Facebook Insiders Drive Up Company's Value Before IPO

Facebook's roughly $100 billion value seems like that of a publicly traded company, due to private marketplaces where early investors are cashing out in weekly auctions.

Facebook’s roughly $100 billion value seems like that of a publicly traded company, due to private marketplaces where early investors are cashing out in weekly auctions.

The latest auction of Facebook stock saw prices as high as $44 per share but closed at $42 apiece on SharesPost yesterday, giving the social network an implied value of $98.7 billion to $105 billion, the former based on 2.35 billion shares outstanding and the latter and on 2.5 billion shares.

A similarly sized auction began on SharesPost this morning: 125,000 shares of common stock, with a reserve price of $38.00 apiece and a minimum required investment of $100,000; the bidding closes at 5 pm on February 29, the same day as Facebook’s first ever marketing conference in New York.

The target value Facebook reportedly set for its initial public offering was $75 billion to $100 billion.

According to a report by Bloomberg, there are currently more than 1,000 Facebook shareholders, while most companies usually have just 50 to 100 just prior to their IPOs.

Bloomberg cited U.S. Securities and Exchange Commission rules, saying insiders and investors with at least $1 million of net worth or $200,000 in annual salary are eligible to buy shares on private marketplaces.

Firsthand Technology Value Fund Portfolio Manager Kevin Landis told Bloomberg, “Facebook is a blue-chip stock, and it’s not even public yet.”

And Barry Ritholtz, chief executive officer of equities research firm FusionIQ, added that Facebook’s initial public offer has been reduced to more of a secondary offering with all of this private market trading. He said:

The people buying now at the IPO price are presuming there’s lots of upside. I’m skeptical. There’s a lot of smart money agitating for the highest possible valuation, and they don’t necessarily have the investing public’s best interest at heart.

Pluris Valuation Advisors Vice President Ori Bash agreed, telling Bloomberg 2011 IPOs traded at 25 percent to 30 percent below their IPO prices, and saying:

If these private market trades are truly reflective of Facebook’s valuation, there’s a possibility that demand for the IPO shares could drive it even higher than its anticipated $100 billion valuation.

So, who will win out in the end? Apparently, those who were among the first to acquire Facebook stock, including hundreds of the social network’s employees.

Private securities broker Larry Albukerk told Bloomberg that Facebook is:

…realizing full value at the IPO, which is the goal of all companies. They don’t want to leave money on the table. Do the RSU (restricted stock unit) holders and current shareholders benefit? Absolutely.

Lead image courtesy of Shutterstock.