Facebook Valuation–Public & Private

I am a little confused about the amount of kerfuffle over the IPO of Facebook.  I get that it was a huge story.  I have even written about it a few times.

In my last post, I stated that I expected emotion and the greater fool theory to prevail and the stock would jump to $50.  I was wrong.  I didn’t have enough faith in the market.  People are now scratching their head with the same question: what is Facebook worth.

In thinking about this over the weekend, however, it occurred to me that the answer has been out there for some time staring us all in the face: the value of Facebook has been set again and again with the repeated share offerings in the private market.  The last private market valuation, I think, was $70B. [note: need to verify] update: Paul Kedrosky has informed me that the last private market valuations were up to $100B.

That $70B valuation most certainly had a premium built into it based on the presumption that the public market sentiment would carry the stock higher.  However, considering who has access to these private share offerings (read: very sophisticated investors), the price of Facebook had a ceiling on it, and that ceiling was $70B. [update: *cough*$100B]

At the closing price today, the market cap of Facebook is $66.5B, though the true valuation, because of cash on hand, is around $85B.  The right price, based on a $70B market cap plus cash leads to a “correct” price of around $23.50.

Given the stories now surfacing about lead underwriter Morgan Stanley cutting estimates in the middle of the road show, expect that value to trend down even further.

Well, even with the update from Paul, I stand by my assessment. <g>

  • “However, considering who has access to these private share offerings (read: very sophisticated investors), the price of Facebook had a ceiling on it, and that ceiling was $70B.”
    I don’t see why it’s a ceiling rather than a floor.  Are you implying that these “very sophisticated investors” would invest at an implied valuation that was the highest it could ever be?