May 02, 2011
SharesPost: Behind the Veil
Posted by Usha Rodrigues

Secondary markets for pre-public companies appear to be thriving.  I blogged a little about this here; see  here for a far more in-depth post from Christine.  The short story is that there are two companies, SharesPost and SecondMarket which are getting together buyers and sellers of "hot" private companies like Facebook or Zynga, circumventing the normal routes for obtaining stock (i.e., working at a start-up or waiting until they go public). 

One of my students recently gave a presentation on SharesPost, and asked the class to read this document, which apparently you can review after registering with the site before buying shares of Facebook.  It's prepared by a third party, SecondShares.  Here are a few highlights :

  • Facebook is the most powerful website the world has known : With over 400 million reported users spending an average of 55 minutes per day on its site, Facebook is the most ubiquitous and transformative media company on the planet poised to create tremendous shareholder value as it begins to monetize its vast audience. Facebook already has ¾ the reach of Google and three times the average time spend per user, yielding Facebook double Google’s aggregate global time spent; and Facebook is on a dramatically steeper growth curve, growing its reach by 150%+ in 2009 vs. 40% growth for Google.  
  • Facebook is tracking to be a $100B company: Google has demonstrated how to monetize the time and data users give to the site daily. Facebook’s potential to monetize both time spent and data shared may be even greater than Google as it generates more time and significantly greater data on its users. Facebook also benefits from a network effect that doesn’t exist at Google. Each incremental user adds geometric value to the network. As Facebook achieves its goal of building the dominant global networked communications platform, it will begin to leverage its reach and earn its share of global advertising, ecommerce and payment revenues, possibly rivaling Google’s earnings potential. We estimate that Facebook will be worth more than $100 billion by 2015 using the same multiples on Facebook’s forecast 2015 EBITDA as Google is valued at today. More aggressive (but still reasonable) multiples and growth rates would yield values rivaling Google’s market cap of $140+ billion, ex cash.
  • Facebook is worth $50B today: If Facebook is worth $100 billion in 2015, discounting that valuation back to today with a 15% discount rate, gives the company a current value of ~$50 billion. Regardless of the discount rate you use, Facebook offers a very compelling investment opportunity at current prices.
Folks, this isn't your father's prospectus.  Does anyone else find the shrill-shill language off-putting?  Some risks are duly articulated--and describe FB as Google's "frenemy."  I guess that counts as plain English in some demographics. 



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