Facebook is now worth as much as $33.7 billion based on secondary market transactions, giving the privately held company an implied valuation greater than the market capitalizations of publicly traded internet stalwarts such as Ebay and Yahoo.
Common stock in Facebook is trading as high as $76 a share as investors scramble to get a piece of the company before it files for an initial public offering, which analysts say could be the biggest technology IPO since Google’s $1.67 billion flotation in 2004.
Facebook’s ballooning valuation compared with listed groups such as Ebay and Yahoo , which have market caps of $30.1 billion and $18.3 billion respectively, signals a new dynamic between technology companies and investors.
While Facebook and other successful Silicon Valley companies, such as Twitter, LinkedIn and Zynga, are delaying their IPOs because of perceived weak appetite on the public markets, some investors are not content to wait. They are acquiring stakes in technology companies while they are still private, hoping that their eventual IPOs will send share prices even higher.
Facebook, which is backed by a mix of venture capital and investment firms, has indicated it may remain unlisted until at least 2012. However, employees and investors are free to sell their stock and, in the absence of an IPO, many are doing so as a means to achieve liquidity.
Facebook’s predicament represents a broader trend in Silicon Valley that is creating complications for private companies and upending traditional cycles of investment.
Executives are uncomfortable with Facebook’s rising valuation. People close to the company emphasize that prices on the secondary market are inflated because available shares are scarce and arrived at without transparent knowledge of its financial performance.
Yet US Internal Revenue code mandates that Facebook gives these implied valuations some consideration when the company determines its own value.
“This all adds a level of complexity when assessing what the true value of these companies is,” said Mark Heesen, president of the National Venture Capital Association.
Facebook, which is headed by Mark Zuckerberg, has sought other ways to contain trade in its common stock. As a private company, it must limit the number of shareholders to no more than 500. People close to the company say it remains well below that threshold.
But, in an effort to limit the number of new shareholders, Facebook is exercising its right of first refusal to buy back its own shares, often assigning that right to an existing investor such as Tiger Global, the investment firm.