So I noticed that GSVC is down 20% into the $15 range as they priced the follow-on offering at $15.00/share. The stock is trading now around $15.80/share, down from $19.50 yesterday.
Why did they price this so low below the closing price? The registration statement had an assumed price of $18.75 or something like that, so I'm not sure why they priced this so low. Maybe they feared problems (lawsuits) down the line if they sold stock at more than a 40% premium to net asset value per share (NAV).
Anyway, I don't intend to update things for every little detail, but since this is a big event I figured I should update the situation here.
GSVC sold 6 million shares at $15.00/share. Gross proceeds were $90 million but since the gross spread (underwriting fee/sales load) was 7.49%, net proceeds to GSVC was $83.3 million.
So before the offering, there was 5.52 million GSVC shares outstanding and a NAV per share of $13.26.
Since the stock was offered at above NAV, this was *accretive* to NAV, which is good for current shareholders (but it is dilutive to new buyers who buy stock on the offering since they are paying *more* than NAV).
Let's see how this changes the structure at GSVC:
New shares outstanding: 11.5 million
New NAV: $156.5 million
New NAV/share: $13.61
So this deal increased the NAV from $73.2 million to $156.5 million, and NAV/share from $13.26 to $13.61.
I use the September 2011 quarterend NAV of $13.26. The registration statement included an unaudited estimated NAV/share as of the end of December 2011. This was a range of $12.80 - $12.95/share, but to be generous, in my analysis I will keep using the higher September 2011 NAV figure.
So the offering, at $15.00/share was at a 16% or so premium to the December-end estimate.
What does this mean for GSVC as a Facebook play?
As far as we know, they still own 350,000 shares of Facebook at a cost of around $30/share. $30/share already values Facebook at $75 billion. So if the IPO came off at $100 billion, that's a gain of $3.5 million for GSVC. But now that NAV is $156.5 million, the impact on GSVC is obviously much smaller. FB will go from being 14% of the portfolio to more like 7%.
Here is a table of what GSVC NAV/share would be depending on Facebook valuations (I use 2.5 billion shares outstanding for FB; I think I used 2.3 billion in my last post):
Facebook Facebook GSVC
value price/share NAV/share %gain
$75 billion $30 $13.61 (current NAV)
$100 billion $40 $13.91 +2.2%
$150 billion $60 $14.52 +6.7%
$200 billion $80 $15.13 +11.2%
$250 billion $100 $15.74 +15.7%
$300 billion $120 $16.35 +20.1%
So from the above, you can see that for every $50 billion increase in the valuation of Facebook, GSVC NAV/share only increases $0.61/share.
So again, all else equal, a GSVC stock price of $15.00 is already discounting a $200 billion valuation for Facebook! Might Facebook be worth much more? Possibly. But even with Facebook at $300 billion, GSVC NAV would only go up to $16.35/share, still far below where it has been trading recently.
GSVC may use the proceeds from this offering to buy more Facebook shares, of course, but at this point they will be paying much higher prices since the IPO is getting much closer.
The other point to keep in mind is that even if GSVC doesn't deploy this new capital right away, they will still charge the 2.0% base management fee. Total annual expenses for GSVC is 3.4% or so. I typically use a 10% discount rate to value things, so this, to me, would merit an almost immediate 34% *discount* to NAV unless management proves over time that they can increase NAV at better than the market. But the starting point for me begins at a 34% discount and then I figure out where we can go from there.
In this case, there is a special situation called Facebook, and possibly Twitter. But the above shows that at least for Facebook, the stock price way more than discounts a complete, out-of-the-ball-park, grand slam.
Will Twitter be as hot? Will they find other 'hits'? I really have no idea but I would prefer to play elsewhere.
By the way, this is not a shortable stock. Of course I tried when it got over $20/share, but the short got rejected. Oh well... This is why markets can get inefficient sometimes.
Showing posts with label Facebook. Show all posts
Showing posts with label Facebook. Show all posts
Friday, February 10, 2012
Thursday, February 2, 2012
So What is Facebook Actually Worth?
So like everyone else in the financial world (OK, maybe not) I went through the Facebook S-1. I don't normally look at these internet/technology businesses especially when it is really hyped and there is no chance that this thing will come out undervalued.
