Business valuation gets an Oscar?

Appraisers will get a kick out of the country's current number 1 hit movie The Social Network.  Not only does it seem to be in line for a good Academy Award showing (no comments about what this says about the film industry in this country!), but it's the first film with a story line driven by valuation issues.

According to the film, Facebook co-founder Mark Zuckerberg is guilty of intellectual property theft and minority shareholder dilution (the lawyers seem to agree).  Though the film never uses terms like cost of capital, or discount for lack of marketability, or market approach, the hard numbers (like $65 million in one case and much more in the other) are thrown around.  And the legal issues are familiar to every appraiser who's worked with a family or closely held corporation--founders rip off partners and brothers and others all the time.

Zuckerberg is now 26 and marketed as the youngest billionaire in the U.S.   It's a fun film.  From a valuation perspective, here are the most dramatic aspects:

  • Regression to the mean. Facebook is rumored to have about a billion in revenues this year, and purportedly went into the black late in 2009--at least that's what all the bloggers who follow this company seem to believe.  Its growth rate has been slowing from 100% to perhaps 40% over the last three years.
  • How much is a brand worth, anyway? The company is valued at $25 billion--even with the market benchmark of several infusions of cash from Silicon Valley investors, how's that for some intangible asset story telling!
  • Remember to do your site visit. As portrayed in the movie, Facebook is only a year or so out of the "doing cocaine in the basement" stage of business development.  How would you feel signing off on your valuation report estimate of total beta for this subject company?