GOLDMAN Sachs has given social networking site Facebook an unprecedented vote of confidence by investing $450m (£291m) in the company at an astounding valuation of $50bn.
The amount represents a fivefold increase from a valuation just two years ago of $10bn.
In addition to Goldman’s investment, the Russian firm Digital Sky Technologies, which invested $200m for two per cent of the business in 2009, has stumped up $50m at the same valuation as Goldman.
And the investment bank is slated to raise an additional $1.5bn from its high-net worth investors by setting up a special investment vehicle.
The new price-tag for the social networking site, which has half a billion users worldwide, makes it worth more than other tech giants such as Yahoo and Google.
Facebook is now said to be planning a float for 2012, with Goldman likely to have bought a primary place in the running to advise the deal, which would generate $500m-$1bn in fees.
And the $50bn valuation puts Facebook founder Mark Zuckerberg’s estimated wealth at about $14bn, double the amount Forbes magazine listed when compiling its list of the world’s wealthiest individuals.
Facebook’s value has skyrocketed over recent months. Although not publicly traded, shares in the site are regularly auctioned in the secondary market. SharesPost, a private company trading website, sold 100,000 of its shares to private buyers for $23 each in mid-December – reportedly a 77 per cent jump in price over just three months.
Nic Brisbourne, a partner on the tech team at venture capital firm DFJ Esprit, says: “It keeps going up and up and up. The valuation is very, very high.” And, he adds, with Facebook’s revenues estimated at $2bn, “you’d have to be very aggressive in terms of growth and margin assumptions to get anywhere near these valuations”.
However, Brisbourne says that while there could be a correction in value, it is unlikely to be a crash.
Barry Mills, co-manager of the Dreyfus Technology Fund (a subsidiary of BNY Mellon) says social networking is a high-growth area: “There’s a fundamental shift going on in the computing paradigm. Those companies with users and revenue growth are going to see high valuations.”
But technology investing can be very high-risk. Mills added: “Technology is often about dreams.”
Goldman declined to comment.