But I do think Facebook is an exceptional company so I decided to take a look. They truly are onto something and this is way more interesting to me than other recent offerings such as Zynga, Groupon or LinkedIn. That doesn't change, however, the fact that this stock when listed will probably not be a good buy.
Anyway, again, like everyone else in the blogosphere I will take a shot at valuing this thing (even though we know that that is hard to do!).
First of all, the price talk on the IPO is a valuation of $75 - 100 billion. We now know from the S-1 that sales was $3.7 billion, operating income was $1.76 billion and net income was $1.00 billion in the full year ended December 2011. So on those figures, the valuation of the stock at $100 billion is 27x revenues and 100x p/e.
That is pretty expensive, but not too bad given these internet business IPO's. Also, we looked at AMZN recently and that's trading at 100x p/e without anywhere near the profitability of Facebook (FB). AMZN has razor-thin margins while FB has an operating margin of close to 50% and a net margin of close to 30%.
So on that alone, one can argue that FB is completely reasonable at 100x p/e. Why not?
OK, that doesn't mean I would be interested in FB at 100x p/e, though. I am just observing that the market can support such a valuation.
Some Basic Figures
Anyway, FB is all over the place so I won't jot down all the details, but here are some basic facts about Facebook:
Industry Data
This is some data from the S-1 that I will jot down for future reference:
So What is Facebook Worth?
OK, so let's get down to the most important thing. People seem to be focused on who has how many shares and how many billionaires will come out of this, how much in salary the CEO makes, what he is worth and all that.
But that stuff is not really all that relevant. Neither are historic valuations of FB. FB includes some fair value analysis to value the RSU (restricted stock units), but they lean hard on the market transaction based approach to valuation so they just use the secondary market traded price (in the December 2011 quarter, they used $29.73/share as the fair value of FB's class B shares).
That's not new information because we already knew the prices realized on the private secondary market.
Price-to-sales and p/e ratios on 2011 results are fine too, but this totally depends on growth rates. How do you project future growth rates for FB?
End of Superhigh Growth Rates?
So the year-over-year growth in monthly average users has come down to more normal levels as seen below. Growth rate was +500% in 2004, down to 100% in 2006, up to 150% in 2008 and then trending down to +40% last year.
Market Potential
So let's look at how much each monthly average user generates in revenues and profits for FB. This isn't so hard as the data is all there in the S-1.
Below is the trend in monthly average users and revenues. Since the growth in MAUs were so high, I used the average MAU per year to calculate the revenues per MAU. For the average MAU for the year, I just added the end of year figure to the end of year figure for the previous year and divided by two.
From this, we see that MAU generates revenues of around $3.50/MAU. This includes the low figures in 2004 and 2005 which is arguably the upstart stage so may not be good data points. Since 2006, revenues per MAU has ranged in the $3.00 - $5.00 area.
We can be generous and use the high end, say, $5.00/MAU in revenues.
Let's cross check this with more recent quarterly figures. Quarterly MAUs and revenues are also included in the S-1 and here is the data:
From this, it seems that the average revenues/MAU is stable in the range of $3.00-5.00 range, or closer to $5.00/MAU in the most recent year. So $5.00/MAU seems to be a reasonable figure to use.
What is the profitability of this revenue?
For the years 2009 - 2011, profit margins were:
2009 2010 2011
Operating margin 34% 52% 47%
Net margin 29% 31% 27%
So it seems the profit margins are pretty stable at 50% or so on the operating margin and 30% or so net margin. So let's use that for our valuation.
FB said that there are more than 2 billion internet uses in the world. So let's say that FB succeeds in signing up as users every single internet-connected person on the planet. That would take MAU up to 2 billion.
So FB makes $5.00/MAU, so that's a revenue of $10 billion per year and with a net margin of 30%, that's a net income of $3 billion. At a $100 billion valuation, FB is trading at 10x revenues and 33x net income.
So even if FB achieves 100% penetration of all internet users on the planet, (at which point the projected revenue and profit growth at FB would be a lot lower), FB would still be valued at 33x P/E. Cheap? I don't think so.
