Facebook Ipo

FFACEBOOK VALUATION: DID GOLDMAN SACHS GET IT RIGHT? Hoje Jo, Santa Clara University, Santa Clara, CA, USA Jonathan Chen, Santa Clara University, Santa Clara, CA, USA O. Jared Isaacson, Santa Clara University, Santa Clara, CA, USA Robert Mullenger, Santa Clara University, Santa Clara, CA, USA Brian Yamada, Santa Clara University, Santa Clara, CA, USA ABSTRACT Facebook is a cultural phenomenon and therefore provides a unique case study opportunity. In early 2011, Goldman Sachs had valued the company at $50 billion. The purpose of the paper is to shed light and create transparency to the possible model that Goldman Sachs used to value the company. In this paper, we explore the world of social media and Internet advertising to determine a valuation for Facebook based on free cash flow projections, comparable analysis, and real option valuation. Based on the above methods, we maintain that Facebook is overvalued to the extent that Facebook mimics the growth pattern of Google. Keywords: Facebook Valuation, Social Media, Goldman Sachs, Google, Free Cash Flows 1. INTRODUCTION

The main purpose of this paper is to examine whether Goldman Sach’s 2011 valuation of Facebook is justifiable based on well-known valuation methods, such as, free cash flow valuation, comparable analysis as well as real option approach. Given that Facebook’s financial information is not publicly available, the valuation of facebook is a challenging task, but worthwhile exercise for social networking valuation that is not explored previously. The intended contribution of this paper is to show various pitfalls behind Goldman Sach’s suggested $50 billion valuation. Facebook is a social networking website that allows users to create a personal profile, share photos, and exchange messages. Founded by Mark Zuckerberg and fellow college mates, Eduardo Saverin, Dustin Moskovitz, and Chris Hughes, Facebook was initially created as a tool to share notes between classmates. Zuckerberg began expanding this... [continues]

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