Facebook common stock valuation jumps 42% on private market

SecondMarket and Santa Monica, California-based SharesPost Inc. are among services that allow current and former Facebook employees to sell shares. Facebook, the most-popular social networking site, may sell stock through an initial public offering in the next 12 to 18 months, said Paul Bard, an analyst at Renaissance Capital LLC, which has specialized in IPO research since 1991.

“The fact that the stock on these private exchanges moved — I'm sure that has to do with the fact that people think a deal is coming sooner rather than later,” said Bard, whose firm is based in Greenwich, Connecticut. At US$21 each, Facebook's common shares are valued at about US$9.5 billion, Oliveri said. Facebook also has preferred shares, which are typically owned by venture capital investors. When companies have IPOs, preferred stock holders can convert their holdings to common shares, allowing them to sell them on the public market.

A Facebook IPO may attract the same level of attention as Google Inc.'s share sale in 2004, Oliveri said. Google sold 19.6 million shares for US$1.67 billion in August 2004, giving the company a market value of US$23 billion. The stock closed at US$576.65 Wednesday on the Nasdaq Stock Market.

“The perception is that that the company is going to IPO, and it's going to be the next kind of Google IPO situation where you're going to have massive interest,” Oliveri said. “Investors are coming out of the woodwork, trying to figure out a way to get exposure.”

Larry Yu, a spokesman for Palo Alto, California-based Facebook, declined to comment. The company said in September that it has more than 300 million users and that it is generating positive cash flow.

In the past 60 days, SecondMarket has handled about a dozen transactions of Facebook shares, with the most recent occurring last week, said Mark Murphy, a SecondMarket spokesman. On SharesPost, buyers have offered US$20 for Facebook shares on the site, up 35 percent from three months ago, the company said. The last transaction was 15,000 shares sold for US$12 each in August, according to SharesPost.

Private companies such as Facebook and Twitter Inc. can use these private markets to gauge how much interest there is in their stock, said Scott Sweet, senior managing partner of IPO Boutique, a Web site in Tampa, Florida, that tracks IPOs.

Facebook Chief Executive Officer Mark Zuckerberg, who started the company in 2004 while he was a student at Harvard University, said in May that he expects the company to have an IPO, though he wasn't focused on it.

“It's something we'll do when we're ready for it,” Zuckerberg, 25, said on a conference call at the time. “It's something we don't see on the immediate horizon.”

A US$200 million investment in Facebook by Russia's Digital Sky Technologies in May is also boosting expectations for an IPO, Oliveri said. At the time of the investment, Digital Sky said it would offer to purchase at least US$100 million of additional Facebook stock from current and former employees whose shares had vested. In July, Digital Sky offered to pay US$14.77 for each common share of Facebook, giving the company a valuation of US$6.5 billion.

Digital Sky Technologies' US$200 million investment, which consisted of preferred stock, valued Facebook at US$10 billion. In 2007, Microsoft Corp. bought a 1.6 percent stake in Facebook that valued the company at US$15 billion.

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