Goldman Sachs’s investment in Facebook this week values the company at 106 times earnings, a price/earnings ratio reminiscent of the dot.com bubble, according to analysis of documents seen by the Financial Times.
In the first three quarters of 2010, Facebook earned $355m (£229m) from $1.2 billion of revenue, or an annual rate of $473m, compared with a valuation of $50 billion.
Goldman Sachs has sold part of its investment on to wealthy clients and is expected to be able to use its relationship with Facebook to pitch for other brokerage services in future, including its anticipated initial public offering (IPO) in 2012.
It is able to sell its remaining investment in Facebook at any time. (article continues below)
However, some commentators have questioned whether the Facebook valuation represents a good deal for Goldman’s clients, other than of course the social networking site itself.
Goldman recently settled with the American authorities and set up an internal business standards committee following its Abacus mortgage-backed security deal in 2007.
The structure of the Abacus deal incurred losses for some of Goldman’s clients and massive profits for others, most notably John Paulson, one of the world’s most powerful hedge fund investors.
Fears of a more general bubble in social networking are developing as LinkedIn, the business network, is rumoured to be planning an IPO for the first quarter of this year.