The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1

Reggie Middleton's picture


Now that Facebook has actually filed for an IPO, it's time to revisit our previous analyses. BoomBustBlog subscribers are prompted to review our Facebook Forensic Analysis from this time last year - file icon FB note final 01/11/2011. I willprobably review the Facebook IPO filing and update my opinions Friday and/or over the weekend to product a part two of this article. I say probably because this is competing for resources with the REIT research that we are doing, namely calculating the likelihood of bankruptcy. Yes, our opinion has been downgraded to the point where we are questioning its ability to remain a going concern. The opportunity actually has options trading on it as well. Alas, in the meantime let's look at how we got to where are now by excerpting my previous opinions and analysis on this deal.

  1. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!Monday, 03 January 2011

  2. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure“ Tuesday, 04 January 2011

    Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".

You see, this is not about Goldman's attempt to create capital gains through investment, its about their attempt to create income through commissions, fees and spreads.

I would like you, dear reader, to let me know why or why not such a media concern as the one I intimated above should not make as much or more money than Goldman, et. al. and the financial engineering bunch, for the media concern actually imparts useful knowledge that actually adds to society, know? Am I being to idealistic in my search for the Utopian world or is there truly a market for real knowledge and insider info. I'm all ears. Now, back to the topic at hand...

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Here is an excerpt for those who do subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...

You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth  of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".

The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models Thursday, 06 January 2011 This post which clearly demonstrated that this offering was primarily for Goldman’s bonus pool integrity and basically a ripoff for clients.

Here's is what the privileged HNW clients get to pay in order to buy the Facebook shares from Goldman with a retail brokerage price markup as opposed from the actual secondary market sites that have popped up...

To get a stake in Facebook, Goldman Sachs clients are required to make a minimum investment of $2 million by Jan. 7 in what’s described as limited partnerships based in the Cayman Islands and Delaware. Goldman Sachs is charging 0.5 percent of any capital committed to the partnership as an “expense reserve” as well as a 4 percent placement fee and 5 percent of any gains, according to the document.

Facebook has more than 600 million monthly active users, of whom more than 230 million access the site on mobile devices, the document shows. Statistics available on Facebook’s website indicate it has more than 500 million monthly active users and more than 200 million access from mobile devices.

A letter addressed to “potential investor” that introduces the Facebook investment profile ends with a two- sentence paragraph. The first asks potential investors to contact a Goldman Sachs representative for further information. The second says:

“Do not contact Facebook.”

Is it me, or is this deal expensive as hell? We are not even taking into consideration the markup on the shares that Goldman is guaranteed to make, which will probably trump all of the numbers above. For those who don't agree with my assertion that this is a RIPOFF tad bit costly, let's plug said numbers into the online private equity model that I made available to subscribers in my last posting on this topic.

Basically, 'nuff said.

Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman's Pricing: Here's What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week! Tuesday, 11 January 2011

Goldman warns, 'We’re probably going to dump this load, but we may also need you to remain behind to hold the bag!'

In its offer for the $1.5bn stock sale of privately held social-networking company Facebook, Goldman Sachs disclosed that it might sell or hedge its own $375m investment without warning clients. Under the deal, private wealth-management clients would be subject to “significant restrictions” limiting their ability to sell stakes while Goldman Sachs own holding can be sold or hedged at any time, and without warning. One would hope that astute clients and investors would be put on guard by such conflicting and restrictive liquidity measures! In addition, it appears as if Goldman Sachs failed to disclose its clients that it had offered Facebook shares to its internal investment group, Goldman Sachs Capital Partners, headed by one of its star fund managers, Richard A. Friedman.

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!


Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? Tuesday, 25 January 2011

It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

I must admit, I was shocked when I first read this headline and saw the accompanying cover. After all, Bloomberg was the organization that published a story lavishing adulation upon a young Goldman analyst that had a 38% win rate throughout the credit crisis and (faux) recovery. I see those results as mediocre at best, and downright horrible from a realistic perspective. To make matters even worse, I believe I ran circles not only around that analyst, but the entire firm, see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? The next thing you know, this heavy nugget of truth is dropped, and all I can say is.... Damn. Let's excerpt some juicy tidbits from Blankfein Flunks Asset Management as Jim Clark Vows No More Goldman Sachs:

On Jan. 2, Jim Clark, a founder of such technology icons as Netscape Communications Corp. and Silicon Graphics Inc., was at home in Palm Beach, Florida, when he got an e-mail from an executive at Goldman Sachs Group Inc.’s private wealth management division. Goldman was offering Clark a chance to invest in the closely held social-networking company FacebookInc. The deal -- through a fund overseen by Goldman Sachs Asset Management -- was being offered to other Goldman investors at the same time, Bloomberg Markets magazine reports in its March issue.

The firm would levy a 4 percent placement fee on clients, plus a half percent “expense reserve” fee. It would also require investors to surrender 5 percent of any profits, known as “carried interest,” according to a Goldman Sachs document.

Clark turned Goldman down. In June, 2009, he had yanked most of the roughly $400 million he had invested with the firm due to what he considered bad advice and poor performance, including a big hit from GSAM’s Global Alpha hedge fund. This offer, he says, just irked him further. A few months earlier, he had purchased a stake in Facebook through another firm for a lower price, he says, and without the onerous carried interest.

“I don’t think it’s reasonable,” Clark says. “It’s just another way for them to make money from their clients.”

Jim Clark is a smart man, and I don't think he needs me to assure him of that. For those who may not be as hip to fees and valuations, I publishedThe Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models which clearly demonstrated that this offering was primarily for Goldman's bonus pool integrity and basically a ripoff for clients. In the following post, I declared "Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure"

Did Blogs Exercise Enough Influence To Alter Goldman's Facebook Plans Or Did The SEC Decide To Get Serious?

After hearing of Goldman's plans to allow investors to skirt SEC guidelines and issue private shares of Facebook to the public, I had a plethora of warnings and admonitions. Once I (and my best analyst) took the time to parse the numbers and the logic behind the deal, I concluded thatFacebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!

In a nutshell, not only is the offering unlawful on its face (although probably lawful due to the financial engineering cum law splicing from the wizards at Goldman), the valuations were simply stuff of fairy tails and implosions.

I offered a detailed and illustrative valuation exercise to the professional/institutional (read as, HNW) blog subscribers (File Icon FB note final) and as was usual included a material dollpp for the public blog to chew on. I think many found it quite the engaging read, at the very least.

Well, it appears as if maybe someone at the SEC may have gotten pissed off enough to say "I've had it and I'm not going to take anymore!!!!" From the Wall Street Journal: Goldman to Exclude U.S. Clients From Facebook Deal...

For some background into my work on Facebook's offering, go to 13:55 in the video to see me discussing Goldman's Facebook offering that never was.

The next installment in this series will incorporate what I've found in the most recent FB IPO filing, and parse that through BoomBustBlog analytics for my subscribers, with the usual smart ass, opinionated commentary for the free blog readers as well.


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Zero Govt's picture

Nice one Reggie

i'm not sure we need data mining to know Goldman Sucks is little more than a fleecing operation and Facebook (which is a solid social platform) is being over-hyped to the stars by some of the biggest global bullshitters the world has ever known (ie. NY ganksters)

Still nice to see some detailed solid analysis (we'd never get it from the BS peddling MSM afterall)

Jim Cramer was 'all over it' on CNBC today... what a little shill

NvrGivUp's picture

Yes, the fed must love facebook and the very clear picture it will provide of its worker bees. Also, provides a great propaganda distribution platform and dissident identification tool. As for advertising being it's fuel for growth, we've tried generating leads for both an antler chandelier site  and home security systems we found it is less than 10% as effective as google adwords. Maybe they will get it dialed in maybe they won't, the whole valuation scheme feels surreal, tech bubble part deux?

