Facebook Frenzy: A Huge Warning for Tech Investors

Nowhere in the Bible or Aztec lore is there mention of Facebook among the signs of the apocalypse. Even so, I can't help wondering whether co-founder Mark Zuckerberg is pushing us ever closer to the end of all things here on Earth. Or, at the very least, the end of all rationality on Wall Street.

That's not a crack against Zuckerberg so much as it is his investors. According to Bloomberg, shares of Facebook are trading hands on private-equity exchange SharesPost at a price that values the company at $82.9 billion.

That's up from $56 billion in December, a 48% gain in a month. Facebook is worth more than Amazon.com (Nasdaq: AMZN  ) , and at today's growth rates, it's on pace to overtake Google (Nasdaq: GOOG  ) within three months. Both companies are either current or potential Facebook competitors.

Absurd? That's too kind a word for what's going on here. Too much demand and far too little supply have conspired to send Facebook's shares to the moon.

Goldman Sachs (NYSE: GS  ) is partly to blame for the frenzy. Bankers there recently helped the social-networking superstar raise $1 billion in fresh overseas capital. Domestic investors were locked out of the round in order to avoid dealings with the Securities and Exchange Commission, which is already on the verge of requiring Facebook to file regular financial reports as if it were a public company.

Facebook's not alone, either. LinkedIn recently filed for an IPO and is seeing its shares traded for an implied valuation of more than $3 billion on SharesPost. That's quite the premium for a company that produced a scant $1.9 million in profits during the first nine months of 2010.

Enthusiasm for Facebook and social networking has yet to taint other deals or industries. Cloud-computing issues such as Akamai are still selling off in the wake of worse-than-expected earnings reports from F5 Networks.

But for Facebook, this frenzy ends only with someone getting hurt. Either private-equity speculators or IPO chasers will be disappointed, broke, or perhaps both. For them, it won't be the apocalypse -- just the financial equivalent.

Now it's your turn to weigh in. Should tech investors care about the speculative frenzy surrounding Facebook? Please vote in the poll below, and then leave a comment to explain your thinking.

Interested in more info on the stocks mentioned in this story? Add Akamai Technologies, Amazon.com, Google, or Goldman Sachs to your watchlist.

Akamai and Google are Motley Fool Rule Breakers recommendations. Google is also a Motley Fool Inside Value pick. Amazon.com is a Motley Fool Stock Advisor selection. You can also try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Akamai and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Google and is also on Twitter as @TheMotleyFool. Its disclosure policy is all for FaceHoo. What about you?


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2011, at 7:39 PM, Waisingrin wrote:

    My take on Goldman's recent maneurverings with Facebook is to take advantage of unsophisticated people, mainly in China, with lots of cash to stash, and overly enamored with big brand names like Goldman and Facebook. Keep in mind, Facebook is blocked by the Great Firewall, so many people there cannot access Facebook, to even know what it's all about. They do have access to the movie "The Social Network" via knock off DVDs. One must wonder if the timing of the movie, and Goldman's move several months after release, is perhaps some orchestrated multi-media tie-in, like McDonald's Happy Meal toys released with Disney movies. The idea would be to pull in the unsophisticated foreign investor clients to this amazing opportunity to buy-in exclusively, as a Goldman Sachs VIP client. "Mr. Wang, congratulations, you have made it. Champagne? It's from France." The guys within Goldman are probably monetizing these crazy valuations with their $500 million of seed money to draw in their Chinese clients. Goldman are probably titrating those limited, exclusive shares right now to earn their 2011 targets.

    I would imagine, with Tunisia and Egypt the way they are, there will be several countries which will be banning Facebook soon.

  • Report this Comment On January 31, 2011, at 2:44 AM, charlieta wrote:

    Anyone know what is happening on the 15th? http://03-15-2011.com/

  • Report this Comment On February 01, 2011, at 12:35 PM, adp306 wrote:

    Facebook is here to stay regardless of the speculation and possible domestic moves that come with it. Goldman sachs might take someones money but thats's because of the craziness revolving around the ipo. When we want to know something we say "Google it". When we want to find someone we say "facebook it". The correlation is there.

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