OK, so let's take this a bit further. FB says that in the U.S. (and Canada), they have a 60% penetration rate of internet users. Internet usage in the U.S. is around 80%. The MAU in the U.S. and Canada is 179 million and the total population of U.S. and Canada is 347 million.
So the FB penetration of the population is around 50%. This makes sense: 80% internet connection rate and 60% FB penetration rate = 48% or so.
From here we can take a big leap and assume that FB reaches the entire global population to the same extent it reaches the U.S. population (which is of course impossible given the low internet penetration rate today globally compared to the U.S. and other factors that will prevent FB from reaching as many users elsewhere than in the U.S.).
There are 6.8 billion people in the world today, and with a 50% penetration (FB reaches half the global population), that's 3.4 billion MAUs.
At $5.00/MAU, that's potential revenue of $17 billion. With a 30% net margin, that's $5 billion in net earnings potential. At a $100 billion valuation, FB is still trading at 5.9x revenues and 20x potential earnings! That's with FB conquering the whole entire world!
For reference, below is the table of internet usage globally:
For reference, FB says that their internet user penetration rates are as follows:
Conclusion
Like Amazon, I love Facebook and think it's a really great way to find friends and keep up with them. I use it all the time. But from the above analysis, it seems that FB is trading at 33x P/E ratio even if they penetrate every single internet connected user today (which is not a forgone conclusion) and at 20x P/E ratio even if they conquered the whole entire world today (which is impossible in the near future, of course).
This seems to suggest that the market at $100 billion valuation is pricing in *all* potential for FB, at least based on the current business model.
Does this mean that FB is a short? No. FB seems to be so hot that I wouldn't be surprised if it rallied for quite a bit even after getting listed at $100 billion or more. The user base would certainly be potential investors and can take the stock price way up over rational valuation. Shorting something like this is a good way to get steamrolled.
Also, keep in mind that the above analysis doesn't take into account things FB can do to increase revenues per MAU, new businesses, possible acquisitions etc.
The above maximum potential valuation only considers what FB is doing now and increasing revenues and profits solely by increasing MAUs.
I remember during the internet bubble; many analyzed Amazon and said that the stock price more than discounts Amazon's winning of the entire book and CD market. The stock price was overvalued even if you assume Amazon takes 100% of those markets. The flaw with that analysis is that Amazon went global, and went beyond books and CDs.
This is certainly possible with FB. FB may expand into media and other areas. They have created a great platform with a huge population of users. There is probably a lot of potential to generate revenues from this.
However, Yahoo too has a lot of users but has failed to monetize much of their traffic so it doesn't mean the FB can easily increase revenues per MAU.
The above analysis is by no means the final analysis. It's just one way to look at this stock with what we know now, a sort of sanity check.
But I do think Facebook is an exceptional company so I decided to take a look. They truly are onto something and this is way more interesting to me than other recent offerings such as Zynga, Groupon or LinkedIn. That doesn't change, however, the fact that this stock when listed will probably not be a good buy.
Anyway, again, like everyone else in the blogosphere I will take a shot at valuing this thing (even though we know that that is hard to do!).
First of all, the price talk on the IPO is a valuation of $75 - 100 billion. We now know from the S-1 that sales was $3.7 billion, operating income was $1.76 billion and net income was $1.00 billion in the full year ended December 2011. So on those figures, the valuation of the stock at $100 billion is 27x revenues and 100x p/e.
That is pretty expensive, but not too bad given these internet business IPO's. Also, we looked at AMZN recently and that's trading at 100x p/e without anywhere near the profitability of Facebook (FB). AMZN has razor-thin margins while FB has an operating margin of close to 50% and a net margin of close to 30%.
So on that alone, one can argue that FB is completely reasonable at 100x p/e. Why not?
OK, that doesn't mean I would be interested in FB at 100x p/e, though. I am just observing that the market can support such a valuation.
