Facebook's $50B valuation betrays tech market reality

News item: Facebook valued at US$50 billion

Not to kick sand in the face of Goldman Sach’s Private Client group, particularly since I’m a shareholder of the parent co. and all, but I think they may have taken a flier with their planned syndication of the $1.5 billion private placement of Facebook shares ($375 million of which they’ve acquired for their own account – Hat Tip NYT DealBook). Not that “brand investing” is a bad idea; just ask the shareholders of Berkshire Hathaway (BRK:NYSE). And it’s not as though I think their clients will lose money by buying the private round. Under most scenarios, Facebook will eventually go public — or be sold — at a price higher than US$50 billion.

It’s just simply a question of the valuation that Goldman landed for what can only be called a “pre-IPO” round.

With a reported US$2 billion of revenue, Goldman has tagged Facebook at 25x revenue. For a mature tech story, that’s fabulous; particularly if you’re the seller. Google’s (GOOG:Q) currently trading at 5.9x EV/Revenue and 18x forward earnings; with a PEG ratio of 1.15x. Apple’s (AAPL:Q) EV/Revenue is 4.2x, and its forward EPS is 14.6x; PEG ratio of 0.84x. Nothing outrageous about either of those valuations, and each has something like US$30B of cash on hand to spend on R&D, acquire new technologies or lines of business, or just pummel their competitors with.

The NASDAQ has been flat for a decade, so Facebook won’t be able to ride the tide for its next valuation bump. It’ll have to get there with revenue growth and earnings power. Something that both Google and Apple already have in spades, plus the benefit of trade liquidity.

MRM