Facebook is not publicly traded, but an informal market exists for its stock. Employees who have vested their stock options and others who have gotten their hand on Facebook shares sell them to wealthy investors and a handful of obscure outfits which specialize in buying private-company shares, like MTVLP and Apercen Partners.
The market price is falling fast. We’ve heard of shares trading for $5.50, which suggests a valuation for Facebook of around $2.3 billion, but that’s the highest. There’s plenty of interest for shares at prices between $2.50 and $4 – though those are distressed prices. At the low end of that range, Facebook would be worth a mere $1.3 billion – less than a tenth of the price at which Microsoft invested its $240 million last year.
Oh, how the mighty have fallen! Facebook’s value has jumped dramatically with every investment, from $100 million in 2005, to $550 million in 2006, to $15 billion in 2007. The drop has been almost as sharp.
The good news for Facebook employees: The stock is getting closer to a reasonable price based on actual revenues (not the Beacon-turbocharged fantasy everyone was dreaming about last fall). If the $265 million figure for this year is accurate, the stock is now trading at about 7.5X revenue. It could go to 5X in this environment, especially with Facebook still burning cash, but it’s not likely to drop to 2X.
In any event, as we said yesterday, Facebook will likely soon have to do a “down round”–a financing at a valuation lower than the one it did last fall. A bummer, but worse things have happened.
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Microsoft wins! Their sabotaging of Facebook was effective. Microsoft’s strategy was always to over value Facebook when they invested, so that no future investors would get an up round. Essentially people get put off by the prospects of lower valuations, its not good for the “animal spirit” of investors to see a downward trend. Microsoft used this strategy before to handicap competitors, and they’ll keep using it unless people become wiser.