Referring to the big news that Goldman Sachs invested in Facebook, Aswath Damodaran asks, on his blog Musings on Markets: Can you extrapolate from a single transaction amount to an overall value?
“Sure, as long as the transaction is an arms length one and all you are getting in return for your investment is a share of the company's equity. If, as is common, there are side benefits or side costs that go with the transaction, extrapolation will yield a misleading estimate of value. In the case of the Goldman transaction, there are plenty of reasons to be skeptical.”Damodaran touches on the same share valuation question for private companies--reviewing financial data, future projections, ownership protections, and references, in a companion paper “Valuing Young, Start-Up and Growth Companies: Estimation Issues and Valuation Challenges.”
So, “is Facebook worth $ 50 billion?” he asks. Read his always entertaining blog post for the answer.