People can't stop talking about Goldman Sachs' deal with Facebook. 

It seems like a blockbuster on several levels. Many think Goldman Sachs has struck a savvy deal. The conventional wisdom holds that the deal allows the bank to make a relatively early investment in a company that many think is destined to be the next Google (not as early as the Winklevi, however). It gets to market investments in the company exclusively to its wealth management clients (financials are already starting to be distributed). It will rake in hefty fees on the sale of shares of the SPV being set up to facilitate the investment, 4 percent upfront and 5 percent on the back end. It might make markets directly in private shares of Facebook at some point. 

If the SEC ends up frowning on Facebook and its Goldman Sachs SPV investors, the bank will make even more money; presumably, it will have the pole position on the lead underwriter spot if Facebook is forced to go public. Most regard an IPO as inevitable in 2012, anyway.   

But is this really a Goldman Sachs homerun? 

At a purported valuation of $50 billion, Facebook looks expensive to some. The company's valuation is a whopping 31 times its 2010 revenue of $1.6 billion, almost triple Google's price-to-sales ratio of roughly $9 billion. To take the comparison one step further, by the time Google hit a $50 billion valuation in 2004, the company had revenues of $3.2 billion and a price-to-sales ratio of 17, according to Bloomberg. 

So, it would appear to many that Goldman is making a significant bet on the company. The jury is out as to whether the firm will become "the second Internet" or just another good company or a casualty of another dotcom bubble burst. 

And yet some might also wonder if this turns out to be a classic Goldman "embrace the contradictions" wager, a chance to rake in fat fees while remaining flat on the actual underlying investment. As of this moment, Goldman is not flat. It is long to the tune of $450 million, though it may be engineering a way to hedge its bet. The agreement may or may not call for a lock-up period; Goldman Sachs might be free to sell its directly owned shares at some point, as Facebook intends to cross the 500 shareholder limit soon. In any case, the upfront fee income will offset any losses to Goldman if Facebook's valuation tanks. 

All in all, it strikes me as a hedged bet, with an explosive upside. - Jim