Some Basic Figures
Anyway, FB is all over the place so I won't jot down all the details, but here are some basic facts about Facebook:
- 845 million monthly average users (+39% yoy)
- 483 million daily average users (+48% yoy)
- 2.7 billion likes and comments per day
- 250 million photos uploaded per day
- 100 billion friendships
- 3,200 total employees
Industry Data
This is some data from the S-1 that I will jot down for future reference:
- 2010 worldwide advertising spending was $588 billion
- Traditional offline brand advertising (TV, print, radio) was $363 billion (62%)
- Worldwide online advertising spending is projected to grow from $68 billion in 2010 to $120 billion in 2015 (12% of total advertising -> 16% in 2015)
OK, so let's get down to the most important thing. People seem to be focused on who has how many shares and how many billionaires will come out of this, how much in salary the CEO makes, what he is worth and all that.
But that stuff is not really all that relevant. Neither are historic valuations of FB. FB includes some fair value analysis to value the RSU (restricted stock units), but they lean hard on the market transaction based approach to valuation so they just use the secondary market traded price (in the December 2011 quarter, they used $29.73/share as the fair value of FB's class B shares).
That's not new information because we already knew the prices realized on the private secondary market.
Price-to-sales and p/e ratios on 2011 results are fine too, but this totally depends on growth rates. How do you project future growth rates for FB?
End of Superhigh Growth Rates?
So the year-over-year growth in monthly average users has come down to more normal levels as seen below. Growth rate was +500% in 2004, down to 100% in 2006, up to 150% in 2008 and then trending down to +40% last year.
Market Potential
So let's look at how much each monthly average user generates in revenues and profits for FB. This isn't so hard as the data is all there in the S-1.
Below is the trend in monthly average users and revenues. Since the growth in MAUs were so high, I used the average MAU per year to calculate the revenues per MAU. For the average MAU for the year, I just added the end of year figure to the end of year figure for the previous year and divided by two.
From this, we see that MAU generates revenues of around $3.50/MAU. This includes the low figures in 2004 and 2005 which is arguably the upstart stage so may not be good data points. Since 2006, revenues per MAU has ranged in the $3.00 - $5.00 area.
We can be generous and use the high end, say, $5.00/MAU in revenues.
From this, it seems that the average revenues/MAU is stable in the range of $3.00-5.00 range, or closer to $5.00/MAU in the most recent year. So $5.00/MAU seems to be a reasonable figure to use.
What is the profitability of this revenue?
For the years 2009 - 2011, profit margins were:
2009 2010 2011
Operating margin 34% 52% 47%
Net margin 29% 31% 27%
So it seems the profit margins are pretty stable at 50% or so on the operating margin and 30% or so net margin. So let's use that for our valuation.
FB said that there are more than 2 billion internet uses in the world. So let's say that FB succeeds in signing up as users every single internet-connected person on the planet. That would take MAU up to 2 billion.
So FB makes $5.00/MAU, so that's a revenue of $10 billion per year and with a net margin of 30%, that's a net income of $3 billion. At a $100 billion valuation, FB is trading at 10x revenues and 33x net income.
So even if FB achieves 100% penetration of all internet users on the planet, (at which point the projected revenue and profit growth at FB would be a lot lower), FB would still be valued at 33x P/E. Cheap? I don't think so.
OK, so let's take this a bit further. FB says that in the U.S. (and Canada), they have a 60% penetration rate of internet users. Internet usage in the U.S. is around 80%. The MAU in the U.S. and Canada is 179 million and the total population of U.S. and Canada is 347 million.
So the FB penetration of the population is around 50%. This makes sense: 80% internet connection rate and 60% FB penetration rate = 48% or so.
From here we can take a big leap and assume that FB reaches the entire global population to the same extent it reaches the U.S. population (which is of course impossible given the low internet penetration rate today globally compared to the U.S. and other factors that will prevent FB from reaching as many users elsewhere than in the U.S.).
There are 6.8 billion people in the world today, and with a 50% penetration (FB reaches half the global population), that's 3.4 billion MAUs.
At $5.00/MAU, that's potential revenue of $17 billion. With a 30% net margin, that's $5 billion in net earnings potential. At a $100 billion valuation, FB is still trading at 5.9x revenues and 20x potential earnings! That's with FB conquering the whole entire world!
For reference, below is the table of internet usage globally:
For reference, FB says that their internet user penetration rates are as follows:
- more than 80% in Chile, Turkey and Venezuela
- 60% in the U.S. and U.K.
