Facebook on Sale?

Perhaps Facebook is just a toy after all.

BusinessWeek is reporting that employees of the social-networking superstar -- including founder and CEO Mark Zuckerberg and soon-to-be former vice president Matt Cohler -- are selling shares at prices well below what Microsoft (Nasdaq: MSFT  ) paid when it spent $240 million for a 1.6% stake in the company last October.

Apparently, the sales are brokered through specialists whose job it is to connect private-company shareholders with prospective buyers. One such broker, Laurence Albukerk, told BusinessWeek that two investment firms have bought shares at prices that imply a $3.75 billion price tag for Facebook -- a far cry from the $15 billion it was previously said to be worth. (That was also a figure that I -- gulp -- stood behind.)

Insider selling is pretty common stuff in the public markets. Here's a sampling of companies that have seen big insider sales over the past year:

Company

Amount Sold (In Millions)

Oracle (Nasdaq: ORCL  )

$2,234.9

First Solar (Nasdaq: FSLR  )

$343.3

Google (Nasdaq: GOOG  )

$219.3

Salesforce.com (NYSE: CRM  )

$163.8

Morningstar (Nasdaq: MORN  )

$105.4

Source: Form 4 Oracle.

Private companies are different -- especially private companies that have received venture-capital funding, as Facebook has. Stock options act as a margin of safety for venture capitalists. They ensure that funded companies focus on creating a liquidating event such as an IPO or buyout, for only then will their employees' options be worth something.

Facebook, apparently, is changing the rules.

But that may not be bad. The economy stinks right now, and VCs are having an awful time bringing their portfolio companies public. Zuckerberg and Cohler know this, as do all of their employees. Giving them access to resources to raise capital that's otherwise tied up in Facebook -- which could take years to come public -- might be just the sort of benefit that promotes long-term loyalty.

Maybe.

Or maybe too many of Facebook's employees believed their own press as much as I believed it. They might have believed they were a part of the next Google and that neither News Corp.'s (NYSE: NWS  ) MySpace nor iTunes would stand in their way.

But now reality has set in. Social networking, although game-changing, is a hard business to monetize. Even Google says so -- co-founder Sergey Brin said in May of a deal with MySpace that "monetization work we were doing there didn't pan out as well as we had hoped."

My guess is that Facebook, the so-called toy, has the same problem and that employees are diversifying to protect their gains. I'd do the same. Wouldn't you?

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Fool contributor Tim Beyers owned shares of Oracle and Google -- and Google's 2010 LEAP options -- at the time of publication. When he's not typing up articles for Fool.com, you'll find him picking growth stocks for Rule Breakers, which counts Google among its holdings.

Morningstar is a Stock Advisor selection. Microsoft is an Inside Value recommendation. Try either of these market-beating services free for 30 days. There's no obligation to subscribe. The Motley Fool owns shares of Morningstar. Its disclosure policy just sent a Top Friends invite to your Facebook page.


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