a bubble mentality that has already taken root in Silicon Valley.