No frowns at Facebook

Facebook: Stock markets have wobbled of late, but has Facebook’s value really plunged by 35 per cent in just two months? For those unacquainted with Silicon Valley’s quirky financing that would be one conclusion to draw from the social networking website’s latest stock sale.

In May, the company said it sold a 1.96 per cent slice of itself to Russian internet investment group Digital Sky Technologies for $200 million. That implied a value to the entire enterprise of around $10 billion.

Of course, Facebook didn’t go into the details of what DST actually got for its money, saying only that it bought preferred shares. Facebook’s still keeping mum on the details. But the company’s latest announcement gives some color on the subject.

DST is now offering to buy $100 million of Facebook common shares from employees. The price it’s paying - $14.77 a share - gives an overall valuation of $6.5 billion to the company.

THE implication, then, is that whatever extra rights are attached to the preference shares they’re worth paying a premium of more than 50 per cent to obtain.

That may befuddle ordinary investors, but in Silicon Valley it’s sort of standard operating procedure. By giving certain privileges to different classes of shareholders – such as the right to cash out first in an IPO, or a seat on the board – tech financiers can offer differing valuations of the same enterprise.

So in just the past two years, that’s meant Facebook has sold stock in sales that valued the company at $15 billion (in a deal with Microsoft), $10 billion in May and now $6.5 billion. But while that descending order of values may sound worrisome, don’t cry for Facebook. It’s still more than 13 times the company’s sales, on which it has yet to make a profit.