Founded in February 2004, Facebook, Inc., the company behind the social networking website of the same name, is a privately held company in Palo Alto, California. While you may think that only qualified investors who have a net worth of at least $1 million have an opportunity to buy private company shares, investing in companies and funds that are closely aligned with and/or associates of Facebook, is actually a viable option.
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The Nielsen Company
As said by John Burbank, CEO of The Nielsen Company (online division), a successful research marketing business that offers trade information to global marketers, "Facebook is an increasingly vital link between consumers and brands."
Thus, it was only natural for the two companies to form a strategic alliance in order to determine important statistics to meet business goals, such as increasing Facebook's advertising profits.
While Nielsen is privately held, contact their Investor Relations team, easily accessible on their site, for information on their 2009 investment results and additional information.
Microsoft (Nasdaq: MSFT)
Not only does Microsoft have a 1.6% stake in Facebook ($240 million), they have also extended their relationship globally and are Facebook's current ad-serving partner, having the right to sell advertising directly on Facebook, while providing full access to Bing search characteristics.
Bing's search engine provides a substitute for Google's (Nasdaq: GOOG) after Microsoft beat out Google to claim a stake in Facebook. According to Bing General Manager Jon Tinter, "Bing will continue to exclusively power the web search results on Facebook." This partnership continues to aid in Facebook's traffic growth.
Additionally, since the majority of Microsoft's business is the development and sale of unrelated software products, if Facebook's market value results in a drastic change, it would have only a modest impact on Microsoft's share price. Investing in Microsoft shares might be a safe option to play.
Retail companies have successfully marketed and advertised through Facebook. According to a 2008 Rosetta study, 59% of 100 popular retailers developed Facebook pages to advertise their brands. Facebook pages bring customers that may not have been aware of the companies without it. Additionally, it is easy to update, appears in search engines, and accepts live feeds from blog pages.
Well-reputed retail companies that use Facebook to advertise and also have public stock options include Saks Fifth Avenue (NYSE: SKS), Wal-Mart (NYSE: WMT), J.Crew (NYSE: JCG), Gymboree (Nasdaq: GYMB), Nordstrom (NYSE: JWN) and many others. (What people buy and where they shop can provide valuable information about the economy. Lear more in Using Consumer Spending As A Market Indicator.)
SharesPost is a private equity market; it shows available company stock and completed deals, gives estimates on the worth of private companies, spots which companies are backed by venture capital, and promotes trading.
Chief Executive Greg Brogger says SharesPost "…facilitat[es] the sale of equities in companies that have not been able to unlock their stock value because the initial public offering (IPO) market has virtually shut down." SharesPost boasts private shares and currently values Facebook at almost $12 billion.
Invest in Facebook's Competitors
Although Facebook is reportedly the number one social media service, competition still exists presently and possibly in the future. Similar companies, such as Myspace.com, are publicly owned.
Buying a share in a competitor follows the logic that an increase in the social media market could quite potentially raise the market for all competitors in the industry. When investing in social media, pick those with a known record of increasing sales and profit.
Look Out for a Facebook IPO
There is the possibility that Facebook might have a future IPO, which would make it one of the biggest in recent memory. The current value of Facebook has been estimated at $11.5 billion, but if it goes public, the company is projected to be worth more than twice that. As Zuckerberg told The Wall Street Journal: "We're going to go public eventually, because that's the contract that we have with our investors and our employees."
Some say Facebook's postponement of an IPO helps to evade the associated hassles, including investor analysts, shareholders and stakeholders, and the media. But Facebook does not need the money. According to Zuckerberg, "if you don't need that capital, then all the pressures are different, and the motivations [to go public] are not there in the same way."
It is obligatory, however, for companies with more than $10 million in total assets and a class of equity securities with 500 or more shareholders to register with the Securities and Exchange Commission and issue a prospectus. This only means that once a startup reaches this amount, they are compelled to disclose important yet clandestine information regarding its finances. Thus, if Facebook continues to advance, keep your eye out for its financial reports to help you make wiser decisions about investing in Facebook. (Learn more in SEC Filings: Forms You Need To Know.)
The Bottom Line
For the average investor, it is not easy to convince a prominent private companies' president or Board of Director to allow you to invest. While Microsoft and DST have invested millions in Facebook, neither have any control of the Board.
An indirect way to invest in Facebook is to buy these stocks from these investment groups that stand to benefit from Facebook's success. If Facebook's business increases, the need for new and better social media features would also increase.
If you're still feeling uninformed, check out last week's business highlights in Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics.