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Goldman Sachs invests in Facebook at $50 Billion valuation

dealbook.nytimes.com

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Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#71

Post by barrkel »

iwwr wrote: post #68
ShardPhoenix wrote: post #31

Earlier quoted context omitted.

If a company is not growing anymore, the only reason to own shares is to get dividends. If the P/E ratio is too high, then the amount of annual dividends per dollar of share won't be worth the risk of the company going bust.

A company does not need to pay dividends in order to be worth to have a share in it. As long as the assets of the company are stable or growing, owning a piece of it is like having a secure bond. Dividends are either profit sharing when the company can't do anything productive with their extra cash... or attempts by management to keep their valuation afloat in order to collect bonuses. I'd say that if a company has e…

A share of a company is in theory optimally priced when it has the same value as the net present value of all future income streams that come from it: that includes both its dividends, and any profits from reselling it. Assuming we're talking about a company that is no longer growing (that's the presumption in the post you are replying to), then owning a share of it has negative value unless its dividends (or moral equivalents, like share buybacks) exceed at least the rate of interest - you can earn more risk-free by putting your money elsewhere.

> I'd say that if a company has extra cash, it is better off paying its long term debts rather than dishing it out to the shareholders.

That kind of blanket statement makes absolutely zero sense to me, and surely if you thought about it for more than 5 seconds, you too can see how silly it is. If the company's return on borrowed money is higher than the interest rate it pays on that borrowed money, paying down the loan would be a waste of money.

Consider a large shop that has a mortgage on its premises. Is it best for it to invest all its profits in paying down its mortgage? Or should it open up a new branch elsewhere instead, borrowing the money for the premises, on the basis that its business model has been proven to have profit that exceeds the cost of finance? Which would make more money? Now consider another scenario: rather than the shop opening up a new branch, what if the investors (i.e. the owners) want to invest in a different or new business, with potential for higher returns in the future?

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#72

Post by borism »

pmorici wrote: post #12
brown9-2 wrote: post #9

Goldman's special purpose vehicle sounds like something you'd design if you wanted to piss the SEC off and get into trouble. Also couldn't help but laugh at this line: The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google. One of Wall Street's savviest investors is investing in Facebook in 201…

"if you wanted to piss the SEC off and get into trouble." How many officials in the current administration are former Goldman Sachs employees? Do you think that affects the likelihood of them getting into trouble?

How many officials in any administration are former Goldman Sachs employees? What does that have to do with anything anyway?

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#73

Post by iwwr »

barrkel wrote: post #71
iwwr wrote: post #68

Earlier quoted context omitted.

A company does not need to pay dividends in order to be worth to have a share in it. As long as the assets of the company are stable or growing, owning a piece of it is like having a secure bond. Dividends are either profit sharing when the company can't do anything productive with their extra cash... or attempts by management to keep their valuation afloat in order to collect bonuses. I'd say that if a company has e…

A share of a company is in theory optimally priced when it has the same value as the net present value of all future income streams that come from it: that includes both its dividends, and any profits from reselling it. Assuming we're talking about a company that is no longer growing (that's the presumption in the post you are replying to), then owning a share of it has negative value unless its dividends (or moral e…

Yes, if a company has stopped growing, then its valuation will go down in time (primarily due to inflation), but then giving dividends just hastens the decline. If a company's value is going down, it makes only short-term sense to give out money. It may just mean some unprofitable assets have to be sold off, or the company needs deeper restructuring.

If the company is profitable and its value is growing against inflation (slow growth), then it's worth having a share in it even if it's not paying dividends. (It's actually hard to find something solid that grows against inflation, in the long term).

>If the company's return on borrowed money is higher than the interest rate it pays on that borrowed money, paying down the loan would be a waste of money.

The company's 'returns' on paying dividends is actually negative, all other things equal.

>Now consider another scenario: rather than the shop opening up a new branch, what if the investors (i.e. the owners) want to invest in a different or new business, with potential for higher returns in the future?

If the investors really think they're not getting their money's worth (i.e. the separate assets are worth more or the management is bad), then it makes sense to initiate a takeover.

P.S. please downvote after you have heard a reply.

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#74

Post by maayank »

Fellow HNers, a real question - what would be the risks of buying Facebook shares in an IPO? Facing (no pun intended) past IPOs like Google's and other tech dears, where the stock multiplied in a very short time and profits in hindsight seem practically guaranteed, what are the risks?

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#77

Post by ig1 »

pmorici wrote: post #12
brown9-2 wrote: post #9

Goldman's special purpose vehicle sounds like something you'd design if you wanted to piss the SEC off and get into trouble. Also couldn't help but laugh at this line: The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google. One of Wall Street's savviest investors is investing in Facebook in 201…

"if you wanted to piss the SEC off and get into trouble." How many officials in the current administration are former Goldman Sachs employees? Do you think that affects the likelihood of them getting into trouble?

Counterpoint: Arthur Andersen

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#78

Post by WorldMover »

meterplech wrote: post #32
brown9-2 wrote: post #9

Goldman's special purpose vehicle sounds like something you'd design if you wanted to piss the SEC off and get into trouble. Also couldn't help but laugh at this line: The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google. One of Wall Street's savviest investors is investing in Facebook in 201…

More than that- this type of deal could potentially greatly harm current Facebook equity holders, or much more likely potential buyers of the IPO. If Goldman Sachs is both an investor and the bank that eventually takes them public this deal is rife with conflicts of interest. Ex: In order to invest at this "low" valuation Goldman had to promise to set the initial price of the IPO to be artificially high. People buy t…

If there are (or will be) investors willing to invest at the initial IPO price, how can you say that price is going to be 'artificially high'?

The IPO investors, themselves will be buying in the hope of making a gain, if their analysis/forecasts/judgement is wrong - it won't be Goldman that screwed them, it will be failure of their own judgement. And also their own willingness to join to 'bubble' to make a gain.

Also, if Goldman are the underwriters of the IPO, and they fail to sell the shares at the 'artificially high' price, they will have to take on the shares themselves. If such a high profile IPO is not fully subscribed, it won't reflect well on Goldman, so setting an artificially high price, is not in their interest, but setting a marketable price is.

Also empirical evidence suggests IPO's tend to be underpriced as opposed to over priced, to allow for gains on day one. (see http://en.wikipedia.org/wiki/Initial_public_offering#pricing)

With Goldman themselves having $450m in facebook, this also adds some credibility come IPO time, as GS themselves will have 'skin in the game'.

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#79

Post by DuncanIdaho »

2arrs2ells wrote: post #51
anigbrowl wrote: post #28

Earlier quoted context omitted.

A reasonable point, but Google has several years' worth of results under its belt. When the IPO was conducted I think the company was valued at about $25 billion; now it has net annual earnings about $6-7 billion - so while the P/E ratio is still high, at least it's based on actual numbers. I'm not saying FB couldn't be worth even more than Google - it's just that since they've never had to file earnings statements e…

I imagine Goldman Sachs has access to numbers that are a lot less speculative than the ones we have access to.

Or Goldman is so loaded with money that they have to put it somewhere - anywhere.

Re: Goldman Sachs invests in Facebook at $50 Billion valuation

#80

Post by tybris »

kayoone wrote: post #75

how much does Zuck still own of FB ? I read 25% percent somewhere, is that true ? Hes almost up with the google guys in terms of net worth then.

From the article:

> For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

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