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HOT TOPIC Twenty-Three Year-Old Facebook Founder worth $5 billion

In your opinion, will Facebook.com be around in 5 years?

  • Yes

    Votes: 22 64.7%
  • No

    Votes: 12 35.3%

  • Total voters
    34

WheelsRCool

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Aug 12, 2007
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WHEW!!!! Talk about some cash!!

http://news.aol.com/newsbloggers/20...rg-the-new-bill-gates/?ncid=NWS00010000000001

And take note of the part where Yahoo offered him $1 billion, which he turned down (!?!?!?!?!?!?!?!?!) to start a bidding war between Google and Microsoft, resulting in him now being worth $5 billion, on paper anyhow.

I sure hope he is smart enough to diversify his assets, otherwise a market downturn could erase all that wealth (one dude worth $10 billion during the dot-com ear went down to $100 million net worth during the bust).
 

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CRBFL

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Oct 9, 2007
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Yeah a read an article in the paper about it this morning. I was going to post it here, but I figured someone already had. That's a lot of money. It'll be interesting to see how this plays out.
 

Peter2

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Aug 2, 2007
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He is never going to be able to cash out anything close to that number.
 

Peter2

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Aug 2, 2007
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How so? Do you mean legally?

I'm pretty sure he is not even a millionaire. That valuation is just stupid fiction and will never translate in to real life. My guess is that they could get $3 billion for the company today, and that is waaaaaaaaaay to high for a company with that kind of revenue and profit.

Mark would get about $900 million of that. Not a bad amount, but far from $5 billion, however it could go the way of Friendster and be worth a fraction of these numbers very quickly.
 

Peter2

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Aug 2, 2007
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$900 million, the poor guy.... :D

What do you mean you don't think he is a millionaire though...?

He is a millionaire on paper, but I don't think he has cashed out anything, so it's not like he could buy a $30 million home today.
 

CRBFL

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Oct 9, 2007
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Social networking sites are unpredictable, so much of it is trend based. I think he is rather foolish for not taking the billion and running. But like I said it'll be interesting to see how it plays out.
 

imirza

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Jul 29, 2007
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Facebook is the real deal. Trust me. Advertisers can reach out to 100s of millions of people via this social networking website. It has a wider reach than any other medium. Think how much advertisers will pay for spots on FB. Zuckerberg is going to keep his billions and more. He's the 21st century Bill Gates. This may sound crazy but, I believe he will be richer than Gates in a few years.

People today spend more time online than watching TV. The internet is bigger than TV. FB is the internets top dog. Worth every penny. You have millions of people who sign into Facebook every single day and spend hours. Imagine how much advertisers will pay to reach these people ? Imagine how many goods and services you can sell via FB. Facebook has it own economy with people being able to buy gifts to post on their friends profile pages. Its crazy. U guys need to join FB and see for yourself.

Peter2, I recommend you sign up on FB and you will see what I mean.
 

Yankees338

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Jul 24, 2007
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I agree with you imirza. Also, advertising can be made even more valuable because of the information provided by users such as interests and geographical locations. I've been a user for over a year. In that time, I've seen the evolution from the simple, old-school style Facebook to the new Facebook. The new Facebook offers many new features including the ability to create applications which offer the opportunity for revenue right there. Additionally, advertisements have become increasingly more common. During this time, membership has continued to increase and I've seen no signs of things slowing down. It is very well run and organized; they've done nothing to shun people away.
 

Peter2

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Aug 2, 2007
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Advertisers can reach out to 100s of millions of people via this social networking website.Think how much advertisers will pay for spots on FB. Imagine how much advertisers will pay to reach these people ?

Advertisers are not paying very much to advertise on FB, as evidenced by the very low revenue.

I have been online for 12 years and have seen plenty of HUGE things tank completely. There will soon be something else that is bigger and better than FB.
 

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MJ DeMarco

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He is a millionaire on paper, but I don't think he has cashed out anything, so it's not like he could buy a $30 million home today.

He did cash out and experienced a liquidity event -- 1.6% of his shares (which are privately owned) -- this was his liquidity event, his sale - $240M. As the article states,

"Rapidly rising Internet star Facebook has sold a 1.6 percent stake to Microsoft Corp. for $240 million, spurning a competing offer from online search leader Google."