CPL's picture

What if I made mention that at least 1200 of those accounts are mine.  It's not uncommon to create a couple dozen accounts to raid a page while botting all the accounts to post ad hoc.  After a couple dozens of raids, it's pretty easy to get the account count up there.


Then there is my buddy, she's got at least ten accounts so she can friend herself to play those stupid games. 


They shouldn't be counting accounts as a valuation.  They should be counting IP addresses.  I would bet their current roster of users would more than likely surface at around 250 million and not much more.

tempo's picture

New world order...EK and AA that provide real economic growth and employ 100,000s now are bankrupt while a few thousand make billions on storing personal information on citizens. IMO, FB is a CIA backed entity.

hairball48's picture

WHat happens to Facebook after the SHTF and all the teenyboppers and other sheeples are flatass broke?

adr's picture

I read in an article that Facebook hired some graffiti artist to paint the walls of their headquarters. Intead of taking cash the guy wanted to be paid in stock so Zuckerfuck gave it to him. That guys payment to paint the walls is now valued at $200 million. If that doesn't make you stick a gun in your mouth and blow your brains out, I don't know what will. A GUY FUCKIG PAINTED WALLS AND GETS $200 MILLION AFTER THE IPO!!! I hope he blows a couple million on drugs and hookers and winds up dead in an alley.

Vampyroteuthis infernalis's picture

adr, don't hate on a dude who beat the system. Someone needs to take money from the banksters.

alien-IQ's picture

Yeah i saw that article.

What I'm curious about is; does this now replace Jackson Pollock's "#5" as the most expensive painting ever sold? The Pollock sold for a mere 140 mil.

Here's the article, you can see some of the paintings as well:

alien-IQ's picture

Side Note:

The flotation of Facebook could see a billion-dollar windfall for Irish singer Bono.

The U2 frontman's investment company, Elevation Partners, bought one per cent in Facebook in 2009 for $90million.

If Facebook is eventually valued at $100billion, as most analysts believe, that would make his share worth $1billion.

Bono has been accused in the past of alleged tax avoidance in his native Ireland and was the subject of a protest at Glastonbury last year.

57-71's picture

The numbers are distorted from at least one aspect that I know of - users that "cancelled" accounts.

See, you can't actually cancel, it just goes dormant until you use it again or die, or not. So how many of those 6 or 8 hundred million acounts are dormant?

Heyoka Bianco's picture

What IPO isn't a cash grab for the underwriters, at the expense of their own "clients" (marks or johns is perhaps more appropriate) and any retail investor stupid enough to put their money on these dogs? There's no analysis necessary, just a little common sense and a passing familarity with three card monte.

JW n FL's picture



Debt is Americana'!

For you to be anti-debt! in the FaceBook (jews doing Gods work {Usery} on Wall Street) deal! then you are being anti-American!

Plain and Simple!

someone hurry and reort Reggie to the Home Land (Father Land) Security!


LasVegasDave's picture

Coming to pick up those footstools, JW.

All of 'em

Hope you're there when I arrive

Common_Cents22's picture

Gotta watch the kids.  Just read a report that more and more kids are going to twitter for more privacy in their communication, and its mobile=no money.

A big chunk of FB traffic is mobile, which has no ads=no money.

FB desperately has to figure out how to monetize mobile.

Kids are slippery and turn on a dime.  Ask myspace and friendster.

CPL's picture

and hotmail...and MSN Messenger.

curmudgery's picture

A friend once told me that owning a bar was the best business in the world because the customers pay you to let them entertain themselves.  Doesn't sound a bit like social networking.  Sheep must love to be tracked and hounded, because social networks are all based on herding and fleecing.

GS could still be right about FB "value" -- just depends how far and fast the dollar depreciates.

Great work as usual Reggie.  

