Facebook’s Value Worth $50 Billion: Who, What, And Why?

Allison Kade
Posted

Earlier this week, we learned that Facebook raised $500 million in a deal in which Goldman Sachs valued Facebook at $50 billion. According to estimates, Facebook only makes about $2 billion in annual revenues. So, how did Goldman Sachs decide that Facebook is worth $50 billion?

This big move is making people talk about whether Facebook is going to go public. What would that mean, and how would it impact the company, government rules about this kind of thing, and those embarrassing New Year’s Eve photos that our roommate tagged of us?

Talking Money.

After this cash jolt of $500 million, Goldman Sachs will own about 0.8%, and, potentially, its clients would own a combined 3%. Meanwhile, Facebook CEO and protagonist of The Social Network Mark Zuckerberg owns roughly 24%. Given that the company is worth $50 billion, Zuckerberg now owns $12 billion of Facebook. Exact numbers aren’t published, but according to The Wall Street Journal and The Guardian, here’s how experts speculate that the company’s ownership breaks down:

Facebook's Value

Why Is Facebook Worth $50 Billion?

Determining a company’s “value” is different from simply calculating how much it makes each year, since this is the number investors use to figure out how much they are willing to pay to get in on the action. It’s determined not just by how much money the company is making now but also by how much it might make in the future. For example, a year before it went public, Google made about $2 billion in revenue. Now, it’s making about $30 billion in sales per year and has a “market capitalization” of about $200 billion (market capitalization is just a measurement of the size of a business). Obviously, investors are hoping that Facebook will be the next Google.

Goldman Sachs hasn’t announced its exact thought process behind the $50 billion valuation for Facebook, but pundits point to a few key factors:

  • First, Facebook did pull in about $2 billion in revenue in 2010.
  • Of the three biggest websites (Facebook, Google, and Yahoo), Facebook is growing the fastest. You heard us: Facebook is growing even faster than the infamous Google.
  • More than any other site, people spend the most time on Facebook.
  • Facebook is increasingly conquering the display ad market.
  • There are new, growing sources of revenue for Facebook, too, such as transaction fees on games by Zynga (the makers of FarmVille). Zynga’s revenues will be about $1 billion this year, and Facebook shaves a cool 30% transaction fee off of that. If Zynga continues to grow, Facebook is golden.

When A Private Company Accepts Money From Investors.

This deal has been such big news that the U.S. Securities and Exchange Commission (SEC) is reevaluating the way companies go public. Any person can buy a share of a public company like Microsoft, Disney, or Morgan Stanley on a public stock exchange. Private companies like Facebook, on the other hand, are invite-only for investors—and can’t have more than 500 investors unless they publicly disclose their financial information. Up until now, Facebook’s “invited” investors have been employees and venture capital (VC) firms, which give start-up money to businesses as an investment in the hopes that those businesses get huge. Now, though, Goldman Sachs has caused a stir by organizing something called a “special purpose vehicle,” which some think was created in order to circumvent the rule about having more than 500 investors.

If Facebook Went Public.

If the SEC decides that this “special vehicle” is just a cheap trick to get around the 500 person rule, Facebook will have to disclose a lot of its currently under-wraps financial data. According to conventional wisdom, once it has to disclose that info, it might as well go public by offering shares to regular investors like us. Although Zuckerberg may decide not to go this route, going public would probably mean both a lot of new cash for the company—and a potential loss of power and control for Zuck himself as CEO. After all, if the company were public, he’d suddenly be accountable to a whole slew of shareholders who are mostly just concerned with the ever-climbing price of the stock.

It’s still unclear what’ll happen in the long run, but we feel sure that big things are on the horizon for Facebook.

As for those racy photos from New Year’s Eve, well, we’d rather not comment.

  • Kodemonki

    Our real, identifiable personal networks and interests are worth billions. it’s only a matter of time before Beacon (or a secret form of Beacon) resurfaces.

  • http://www.slidebuddy.com/ Slide Buddy

    Wow, who knew that Bono was an investor in Facebook? I do wonder though if Mark would permit the company to go public. His personality, at least on the adapted movie makes it seem that he’s such a control freak.

  • Dave

    Where’s Accel Partners?