Microsoft has to pay $240M and as far as I know, it doesn't go to Facebook, it goes to the founder(s) who sold shares - he is liquid that amount at least until the IRS hits him for the capital gains on it.

In fact, the only way that the shareholders (including the founders) make any money is if there is a liquidity event -- a public offering, a private buy-out, a merger, etc.

This acquisition was a private buy-out, a partial liquidity event of 1.6%. If you sell X% of your company, you receive a "liquidity event" as the proceeds goes to the founders. This wasn't a $240 million "investment" or "funding" - it was a sale of privately held shares.

That makes Zuckerberg worth 240M liquid and 15B illiquid.
 

Peter2

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That makes Zuckerberg worth 240M liquid and 15B illiquid.

Not even close. He does not own 100% of the company.

Either way, these type of sites are no different than night clubs. They are only popular for a short time until the next best thing is coming along.
 

MJ DeMarco

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Not even close. He does not own 100% of the company.

Either way, these type of sites are no different than night clubs. They are only popular for a short time until the next best thing is coming along.

$240,000,000 X (His ownership stake) = His liquid.

Im not privy to his ownership stake, but I'm sure it was more than 50%.

$120M isn't exactly pocketchange.

Point I'm making is: A 1.6% sale was a liquidity event that would be substantial to anyone, especially a kid in his early 20's.

Microsoft doesn't pay $240 million and that money goes no where, or is put into some special account - it goes to whomever sold the shares. As far as I know, Zuckerberg was the primary shareholder.
 

MJ DeMarco

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I think you're wrong on this one MJ...

According to Microsoft during today's conference call, the investment was in an "equity stake in Facebook's next round of financing at a $15 billion valuation":

http://seekingalpha.com/article/51455-microsoft-facebook-partnership-announcement-call?source=yahoo

Who knows...perhaps it was Zuckerberg's shares that got sold, but there's no indication that's the case from what's been covered publicly.

Thx JScott althought I wouldn't say wrong (wrong in this scenario), but more like ill-informed! :smxB: None of the articles I read stated "equity stake" (and I looked for it) so in light of this information, the original suppositions are correct and makes this an entirely different story - then the $240M goes into company coffers instead of founder's pockets. What I was saying wasn't incorrect - just incorrect for this particular acquisition.
 

Russ H

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OK, let me start by saying that I'm a compleat idiot when it comes to net-based stuff.

I did happen to have a client whose company was bought by Nortel for 1M shares of Nortel.

This was during the great Nortel upswing. When I left for Paris and Budapest to study architecture for the opera house I was building on his property (no lie), Nortel was trading between 40 and 80 a share (I can't remember where it was).

He was holding onto the stock b/c in a few months, he'd be able to cash out at a much lower tax rate.

By the time I got back from Europe, Nortel was trading in the 20s, and just kept going south.

So I actually knew someone who was worth over $80M one year, and next to nothing the following year (when you have $80M, committing to $5-8M in debt is no big deal-- until your net worth slides down to $8M).

Great guy, BTW.

I don't think I would have handled it as well as he did. When I asked him why he rode it down, he said, "Because I was stupid. I played the markets for years, so I knew exactly what was happening. Problem was, I stopped playing by the rules I'd learned and started believing my own b*llsh*t".

As I said, quite a guy. I have no doubt he's on his way back up (this was 6 years ago).

MJ, from what I have read (very little, to be honest), here's how the math would go (somebody PLEASE tell me I'm wrong here-- PLEASE! :) ):

1. Mark Zuckerberg owns about 30 percent of the company (not sure if my sources are the same as Peter's-- prob not-- but that's the # I get).

2. From what I read, it's an Equity investment, not a cash deal. An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gain as the value of the stock rises (Kinda like my Nortel guy). There may be some very specific rules/regs about anyone cashing out the stock options on this for months-- or even years. Again, I'm preaching to the choir here-- most of you know WAY more about this stuff than I do (I'm a RE guy-- I deal in *dirt* ;))

3. $240M * 30% = $72M in stock options (when he is able to liquify any of that, I don't know).

$72,000,000 in stock options is still pretty slick-- but it may hinge on Facebook performing at a certain level, or the options are reduced in kind or even pulled altogether (I could not find the particulars of the deal).

