Friends With Benefits

By WILLIAM D. COHAN
NYT

Can Goldman Sachs, the profit-seeking missile of high finance, really make money by investing $450 million in Facebook, at a vertigo-inducing price that values the social-networking company at $50 billion?

On first blush, the answer would appear to be no. After all, in May 2009, the company was valued at $10 billion. Last August, Facebook was valued at $27 billion and now it’s $50 billion — for a company with a reported $2 billion in revenue and negligible profits. If General Electric, with 2010 revenue of around $150 billion, traded at a similar multiple of revenue, it would be worth $3.75 trillion instead of $200 billion. Facebook is now considered to be worth more than Time Warner, DuPont and Goldman’s rival Morgan Stanley.

Just last week, Facebook’s shares were said to be trading on a private-market exchange at a valuation of $42.4 billion. Thanks to Goldman’s imprimatur, Facebook’s value increased 20 percent virtually overnight. Can Goldman really expect to squeeze more water from this stone?

Sadly, yes.

(More here.)