Two industry sources “close to top Facebook execs” told Business Insider that in the wake of Goldman’s investment at a $50 billion valuation, when the company hires you, “you’re told the goal is to turn Facebook into the world’s first TRILLION dollar company.” [Ed. note: The caps, as always, are Business Insider’s.] Obviously there’s a big difference between an internal goal to motivate employees and saying your company is worth a certain amount in the foreseeable future. Entrepreneurs throw around the phrase “This is a going to be a billion dollar company” almost as often as they say, “Think outside the box” or “We’re a solution-provider for all your value-added needs down the pipeline.” And yet! Did Zuckerberg suddenly start smoking that fictional two-foot bong from the Palo Alto party house in The Social Network? Or has the entire tech industry forgotten that money actually has a real-world value? True, analysts are saying that if Facebook went public now, it would be valued closer to $100 billion. And accredited investors are flooding the secondary markets to buy Facebook stock at a $124 billion valuation. But did Zuckerberg forget that he played a — very savvy — role in getting the $50 billion valuation that blew the dream of owning Facebook stock up to bubblicious proportions?
Facebook’s CEO has kept a tight lid on its profits and losses, despite the fact that when Google was as close to an IPO (Facebook’s is expected to come in 2012), its financials were much more transparent. The only way we have any confirmed figures is from the leaked, but brief, memo Goldman Sachs sent out to rich investors, who bum-rushed Lloyd Blankfein with $1.5 billion in five days. According to that document, Facebook made about $500 million profit on about $2 billion in revenue last year, which means that its stock is trading at about 100 times its earnings.
What does that mean? Who knows! As Henry Blodget put it, “What NO analyst can tell you is what the present value of future cash flows is — for Facebook, or any other company.” And that’s the point. With the Goldman deal, Zuckerberg very impressively invented a way to get big investment without an IPO — and the kind of details that come with an SEC filing, like plans to monetize, competitors, weaknesses, future losses, etc. Now it looks like Zuckerberg forgot that he —and Goldman — finagled that loophole.
Back to that trillion … for a little perspective, Business Insider points out that Google’s market cap is around $200 billion and Apple’s is just over $310 billion. Which isn’t to say that Facebook couldn’t theoretically be worth more than that. Especially not if it becomes part of the Internet’s infrastructure by controlling an identity layer, something the company has been looking into. Maybe Zuckerberg is keeping his plans and profits secret because they’re so spectacular no one would believe them. But as Google can attest, even for companies that are part of life online as we know it, heady growth from the early days isn’t always easy to maintain as your company scales. And multiplying your already unproven valuation by twenty isn’t so breezy when you’re talking about billions of dollars. Word to the (already clearly very) wise: Believing the hype is like sampling the merchandise. Gotta be careful with that shit, Zuck.