Yesterday the Private Equity Data Center released a report presenting the rationale behind Facebook having a $35 billion valuation. This contrasts current share prices which value the company at between $11 and $17 billion. While valuing Facebook is a bit of a parlor game right now, if this model is accurate, Facebook shares are currently trading at a significant discount.
According to Justin Byers of Private Equity Data Center:
Prior to the enforcement of IRC 409A, many companies might have used a default discount such as 80% for the pricing of options. These days with IRC 409A in place, the companies now have to “show their work” when pricing these options. With that being said, we have reviewed numerous option filings by Facebook, and some of those prices of the common listed on these typically fell within a 75% to 80% discount as to the most recent round of Preferred Stock that had been issued. So, where are we going with this? The latest option filing that was filed in January 2010 priced the common at $16.17. If, and this is a big IF, we assume this price falls within a discount range applied to the pricing of some of the previous filings, this would bring the per share value of the latest round of Preferred Stock issued in May 2009 to $83.75. Using that share price and the total estimated fully diluted shares that we have calculated, this gives Facebook, Inc. a value of close to $35 BB. We are not formally saying that Facebook is valued at $35 BB, we are simply throwing another hypothesis into the discussion of valuation for the company.
The rationale makes sense, but ultimately there’s no way to tell exactly how much Facebook’s stock is worth right now. The only way to judge the price is based on what someone is willing to pay for it and right now traders are not willing to pay $83.75 a share. While there’s a good chance the company could see a share price at the time of IPO, it’s not clear when the company intends to go public.