Microsoft is a smart company, with lots of assets/cash. As I see it, their buy in was not a valuation of the company as a whole (which is the $15B figure you see in all silly media pieces).

Since they were already huge advertisers on Facebook, this was a sweet deal for them. I'm sure it gives them some rights to ads or access to account info-- both worth big $$ to MS.

So how did I do? Do I have a cranium-rectal insertion? Or did I get the gist of it right?

-Russ H.
 

Andrew

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Aug 8, 2007
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Here is what I think about Facebook.

First, advertising. I heard a lot about it not being a good deal. I tried it out, the traffic is high quality. Just today I was looking at one of my Google ad campaigns and noticed that what appears to be a third-party Facebook application was sending me the best converting traffic of the day. I am not over-paying for any of my advertising. This tells me that Facebook has enormous room for boosting their advertising revenue.

Facebook may very well turn out to be "the Google" of social networking web sites. A lot of search engines came before Google. Other than Yahoo, they are all history. Google got it right, at the right time (post-dot com bust.) Facebook is doing a lot of things right and users are happy. The same can not be said of either Friendster or Myspace.

If Facebook does stick, that $15 billion isn't a crazy number by any stretch.
 

FT1

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Aug 15, 2007
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He owns 1/3, which means he just pocketed $80,000,000.00 cash, and has a net worth of $5 Billion, at age 23. If Facebook's value dropped by 2/3, he'd still be a billionaire. That dude is sitting pretty right now and i'm pretty sure he's not worrying about his billions being on paper.
 

FT1

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Aug 15, 2007
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Likewise, Facebook most probably couldn't find another company(s) to purchase the other $14.76B of it's stock anytime soon (do you think they could?).

By the way, it's also important to note that when you use the phrase, "on paper," it implies an unrealized gain. In the case of an investment valuation without any true financial backing (like in this case where we have a $15B valuation without $15B actually existing), there is no realized or unrealized gain.

So, even saying he's a billionaire "on paper" would be incorrect.

At best, since he controls about 1/3 of the $240M investment, he has $80M "on paper."

First, the article said: "The deal makes geeky twenty-three-year-old Mark Zuckerberg, at least on paper, worth $5 billion."

If the valuation is meaningless, feel free to take that up with the author of the article. Furthermore, I never said they could sell the company for $15 Billion. My comments were based solely on the article.
 

Russ H

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FT1-

You need to hear what some of us are saying.

Please.

A simple analysis of the news will tell you which account is more accurate, and which is overblown hyperbole.

YOU are the one who is responsible for believing what you read. Please don't blame it on the article.

-Russ H.
 

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Russ H

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JScott-

Thanks for your example.

I'm still waiting for any of our resident internet gazillionaires (those who have actually sold web property) to tell me my assessment was incorrect.

All quiet so far . . .

-Russ H.
 

MJ DeMarco

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JScott-

Thanks for your example.

I'm still waiting for any of our resident internet gazillionaires (those who have actually sold web property) to tell me my assessment was incorrect.

All quiet so far . . .

-Russ H.

From what I gather based on the other articles provided by Jsctt, the $240M goes into the company's coffers as an investment to fund growth. Zuckerberg doesn't see any of it. I don't think stock options have anything to do with it, but I could be wrong.

What I am curious though is this ... the tax treatment?

Assuming Zuckerbergs portion was $80M, does that increase his basis? Is that $80M taxable even though it stays with the company and is more liken to a capital contribution?

If you were Zuckerburgs CPA, how do you handle this transaction?
 

Russ H

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if the equity is part of the company, which is independent of the owners' share of the equity (i.e., no tax implication on the owners, but definitely on the company).

This would be my guess as well.

And to my best knowledge, companies are taxed on earnings, not estimated worth.

-Russ H.
 

Rawr

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Very nice write up J, makes it much easier to understand.

Correct me if I am wrong, someone must own at least 2% of the shares to be constituted as an owner - so it would be interesting to see what perks MSFT gets from this.

In one of my classes yesterday we tried to calculate how much Bandwith Myspace needs every month. It turned out that it will take about 20-30 MILLION per MONTH to keep it running. That was a surprise!
 

piranha526

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Aug 20, 2007
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Zuckerberg is going to keep his billions and more. He's the 21st century Bill Gates. This may sound crazy but, I believe he will be richer than Gates in a few years.