- 20-30% in Brazil and Germany
- Less than 15% in Japan, S. Korea, Russia
- 0% in China
Conclusion
Like Amazon, I love Facebook and think it's a really great way to find friends and keep up with them. I use it all the time. But from the above analysis, it seems that FB is trading at 33x P/E ratio even if they penetrate every single internet connected user today (which is not a forgone conclusion) and at 20x P/E ratio even if they conquered the whole entire world today (which is impossible in the near future, of course).
This seems to suggest that the market at $100 billion valuation is pricing in *all* potential for FB, at least based on the current business model.
Does this mean that FB is a short? No. FB seems to be so hot that I wouldn't be surprised if it rallied for quite a bit even after getting listed at $100 billion or more. The user base would certainly be potential investors and can take the stock price way up over rational valuation. Shorting something like this is a good way to get steamrolled.
Also, keep in mind that the above analysis doesn't take into account things FB can do to increase revenues per MAU, new businesses, possible acquisitions etc.
The above maximum potential valuation only considers what FB is doing now and increasing revenues and profits solely by increasing MAUs.
I remember during the internet bubble; many analyzed Amazon and said that the stock price more than discounts Amazon's winning of the entire book and CD market. The stock price was overvalued even if you assume Amazon takes 100% of those markets. The flaw with that analysis is that Amazon went global, and went beyond books and CDs.
This is certainly possible with FB. FB may expand into media and other areas. They have created a great platform with a huge population of users. There is probably a lot of potential to generate revenues from this.
However, Yahoo too has a lot of users but has failed to monetize much of their traffic so it doesn't mean the FB can easily increase revenues per MAU.
The above analysis is by no means the final analysis. It's just one way to look at this stock with what we know now, a sort of sanity check.
Monday, January 30, 2012
GSVC: Facebook Play Update
Last year I took a quick look at GSV Capital Corp (see here) as it was a play on Facebook.
Now that the Facebook IPO is right in front of us, I thought I should take a look at this thing again and update some figures.
Since the end of the September 2011 quarter, GSV Capital (GSVC) added 125,000 shares of Facebook and now own 350,000 shares which constitutes 14.3% of the net asset value (NAV) of GSVC.
GSVC also added 330,000 shares of Twitter for a total of 735,000 shares owned, which is 16.6% of NAV. GSVC added some other investments, but these are the two that seem to be the most promising from an IPO realization point of view.
Anyway, more details of Facebook will come out soon but for now I googled around and found that it is estimated that around 2.35 billion shares of Facebook is outstanding, and that the recent close of Facebook shares (in the secondary market for private companies) was $34/shares as recently as a week ago.
That gives a valuation of around $80 billion for all of Facebook. The IPO valuation talk is that Facebook will list at a valuation of around $75-100 billion.
At $34/share, GSVC's holdings in Facebook would be worth $11.9 million, versus GSVC's cost of around $10.5 million. That's a gain of $1.4 million or $0.25 per GSVC share. If Facebook was IPO'ed at $34/share and closed unchanged, that means GSVC will get a $0.25 unrealized gain on the Facebook holding, or 1.9% gain in NAV.
Here's the basic info:
If Facebook was listed at a valuation of $100 billion, or $42.55/share, the gain in NAV/share for GSVC would be 6%.
The following is a table of what NAV of GSVC would be given various valuation levels of Facebook. This assumes only the Facebook position and all other holdings unchanged.
GSVC current NAV/share is $13.26/share (as of September-end 2011).
Facebook Facebook GSVC GSVC
valuation Price per share NAV/share NAV gain (%)
$75 billion $31.90 $13.38 +0.9%
$100 billion $42.60 $14.06 +6.1%
$150 billion $63.80 $15.41 +16.2%
$200 billion $85.19 $16.77 +26.5%
In other words, if Facebook was IPO'ed at $75 billion total valuation and then the stock price stayed there, the NAV/share of GSVC would only increase by about 0.9%. That's because GSVC has paid around $30/share for their Facebook investments.
