Friday, May 18, 2012

“Valuation”

With Facebook going public today—and leading up to it, presumably in the wake of it too—the business pages are littered by the word “valuation.” Thus Facebook’s valuation today, still about an hour to go before the heavens open, is $104 billion. So what is valuation, exactly?

The full and correct use of that word, or so the Investopedia tells me, is “pre-money valuation.” I am told that real insiders use the first and newspapers the second part of that phrase. Pre-money here actually means the worth of a company before any real money has been forked over for its stock. The stock value of a company, then, is presumably called “post-money valuation”—but that’s just the ordinary stock price.

“Valuation,” therefore, means nothing more than “expectation.” It is a guess by some mysterious and presumably continuously changing band of investors—a guess they more or less all agree upon—of what the stock will, shall, in the future, actually fetch when that Initial Public Offering, the IPO, the capitalist version of the Holy Ghost’s descent, actually takes place.

The Wall Street Journal helpfully informs me that there are, right now, Facebook not counted, its glory is just, ah, 40 minutes away as I type this, twenty some-odd Internet enterprises, most without any revenue, never mind profit, that are “valued” at $1 billion or more. They offer such irresistible new services as keeping your scrapbook, making notes, sharing files, and renting rooms—services we desperately need to see online. The difficult we do today, the impossible, e.g. online toe-nail clipping, will take a little longer.

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