Buck Johnson's picture

Good job Reggie, as I commented on another post.  They are just using these IPO's to just make fast money through selling the stocks, fees, and other costs.

dragoneyes74's picture

Reggie, completely off topic, but I was wondering if you could answer this.  Since the Federal Reserve prints money out of thin air to buy treasury bonds, do they have ANY reason to care what happens to the value of those bonds?  Wouldn't our system be better if the central bank had to use real assets to loan to the gov't?  If Bernanke has no consequences to his actions then why would he ever stop printing?  Does he need Congress to raise the debt ceiling to keep doing QE programs?  Or can he print at will without their consent?  Thanks!

Mr Lennon Hendrix's picture

The gold on their books collateralizes the bonds.  And no, Bernanke doesn't care.

tony bonn's picture

reggie - in spite of your shameless and tedious self promotion, i know that you are a smart and talented might want to hire a publicity/communications agent - although i can tell you are having too much fun doing it yourself....

keep doing your analysis - you are probably best in class.

Mr Lennon Hendrix's picture

I wrote this the weekend before Goldman pimped FB.  I was just guessing, and only half way right, but I think iit makes for an interesting read still.

This was when people began talking about an IPO.  II figured that something else would happen.  I was right in that respect.

FB will be Bought by a Tech Giant:

sidkof's picture

my buddy's step-sister makes $68/hour on the internet. She has been without work for 8 months but last month her paycheck was $7255 just working on the internet for a few hours. Go to this web site and read more..

gdogus erectus's picture
SueffringFromVaaignalIneftcion?FreeShpiemntOoffAnyMedidcationsAnddSuplpiiesYyouNeed their united efforts to elect him. At this point a Missouri member‏.

Did you know that diamonds are the new gold?

Dixie Frank's picture

sidkof: Your Dad makes $5.00 an hour sucking dick for nickels.

Ancona's picture

Yo.....Dickhead....Sidkof...go peddle your duck shit somewhere else. What a fucktard! anyone who falls for that kind of spam bullshit deserves what they get, which will be exactly nothing. In addition, fucknuts, your fingers should be fucking amputated so you can never defile a message board again with your full on retarded craptastic non-offer bullshit.

I have an idea for you sport, why not go to the nearest bridge and bungee jump.......but tie the cord around your neck instead of your feet. I hear it's a rush!

alien-IQ's picture

weren't you banned already you fucking bozo?

(god I feel stupid...I just replied to a robot posting spam. the shame...)

NotApplicable's picture

Tyler must be busy.

We're just going to have to round up a down-vote posse, and take it out ourselves.

alien-IQ's picture

I think any type of response just encourages them. The only thing that works is completely ignoring it. Like Robotrader or government statistics: it's best to just ignore it.

Zero Govt's picture

talking of Govt statistics (known as 'BS' in wider society) did you hear Steve Liesman on CNBC today?

He said he's "really getting into private statistics more and more" for monitoring the economy.. the implication being he's moving away from Govt data (BS)

Isn't that a sackable offence on CNBC?

alien-IQ's picture

just removing the 1.5 billion people in the world that live without electricity from the "potential facebook users" pool is enough to sink the valuation theory being floated (or more accurately "pimped") by Goldman.

I can't wait until this mutt starts trading options.

W10321303's picture

It's called creating a market. Ever heard of Karl Marx? Now all of those poor suckers who thought they were doing something really 'cool' and now have the 'addiction' have been served up. One thousand 'server masters' become millionaire for deliveing a whole new audience of 'dumbed down' consumers to the advertisers.

King_of_simpletons's picture

Never understood the social network phenomena. I guess it matters for the stupids and their daily ego boost.

curmudgery's picture

A friend once told me that owning a bar was the best business in the world... the customers pay you for the privilege of entertaining themselves.  doesn't sound anything like social networking...

Social networks were set up to track and hound sheep.  Sheep must love being tracked and hounded based on the numbers.  Will FB ever be worth GS estimated 'value'?  Probably has most to do with how much the dollar depreciates.  

Great work as usual, Reggie!