Damodaran and the new “single transaction” value of Facebook
Referring to the big news that Goldman Sachs invested in Facebook, Aswath Damodaran asks, on his blog Musings on Markets: Can you extrapolate from a single transaction amount to an overall value?
“Sure, as long as the transaction is an arms length one and all you are getting in return for your investment is a share of the company’s equity. If, as is common, there are side benefits or side costs that go with the transaction, extrapolation will yield a misleading estimate of value. In the case of the Goldman transaction, there are plenty of reasons to be skeptical.”
Damodaran touches on the same share valuation question for private companies–reviewing financial data, future projections, ownership protections, and references, in a companion paper “Valuing Young, Start-Up and Growth Companies: Estimation Issues and Valuation Challenges.”
So, “is Facebook worth $ 50 billion?” he asks. Read his always entertaining blog post for the answer.