If Facebook comes out at the upper end of the range of $100 billion, that would cause a 6% increase in the NAV of GSVC. If the Facebook IPO came out at $100 billion but then rose sharply after the offering, then the GSVC NAV can go up anywhere from 16% to 27% if the Facebook stock price popped up 50% or doubled (after coming out at $100 billion valuation).
That's not a bad return, of course, on a single event. (I should also mention that the above analysis doesn't take into account that the management company will take 20% of any gains so are pre-incentive fee figures)
But the problem is that GSVC's stock is already trading at $17.26/share, above even the above aggressive scenario where Facebook goes on to a $200 billion valuation after the IPO.
However, this only looks at Facebook. The other 'promising' position is Twitter and some of this exuberance may reflect the potential increased valuation of Twitter and potential IPO.
Groupon (GRPN) is the other promising holding but they had an IPO in November 2011 and the stock price hasn't done too well. The IPO came off at $20/share, closed the first day at $24.90/share and now trades at $19.90/share.
Looking at the Septembet 2011 10Q, GSVC owned 80,000 shares of Groupon at a cost of $2.1 million, or around $26.25/share.
If this is correct, it seems that GRPN was IPO'ed at a price *below* what GSVC paid for the shares in the private secondary market.
(None of the above NAV calculations adjusted for GRPN, but it seems like there is not much of a market-to-market gain or loss in percentage terms as a whole)
The GRPN example illustrates what can go wrong with the GSVC strategy. The private secondary market allows insiders to sell stock in their company to qualified buyers before an IPO, but the prices tend to be very high in this pre-IPO market for big companies close to an IPO. This really takes the 'pop' or potential huge gains out compared to true venture capital firms that get in on the ground floor.
This secondary market is far from the ground floor.
In any case, even though the whole world will be looking at Facebook this week and I can't possibly imagine what I can add to it by looking at it myself, I will take a look and possibly post something if I find anything interesting.
Conclusion
Either way, the GSVC stock price at this point at over $17/share seems to more than discount a huge gain in Facebook post IPO.
I should mention that GSVC did file a registration statement in early January to offer up to 3.6 million share (and up to $50 million). That's a huge offering as GSVC only has 5.5 million shares outstanding currently.
This is usually good news for owners since GSVC seems to be trading at a nice premium to NAV, but one should be aware that such offering would highly dilute the impact of holdings in Facebook and Twitter; they will become a much smaller percentage of the GSVC portfolio. I suppose that's not a big issue now that Facebook is close to an IPO; people will soon be able to buy it on their own in the public market.
But I would be cautious GSVC going forward as it is highly uncertain whether GSVC will be able to find other investments as promising as Facebook; these tend to be very rare as most venture businesses don't pan out too well.
In any case, if you want to play Facebook with GSVC, it doesn't look like a good idea at this point. As a long term holding for people interested in post-venture, pre-IPO tech investing, this may be interesting but I will stay away myself.
Now that the Facebook IPO is right in front of us, I thought I should take a look at this thing again and update some figures.
Since the end of the September 2011 quarter, GSV Capital (GSVC) added 125,000 shares of Facebook and now own 350,000 shares which constitutes 14.3% of the net asset value (NAV) of GSVC.
GSVC also added 330,000 shares of Twitter for a total of 735,000 shares owned, which is 16.6% of NAV. GSVC added some other investments, but these are the two that seem to be the most promising from an IPO realization point of view.
Anyway, more details of Facebook will come out soon but for now I googled around and found that it is estimated that around 2.35 billion shares of Facebook is outstanding, and that the recent close of Facebook shares (in the secondary market for private companies) was $34/shares as recently as a week ago.
That gives a valuation of around $80 billion for all of Facebook. The IPO valuation talk is that Facebook will list at a valuation of around $75-100 billion.
At $34/share, GSVC's holdings in Facebook would be worth $11.9 million, versus GSVC's cost of around $10.5 million. That's a gain of $1.4 million or $0.25 per GSVC share. If Facebook was IPO'ed at $34/share and closed unchanged, that means GSVC will get a $0.25 unrealized gain on the Facebook holding, or 1.9% gain in NAV.