    • http://twitter.com/amkade Allison Kade

      Hey Dave,nnGreat question. This info isn’t public, of course, so it’s all speculative, but here was my thought process as I compiled this article:nnFirst, I found this article from the Guardian very helpful for basic numbers:nnhttp://www.guardian.co.uk/technology/2011/jan/04/sec-may-force-facebook-flotationnnThen, since I knew that Accel was one of the early investors, I did some research around it to see why it wasn’t showing up in a lot of other people’s accounts of Facebook ownership. Although I had trouble finding what their exact stake is now under the new valuation, Accel sold a substantial stake mid last year: http://techcrunch.com/2010/11/19/accel-facebook-chunks-of-stock/nnAccording to that TechCrunch article, Accel “now” held 8% (the article was written in November, before the new valuation). After the big sale of shares and then the new valuation which would have further diluted Accel ownership, I was forced to conclude that, while they obviously still have shares, they must have been pretty significantly diluted…enough that no other major news source that I read about this news was reporting how much Accel holds now, or even talking about them. So, to the best of my research and knowledge, Accel is contained somewhere, in some proportion, within that remaining 9.7ish%.nnHope that helps!nnBest,nAllison

  • PhilO

    Facebook? $50Billion? Smells like a bubble to me. You can bet the big boys who have thrown a ton of theor own cash into Facebook – with all their connections to the press and friends in high places, are doing everyting they can to pump up this new-fangled, feckless waste of time to that they can extract a big payday. The hubris of the investment crowd never fails to amaze me. Seriously, why don’t these people start investing in technologies that will help poor people, or end malaria. Why on earth would anyone put themselves in a positino where they are “friended” by dozens of people they don’t know? Sure, lots of people loveFacebook, but lots of Romans love the gladiatorial arena; lots of people raised their hand to Hitler; lots of people liked a lot of things that were counterproductive to the good life. (btw, where’s MSFT? they made an early investment of roughly $350M a few years ago). *uckerberg is not only a control freak, he’s a thief! Seriously, people, the guy takes an analytical approach to one of the most essential qualities of being human – i.e. affiliation/friendship and uses that to sell his customer’s time, eyeballs, and anything else his spoiled brat developers can figure out, to Facebook advertisers. Bottom line: I don’t care if it’s worth $100Billion, it’s a useless scam and waste of time pumped up by money people who want another payday, and that payday is coming at its customer’s expense – expense of their time, and expense of the opportunity cost incurred when one’s brain is all jacked up on dopamine because 100 people (most who are not even “friends”, in the real sense of the word) just got noticed about what they had for lunch or some other useless thing. Yeah, go ask your Facebook friends is they will pay your rent after you’ve lost your job. Friends? Facebook? $50B? Don’t make me laugh!

  • Bengie-nb

    …auf zur nu00e4chsten Wirtschaftskriese. mit Geld handeln was es gar nicht gibt. Applaus

  • Mcscottmc

    Why is Google ‘infamous’? Does the author even know what that word means?

    • Anonymous

      Hi Mcscottmc,nnThanks for writing in. For what it’s worth, we appreciate comments that aid conversation and the constructive sharing of ideas. In terms of your comment — nnInfamous: known widely and usually unfavorably.nnFirst, Google is undeniably known widely, as its fame as one of the most successful web companies precedes it. Google’s IPO (initial public offering) was considered by many to be incredibly historic and important (and expensive). In terms of the unfavorable twist, that was part snark because we’re referring to it in comparison to Facebook and part motivated by the fact that, in more recent times, there’s been buzz about whether Google’s growth is sustainable or if it’s a dying giant: http://www.fool.com/investing/value/2010/10/02/google-value-growth-try-both.aspxnnIf you have further comments or questions for me as the author, please direct them toward editorial@learnvest.com.nn

  • http://twitter.com/AlexandruMielus Alexandru Mielus

    My version (svg and bar chart) for this infographic cand be seen at http://alex.mielus.ro/design/a-better-facebook-infography.html Even though the bar chart canu2019t complete the 100% view it allows people to see the actual difference between % holders.

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • http://omgeureka.blogspot.com/ OMG Eureka

    Numbers are for accountant… i am just a user :)

  • Mike_massinvestor

    Pretty interesting, but I believe the web site http://www.WhoOwnsFacebook.com has a more definitive look at Facebook wealth.

  • Mike_massinvestor

    Pretty interesting, but I believe the web site http://www.WhoOwnsFacebook.com has a more definitive look at Facebook wealth.

  • Mike_massinvestor

    Pretty interesting, but I believe the web site http://www.WhoOwnsFacebook.com has a more definitive look at Facebook wealth.

  • http://twitter.com/facebook_uk FacebookApplications

    Once Facebook eventually does wither away, I think it’ll be best remembered for proving George Orwell wrong.

  • http://twitter.com/facebook_uk FacebookApplications

    Once Facebook eventually does wither away, I think it’ll be best remembered for proving George Orwell wrong.

  • http://www.facebook.com/neabro Neal Browning
  • Joe

    “infamous google?”

  • Anonymous

    Incredible ! A company just in its 8 year is estimated to be worth 50 Billion dollars. Surely one of its kind

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