You are mistaken here. The Google guys are the next Bill Gates(s).
Microsoft is forced upon user and Facebook is a choice. Could be a here today, gone tomorrow story (with a blink of an eye).

Microsoft wasn't and isn't going anywhere fast because you MUST use the software. This will change as time moves forward but Facebook is not a must. A new Zuckerberg could appear tomorrow and take every one of his users.

Peopel have been trying to do this to Gates for 20 years and it still hasn't worked!
If I was a betting man, The Google guys are the ones that will make Microsoft and Gates look like a mild success, not Facebook.
 

M-M

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Aug 27, 2007
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OT: Russ, I wanted to send you a PM, but can't. What car is in your avatar?
 

Russ H

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What car is in your avatar?

It's an FFM GTM.


Since I'm more into performance than svoopy doopy lines, I'd buy an Ariel Atom before I got one of these.

But the GTM is serious eye candy for me. I just like to look at it (I feel the same way about my classic Mercedes 280SE).

I look at cars the same way some folks look at sculpture, or paintings.

Comes from growing up in Detroit, I s'pose. :)

If I did get a GTM, I'd have a professional race shop (like Roush) build it for me. So it would be a one of a kind, not a "kit car".

OK, back to Facebook being worth . . . what? Hundreds of dollars? ;)

-Russ H.
 

WheelsRCool

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Aug 12, 2007
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Very interesting discussion guys; I have some questions from all this, regarding the discussion and also what Russ mentioned about that guy he knew whose $80 million net worth dropped off real fast:

1) If you build up a business, then say it gets sold for shares in another company, or IPO, is it wise to just sell the shares for cash immediately?

2) Does the term "cash" just refer to money in the bank, not susceptible to the stock market? For example, is it a solid asset?

3) How do you learn all this financial stuff (it is confusing!). Are there some specific financial books people can recommend. I'd imagine learning basic finance and reading other books is critical.

4) When you become wealthy, say, worth $200 million, would it be wise to have say $100 million cash in the bank, and the other $100 million invested in various areas, so that if the stock market crashes and you have $80 million tht goes down to $8 million, you still have at least $100 million in the bank for example...?

Being wealthy sounds so confusing, I'd want to invest lots of my money but also have a good-sized chunk stored away in a safe area as a solid asset that isn't susceptible to the market's fluctuations.

I read in one of Donald Trump's books, he said, "Always keep a good-sized chunk of cash on hand..."

I would be nervous as hell if my net worth was based solely on my stock in one company. If I was in the position of Russ's friend, worth $80 million from stock, but waiting to cash out for a few months for tax reasons, I'd

1) Watch the market very closely so I could cash out earlier if necessary
2) Keep living in the cramped apartment and driving the fifteen year-old pickup truck until I actually did cash out.

Otherwise, you could find yourself $8 million in debt and worth $8 million, thus back to square-one.

I read a lot of hedge-fund type folks got burned badly in the tech bust since they had all their money in tech stocks, one guy went from net worth $50 million to $1 billion, then to negative $15 million after the crash. Excitement, and greed, overtook the good, conservative business/investment sense of this guy too.

I don't know how these movie stars like Britney Spears keep track of their wealth.
 

dhuang

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Aug 16, 2007
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I've made a post on Facebook on 6speed as well. So I'll just recap here.

What I can tell from keeping up with the Web 2.0 world, is that Microsoft invested $240M for 1.6% stake of Facebook to:

1. Inflate the value of Facebook to a point where it will ward off major competitors. i.e. GOOG.
2. $240M isn't a lot to secure an ad partnership till 2011. Microsoft is probably spending more than that a year on other ads. A partnership with FB will tap into the 40-50 million people "Social Graph" and give Microsoft the quality traffic they may need.
3. Mark Zuckerberg will have a net worth of 3 Billion if Facebook is really worth $15B.

Still, I believe Facebook won't be around in about 4 years. The valuation is ridiculous, $15B means that each account is worth around $300. Just like Friendster and Myspace, Facebook is just a passing fad.

Mark Zuckerberg also talks like a robot. I don't. Let me take his place. :)
 

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