In January this year, social networking site Facebook was valued at whopping $50 billion and everyone thought that the valuation
was out of proportions. However, Facebook is merrily reaching the new heights and a new transaction is expected to value the company at $70 billion. However, the downside to the transaction is that it is not related to the infusion of money but actually is the price demanded by a group of its oldest investors for their stake.
Apparently, some of the earlier investors of the company are now looking to offload their stake in the company. And the price demanded by them values the company at $70 billion, this is after they lowered their original asking price. Rumors say that the original asking price would have valued the company at $90 billion.
But let's just forget the company valuation for a while and let's also stop calculating net worth of its mumbling founder. Is there a wariness setting in among the early Facebook investors? Goldman Sachs recently invested some $1.5 billion in the company on behalf for its ultra high net worth clients and apparently the private market for Facebook shares is swelling. But the selling of $1 billion worth of stock by its original investors would not bode well for Facebook. The move may be construed, and rightly so, to portend the deflation of bubble.
Facebook is currently under pressure to make its IPO, although it looks like the company is not quite willing to do so. The market is also questioning the valuation of the company and believes that it may not be able to grow at the pace required for justifying its valuation.
Nobody can help but notice the formation of classic bubble here. Early investors cash out at the top valuation, middle level investors aka Goldman Sachs' clients cash out at the IPO, while suckers like you and me, who get their stock via IPO are left to see the stock crumbling down. The deal is yet to be approved by Facebook executives including its CEO and CFO. While we cannot foresee how much this company is going to grow, but if we have learnt any lessons from previous bubbles, then retail investor needs to be very very careful when Facebook finally comes out with its IPO.