Goldman’s Leaked Memo to Rich Investors Exposes Facebook’s Actual Earnings

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Sorry, Zuck, there's no way to pin this one on Julian Assange. Photo: Tony Avelar/Bloomberg via Getty Images

Well, now we know why Goldman Sachs was so reluctant to give its millionaire clients any concrete details about the Facebook deal (save that vague appetite-whetting pitch letter that could easily have been mistaken for an entreaty from a Nigerian prince). Leaked copies of a 101-page private placement memo Goldman hand delivered to hand-picked potential investors a little after lunchtime yesterday — probably as they were leaving the Grill Room — reveal closely guarded details about Facebook's actual earnings, its plans for an IPO, and the SEC's investigation of Goldman's attempt to value Facebook at $50 billion. According to the document, Facebook earned $355 million in net income in the first nine months of 2010. Net earnings were a crucial detail left out of another leak, now confirmed by the document, that Facebook earned $1.2 billion in revenue during that same time period. In case you're keeping track, that means that $50 billion valuation is roughly 142 times what they earned (during those nine months). But after looking at the memo, Ryan Jacob of the Jacob Internet Fund told Reuters, "It just shows you that these business can generate 30 percent to 40 percent, potentially, operating margins."

However, the six-page financial statement included in the memo is unaudited, and sources say it doesn't address how Facebook earns its revenue. From acai berry weight loss ads and blackmailing you for that private Four Loko + Me = <3 <3 <3 <3 album, obvs! The document also says Facebook plans to increase its number of shareholders above 500 this year, a threshold that would require it to start disclosing (audited) reams of financial data on executive compensation and profit and losses and its competition in advance of going public by April 2012.

According to the Journal, it wasn't just Goldman and its Russian buddy at Digital Sky Technologies that were interested in getting that $50 billion valuation. "People familiar with the matter have said Facebook sought a benchmark valuation from a leading investment bank in preparation for a potential initial public offering next year and was keen on a 'round-number' valuation of $50 billion." Yeah, the roundness was what they were worried about, not the teeteringly high sum.

Goldman's memo to investors also confirms speculation that the SEC is looking into the deal. Sources tell DealBook that they're investigating several issues, "including the structure of the deal and media reports about the offering, which was supposed to remain private." That's ridiculous. How could Goldman create a giant bubble out of Facebook frenzy if they kept the deal private?

Facebook Sets Stage for IPO Next Year [WSJ]
Goldman customers get Facebook financials [Reuters]
S.E.C. Questions Goldman Sachs on Offering [DealBook/NYT]