Goldman’s Facebook Valuation Challenged by Semantic Technology

goldman sachs

Whom do Goldman Sachs, Digital Sky Technologies, and Facebook think they are kidding? Valuations of the worlds most popular social network do nothing but go skyward faster than mortgages traded before the Wall Street collapse, and based on what? Suspected earnings? Well, a little technology released a couple of weeks ago does a decent job of disproving Facebook’s “hyped” valuation. So the question arises; “when is it bad PR to over valuate companies?” Always if people find out. We may see a new term coined over all this – Falue, or Facebook value.

SENSEnews, a tool developed by Dr. Riza Berkan, and the other creators of hakia semantic search technology, weights news from all over the world as a modifier of stock values. Not only that, but the technology suggests with a high degree of correlative value, market actions to be taken. It’s all pretty controversial, as can be expected, but looking at the data these last couple of weeks, the correlative value of SENSEnews’ data does bear scrutiny.

The screen below shows SENSEnews’ analysis of Google using their technology. Note the close correlation between their news analysis and the actual prices. Note: Be sure and see the video at the end of this article.

SENSEnews chart showing Google correlations

SENSEnews indicators – note correlative index – courtesy hakia

A case in point is Facebook’s most recent round of funding, and Goldman’s valuation of the company. While no definitive worth has ever been established, Facebook is generally “listed out” at being worth , in the neighborhood of, $50 billion (give or take). While company profits, almost everything about Facebook, always seem to be top secret, it is obvious that if Zuckerberg’s company goes public, all concerned will want top dollar. This notion (fact) alone should tell everyone $50 billion is marketing ploy.

SENSEnews valuations

SENSEnews trend and suggested action for Microsoft

If you visit the hakia blog as I did earlier, an article there highlights what apparently are crucial news correlations to value for the Facebook situation. If you look at the screen shot below (and the comparative ones above), you will see SENSEnews’ “turning point” valuation chart, compiled from tens of thousands of news stories, and then factored into a usable metric. You can also see the proof cases where SENSEnews was correct in correlating value or price for Google and Microsoft (also above). We Needham get into the technology behind this tool here. I covered that in part at SearchEngineJournal.

SENSEnews indicators for Facebook value

SENSEnews indicators correlate to news and other firms’ value ratios

If we follow a simple valuation to earnings ration for say Microsoft, a general idea of Facebook’s true value may be reached, or guessed at, which is what Goldman and others are doing any way. Microsoft is worth about $200 billion, they make about $20 billion, this equals a 10:1 ratio. Now, if TechCrunch and the Wall Street Journal were correct, Facebook made (maybe) $1.5 billion. Using the same logic, you can see that SENSEnews’ formula is spot on in valuing Facebook at about $14 rather than $30, $45, or $50 billion, as has been suggested.

Facebook value based on farm animals

Next Facebook will be valued in farm animals – [Goldman

Of course it could just be a coincidence that hakia’s SENSEnews correlates data to suggest Facebook at one third the value other suggest, and that Microsoft (and 50 other companies) operate at the suggested 10:1 ration. It could be, but… Let’s make something fairly clear here. I learned to love Facebook. As far as I am concerned, or SENSEnews for that matter, it would not hurt my feelings if the company were worth $500 billion – what I do not like is subterfuge.

We run a PR company after all, we see our share. Facebook would not need another $1.5 billion in investment if they cleared $1.5 billion. Does this make sense to anyone? Mark Zuckerberg just let his old buddy Yuri Milner at Digital Sky Technologies toss in some more cash, garner more share, because he loves him? On another note, do you really believe in a Wall Street company who played “ring around the rosy” with America’s economy?

These people value and devalue things based on God knows what. Remember they valued Greece so much they helped them into almost defaulting. I like hakia and SENSEnews’ numbers better.


  1. Babur Ozden says

    Dear Phil,

    I read your assessment with great excitement, it is one of the best pieces written (that I know) regarding Goldman’s Facebook valuation. I say it serenely and not because I am part of SENSEnews team.

    I am not much of a writer and my mother tongues were no longer spoken (Assembler, Cobol, RPG, PL1) may I possibly leverage this reply mechanism to present your feedback my blog piece on the same topic?

    A Turk stands between Goldman and its $50 billion Facebook valuation! more at

    Best wishes in the New Year

    • Phil Butler says

      Babur, while some would say my writing “flows like water” (take out the typos), your assessment has its own liquidity. I think anyone reading this should go here and deduce for themselves. For me, despite my predisposition to love all things scientific, the normative mind is my favorite tool.

      What do I need to understand the unlikely Goldman Sachs valuation? Just the fact they suggest it. If a known criminal, one still dressed in the Hollywood garb of evil, beckoned you into the deepest darkest alley in Kathmandu, would you follow? There is actually something out there parsecs farther along than mathematical certainty – a ninth or tenth sense call it – in a room full of week old Salmon, stacked to the ceiling, that fishy smell one detect? It is no lie.

      Thanks Babur for your kind words, and for your groundbreaking work creating very smart tools.


  2. says

    It would be interesting, if our regulatory reporting requirements were “instant (semantic graph-based) and global,” to watch the IPO share purchase positions get booked and their movement once inside the accounts within the IPO managing investment banking firms. One could speculate that a high percentage of these positions that remain in “street name,” will quickly be “borrowed” by offshore undercapitalized brokerage firms for short sales to untraceable client accounts of “wealth management” affiliated firms of the very managing investment banking firms for this IPO.

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