Is Facebook Overvalued? Social Network Giant Worth Estimated $50 Billion

Jan. 3, 2010— -- The cultural phenomenon and private company Facebook has reportedly raised $500 million in new funding, private investors putting the company's worth at $50 billion.

News reports Monday said first-time Facebook investor Goldman Sachs paid $450 million for shares in the Internet giant. The Russian company Digital Sky Technologies, which previously invested $500 million in Facebook, added another $50 million.

A spokesperson for Goldman Sachs declined to comment and said the reports were "purely speculation."

Included in Goldman Sachs' deal was the option to sell up to $75 million to Digital Sky Technologies. The investment firm will create an option for its high-net-worth clients to invest in Facebook.

Because Goldman Sachs is considered only one investor, this will allow Facebook to go around an SEC rule that requires companies with more than 499 investors to disclose their finances publicly.

"It's certainly something the SEC will want to look into. There are all kinds of rules that publicly traded companies must obey, but since they aren't publicly traded, the solution to all of this speaks questions about the market of this stock," said Josh Bernoff, principal analyst and vice president of Forrester Research. "This could be solved by a public offering."

There has been no indication from CEO Mark Zuckerberg that there will be an initial public offering of Facebook any time soon, despite the growing interest of investors.

Ben Schachter, senior Internet analyst for Macquarie Research, says that going public is in Facebook's future.

"It's likely but the timing so far has been more of a fool's game to guess," Schachter said.

Bernoff explains that companies of Facebook's caliber are likely to become a publicly traded stock as company growth continues.

"The chances of Facebook being public in two years are about 90 percent," Bernoff said. "This is an interim, inevitably a company this large will become public. It's just a matter of timing."

Employees have expectations they'll be able to sell their shares for more money than what they're worth. Those leaving Facebook create pressure for employees to be able to cash in.

"This means that when employees want to get rid of their shares, it ends up being privately traded," Bernoff said.

Is Facebook Worth $50 Billion?

With Facebook estimated to be worth $50 billion, the highest in the company's short seven-year history, it far surpasses the worth of other technology stocks such as Yahoo, Ebay and Sony.

Because the company is private, the earnings and financial data are not public. However, it was the most visited website in America in 2010.

"It's not a number that shocks that many people," Schachter said. "We don't know the exact financials but the idea that it's worth more than Yahoo or eBay is not shocking."

Yahoo's market cap is around $22 billion, Ebay's is estimated to be worth around $37 billion and Sony is worth an estimated $36 billion.

"The evaluation is reflective of what they believe their share is worth," Bernoff said. "Just large one entity certainly is likely to cause the evaluation of what other investors are likely to pay. Facebook's value will be based on continued growth, which is going to be challenging, and revenue, so because we can't see that we don't know."

Others wonder if Facebook can actually cash in on its estimated wealth, especially when comparing it to companies such as Boeing, worth an estimated $49 billion and Comcast, worth an estimated $62 billion.

"It's very clear this is becoming a dominant outlet in the Internet, but the question is how well can they monetize all of the traffic and usage?" Schachter said.