Facebook: The End of the Gravy Train

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Facebook is no longer on sale.

According to blogger Valleywag, the social superstar's 700 or so employees will not be able to sell stock as had been promised. Writer Owen Thomas quotes an email apparently sent by CEO Mark Zuckerberg to employees, the veracity of which VentureBeat has since confirmed:

I'm writing this note to let you know some bad news. Despite a lot of work, we have not been able to finalize a plan for the employee stock sale we announced in August.

Facebook's response to VentureBeat speaks of how the economy is in the "midst of an incredibly difficult period, and all companies have been affected in some way."

Well ... yeah. But tell me, oh masters of the obvious, what does a rotten economy have to do with a stock redemption program?

We Fools generally counsel against selling in times like these because you're almost guaranteed to lock in losses. But I'm not your dad. I know that investors sell for many reasons. I don't think your broker ought to prohibit you from selling just because my colleagues and I think lots of stocks are selling for bargain-basement prices.

Shouldn't the same be true of Facebook? Ideally, yes, except that the private equity market is far less liquid than the NYSE or the Nasdaq. Which means that well-heeled investors can demand more generous terms than they might were Facebook already public.

And that's exactly what they appear to be doing. Thomas cites an anonymous source "close to potential investors" who says that they're looking to buy either preferred shares a la Microsoft (Nasdaq: MSFT) or common shares at a valuation less than the $4 billion Facebook set for itself.

Essentially, Facebook has the same problem its public peers have: Investors want a deeper margin of safety than is currently available. So, Google (Nasdaq: GOOG), Yahoo! (Nasdaq: YHOO), and MySpace parent News Corp. (NYSE: NWS) are all trading near 52-week lows.

This once-and-future stock redemption isn't just about the economy, Fools. It's about getting proper terms before authorizing sales. Proper terms that, apparently, aren't available right now.

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