Facebook is worth $52 billion, and that’s not a good thing.

By Kevin Kelleher
December 13, 2010
Reuters: Facebook CEO Mark Zuckerberg reacts after unveiling a new messaging system in San Francisco

Reuters: Facebook CEO Mark Zuckerberg reacts after unveiling a new messaging system in San Francisco

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.

9 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Ever noticed that each bubble is bigger than the last? The real estate bubble was bigger than the dot-com bubble, and a new bubble laced with hyperinflation will likely become the mother of all bubbles in U.S. history.

Also note that when each bigger bubble pops, deeper pain, suffering and death ensues. That suggests that when this bubble pops, we will be standing knee deep in blood. But not to worry! A bigger bubble will likely following with misery you cannot even fathom to follow!

Posted by DisgustedReader | Report as abusive

I agree with you 100% DisgustedReader.

Posted by RickMichigan | Report as abusive

Do you have Mark Zuckerberg’s phone number???

Posted by hodges3737 | Report as abusive

Time to tax Facebook on book value?

Posted by mrce500 | Report as abusive

Facebook is private and has one ownner and many employees.

Posted by mrce500 | Report as abusive

Bogus – a ponzi without promises

These exchanges serve a valuable function of matching buyers of alternative assets with sellers.

Posted by mrce500 | Report as abusive

That is a lot of money to be in valuation. I wonder what will happen to it. I understand the sideline / private transactions, but wonder where does $26 billion come from to make the purchase of 50% of the company.

I know many companies have billions sitting on the sidelines; are they waiting for companies like FB to go public?

Then, what does FB do with the $26 billion? Create a GATES-like foundation to distribute it to deemed worthy causes.

How is this much money handled?

Posted by eanmdphd | Report as abusive

This is hilarious:

“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.”

Really? “The wisdom of the crowd in pubic markets.” Any light reading of economic history shreds this fundamental misconception.

“The wisdom of seasoned venture investors”??? You have to be kidding. See TechBubble late 90s’.

This is just poor, sloppy writing with a poor, quickly-formed angle. I would be embarrassed if I was the writer.

Posted by jbjorn | Report as abusive

@jbjorn
>”I would be embarrassed if I was the writer.”

And if you were the writer, you might have a better understanding of English grammar.

Markets aren’t as black and white as you seem to think. For every aberration like your “TechBubble” (I’m not sure why you use an inner cap), there are more examples of stocks being fairly priced by the market. I am sorry if the omission of the obvious upset you. My point was simply that fair value is much more likely to be found in a liquid market than an illiquid one.

Posted by kpkelleher | Report as abusive