April 28, 2011, 11:45 AM — Does someone know something we don't know?
It's a fair question, given this Reuters story about a "group of Facebook shareholders" reportedly trying to sell $1 billion of shares on the secondary market.
Reuters reporters Lauren Tara LaCapra and Jennifer Saba say this is according to "five sources with direct knowledge of the situation." (That's a lot of sources!)
It would represent one of the largest transactions of Facebook shares to date and points to a growing wariness among early-stage investors and employees who fear Facebook's growth cannot keep pace with its market valuation.
The sellers have lowered their price after previously trying to offload shares at a price that valued the company at $90 billion, which would make Facebook more valuable than Time Warner Inc and News Corp combined. But buyers balked.
Good for the buyers. This is just getting crazy. The truth is, estimated valuations for Facebook have been all over the map. In December we heard Facebook was worth $50 billion. A few weeks later it was $65 billion. In February, secondary market player SharesPost ballparked it at $84 billion.
They can't all be right, and there's no way Facebook's real value could grow so astronomically in such a short time. If you can't assess the actual value of an investment, you're either a fool or greedy to invest.
A smart guy like Tim Draper, founder of venture capital firm Draper Fisher Jurvetson, knows this. He told Reuters this month that he recently turned down an opportunity to buy Facebook shares because he wasn't comfortable with the valuation.
Shrewd investors don't overpay, nor do they invest blindly. That's the province of suckers. And right now anyone trying to dump Facebook shares at valuations of $90 billion (or even $70 billion, as the group currently is hoping to "settle" for) is looking for suckers.
Here's something else that should give pause to anyone thinking of investing in Facebook, either now or when (and if) it goes public: The very real possibility of "Facebook Fatigue." As I wrote recently when discussing the demise of Myspace:
Myspace had an Achilles heel, one shared by many Internet companies, including Facebook: What it offers isn't essential. Fun? Sure. Entertaining? Yes. Interesting? Sometimes. But who really needs Myspace? Do you know any former Myspace power users who feel a void in their lives now that they've moved on? Do you know any former AltaVista lovers who fervently wish for those heady pre-Google days?
Of course not. That's because something better -- or at least preferable -- came along. Plus, the cost of conversion is zero. Why do you think wireless companies force subscribers to sign two-year contracts with hefty early-termination fees?