Investments place value of Facebook at $50 billion

[January 04, 2011]  NEW YORK (AP) -- An injection of cash that values Facebook at $50 billion will help it delay going public for at least another year, giving the company breathing room to focus on long-term ambition rather than short-term profit.

The infusion -- $500 million from elite investment house Goldman Sachs and a Russian investor, according to a report by The New York Times -- represents the most emphatic endorsement yet of Facebook's potential to make money in online social networking.

It places the company at twice the value of Internet giant Yahoo and about equal to what well-established names such as Boeing and Kraft Foods are worth on the open market.

More important, it buys time for Facebook to keep its books private and not have to cater to the demands of the market. And it gives 26-year-old founder Mark Zuckerberg room to grow into his role as the public face of a multinational company.

Zuckerberg is widely believed to be more comfortable operating behind the scenes, thinking about technology and business, than engaging in public discourse, says Standard & Poor's equity analyst Scott Kessler, who follows large Internet companies.

"There is still some question whether he has the persona to be a public CEO and, if he doesn't, would he be willing to cede control to someone who does," says Mark Heeson, president of the National Venture Capital Association, a trade group that represents firms that invest in startups. "That is probably an issue that Facebook's board has been discussing for some time."

As it nears the seventh anniversary of its founding in a Harvard dorm room, Facebook is already slightly more mature than Google was when it went public, in 2004. At the time, investors placed Google's value at about $24 billion.

By the time Google turned 7, in September 2005, its market value had ballooned to about $90 billion, and the company wound up with $6 billion in revenue that year.

Google, like Facebook, wanted to stay private as long as possible to avoid public scrutiny of its finances, investor complaints about its strategy and potential management distractions.

The $50 billion is more than twice as much as the market's valuation of Yahoo. It's also worth more than eBay, but still less than Amazon.com -- not to mention Google, which now stands at nearly $200 billion.

Facebook has grown quickly as a business, even as it seeks to retain a startup culture, valuing innovation, hiring the smartest engineers from its neighbors and gobbling up small tech companies.

It has swelled to more than 500 million users, about half of whom log in on a given day. Each month they share more than 30 billion links, notes, photos and other types of content. Facebook "Like" buttons are everywhere online.

Facebook is free and makes money from selling highly targeted ads. Investors are increasingly convinced it is destined to become a marketing mecca. It has cemented its place as the king of social media, much as Google did for online search.

The New York Times reported the investment over the weekend, citing unnamed people involved with the deal. Facebook and Goldman Sachs declined to comment Monday.

Russian investor Digital Sky Technologies, which focuses on Internet properties, already has a 10 percent stake in Facebook, but the nod from Goldman Sachs is a sign of just how big the Palo Alto, Calif.-based startup has become even outside tech circles.

Wedbush Morgan analyst Lou Kerner, who has been bullish on social media and Facebook in particular, says Facebook is well worth $50 billion.

He says it's still 15 percent less than the going rate on private stock exchanges such as SecondMarket and SharesPost, where stock is generally sold by former employees or early investors in these companies. Kerner thinks the company could trade at $100 billion if it went public.

Not that Facebook is in any rush. Zuckerberg has been coy about a possible initial public offering, recently telling CBS' "60 Minutes" that he doesn't see selling the company or going public as an end goal, as a lot of entrepreneurs seem to.

That approach is "like you win when you go public. And that's just not how I see it," he said in the broadcast, which aired Dec. 5.

There are many reasons for Facebook to put off an IPO, a big one being that it doesn't need the money, as the latest investment shows. Companies go public to get access to capital, and Facebook clearly has access to capital, Kerner says.

Going public is also a big time commitment for senior management -- time they could otherwise spend running the company, he says. Zuckerberg has been deeply involved in Facebook since its founding and shows no signs of wanting to give that up to cash out. He's even pledged to give away at least half of his wealth along with a slew of much older billionaires such as Carl Icahn and Barry Diller.

And Facebook, which already faces government scrutiny for the way it handles the troves of personal information its users share, would be subject to even more poring eyes were it to go public, Kerner notes.

"If I'm Facebook, I don't think I ever want to go public," he says.

The company discloses very limited financial information now, but that will change if it amasses at least 500 shareholders. Once a company with at least $10 million in assets crosses that threshold, the Securities and Exchange Commission requires it to disclose its finances and other crucial information. That regulation triggered Google's IPO in 2004.

Exactly how many shareholders Facebook has is not publicly known. The Times said Goldman hopes to circumvent the rule by counting itself as just one investor while pooling investments from thousands of its own clients.

Separately, Facebook in 2008 created a restricted class of shares for new employees that can't be sold until the company goes public. The SEC exempted these shares from being counted toward the 500-stockholder cap.

The agency is looking into whether recent trading in private Facebook stock may be enough to require more disclosure.

Facebook hasn't said whether it is making money under the accounting rules used by public companies, though in 2009 it announced it was bringing in more than it was spending. Research firm eMarketer estimates that Facebook generated $1.29 billion in online ad revenue in 2010 and will rake in $1.76 billion in 2011.

Digital Sky Technologies -- together with sister company Mail.ru, which had its IPO in London in November -- already owned about 10 percent of Facebook. A person answering the phone at the company's office in Moscow said no one was available to comment.

Microsoft also owns a small stake in Facebook. It invested $240 million in Facebook in 2007 in exchange for a 1.6 percent stake, at the time implying a valuation of $15 billion.

Goldman Sachs, by cozying up to Facebook now, could be gaining an inside track to handle the eventual IPO, says Reena Aggarwal, a Georgetown University finance professor specializing in investment banking and IPOs.

"This looks like a very smart move by Goldman because it helps them get their foot in the door," she said.

[Associated Press; By BARBARA ORTUTAY]

AP Technology Writer Michael Liedtke in San Francisco and Associated Press writer Lynn Berry in Moscow contributed to this story.

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