Here's the basic info:
- GSVC NAV: $73.2 million (September 2011 10Q)
- GSVC NAV/share: $13.26 (September 2011 10Q)
- GSVC shares outstanding: 5.5 million (September 2011 10Q)
- Facebook cost basis: $10.5 million (January 6, 2012 registation statement)
- Facebook cost per share: $30/share (Total cost basis divided by total number of Facebook shares owned by GSVC)
If Facebook was listed at a valuation of $100 billion, or $42.55/share, the gain in NAV/share for GSVC would be 6%.
The following is a table of what NAV of GSVC would be given various valuation levels of Facebook. This assumes only the Facebook position and all other holdings unchanged.
GSVC current NAV/share is $13.26/share (as of September-end 2011).
GSVC NAV According to Facebook Valuation:
Facebook Facebook GSVC GSVC
valuation Price per share NAV/share NAV gain (%)
$75 billion $31.90 $13.38 +0.9%
$100 billion $42.60 $14.06 +6.1%
$150 billion $63.80 $15.41 +16.2%
$200 billion $85.19 $16.77 +26.5%
In other words, if Facebook was IPO'ed at $75 billion total valuation and then the stock price stayed there, the NAV/share of GSVC would only increase by about 0.9%. That's because GSVC has paid around $30/share for their Facebook investments.
If Facebook comes out at the upper end of the range of $100 billion, that would cause a 6% increase in the NAV of GSVC. If the Facebook IPO came out at $100 billion but then rose sharply after the offering, then the GSVC NAV can go up anywhere from 16% to 27% if the Facebook stock price popped up 50% or doubled (after coming out at $100 billion valuation).
That's not a bad return, of course, on a single event. (I should also mention that the above analysis doesn't take into account that the management company will take 20% of any gains so are pre-incentive fee figures)
But the problem is that GSVC's stock is already trading at $17.26/share, above even the above aggressive scenario where Facebook goes on to a $200 billion valuation after the IPO.
However, this only looks at Facebook. The other 'promising' position is Twitter and some of this exuberance may reflect the potential increased valuation of Twitter and potential IPO.
Groupon (GRPN) is the other promising holding but they had an IPO in November 2011 and the stock price hasn't done too well. The IPO came off at $20/share, closed the first day at $24.90/share and now trades at $19.90/share.
Looking at the Septembet 2011 10Q, GSVC owned 80,000 shares of Groupon at a cost of $2.1 million, or around $26.25/share.
If this is correct, it seems that GRPN was IPO'ed at a price *below* what GSVC paid for the shares in the private secondary market.
(None of the above NAV calculations adjusted for GRPN, but it seems like there is not much of a market-to-market gain or loss in percentage terms as a whole)
The GRPN example illustrates what can go wrong with the GSVC strategy. The private secondary market allows insiders to sell stock in their company to qualified buyers before an IPO, but the prices tend to be very high in this pre-IPO market for big companies close to an IPO. This really takes the 'pop' or potential huge gains out compared to true venture capital firms that get in on the ground floor.
This secondary market is far from the ground floor.
In any case, even though the whole world will be looking at Facebook this week and I can't possibly imagine what I can add to it by looking at it myself, I will take a look and possibly post something if I find anything interesting.
Conclusion
Either way, the GSVC stock price at this point at over $17/share seems to more than discount a huge gain in Facebook post IPO.
I should mention that GSVC did file a registration statement in early January to offer up to 3.6 million share (and up to $50 million). That's a huge offering as GSVC only has 5.5 million shares outstanding currently.
This is usually good news for owners since GSVC seems to be trading at a nice premium to NAV, but one should be aware that such offering would highly dilute the impact of holdings in Facebook and Twitter; they will become a much smaller percentage of the GSVC portfolio. I suppose that's not a big issue now that Facebook is close to an IPO; people will soon be able to buy it on their own in the public market.
But I would be cautious GSVC going forward as it is highly uncertain whether GSVC will be able to find other investments as promising as Facebook; these tend to be very rare as most venture businesses don't pan out too well.
In any case, if you want to play Facebook with GSVC, it doesn't look like a good idea at this point. As a long term holding for people interested in post-venture, pre-IPO tech investing, this may be interesting but I will stay away myself.
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