Yesterday came news that Microsoft invested $240 million into Facebook, valuing the company at $15 billion.
How much is $15 billion? It’s hard to understand how much money that really is. But this evening a friend helped put it into perspective in a conversation about the deal: among the pure-play U.S. Internet companies, only Google, eBay, Yahoo and Amazon have larger market capitalizations. Their annual revenues range from $6 – $11 billion/year. IAC, Salesforce, Monster.com and all the rest trail significantly.
Big Internet properties like MSN/Live.com, AOL and MySpace can’t be directly compared because they are part of larger corporations. Still, its easy to imagine that Facebook, at $15 billion, is perhaps worth more than AOL and MSN/Live.com. Is it worth more than MySpace, which was acquired for a mere $580 million in 2005? The total value of parent company News Corp., with $30 billion or so in annual revenue, is just $70 billion.
Of course, Facebook is not being valued by the public markets like the others. And it may be some time before there is any updated valuation for the company. They are now positioned with a huge war chest of cash (the actual amount raised is likely above $240 million; rumors of a hedge fund or other financial partner who put in additional cash are already swirling) and a massive stock valuation. They can make acquisitions of key technology and talent without spending much. And they can go for years as a private company on that cash. Even with the 700 employees the company expects to have next year, they shouldn’t spend more than $50 million or so per year to run the company.
Facebook’s worth 15 billion dollars my ass…what makes Facebook today more valuable than YouTube a year ago?
youtube is owned by google…..ass
Current revenue and profits do NOT determine valuation, Hype 2.0 does.
What makes Facebook more valuable than youtube ?
they seem to have the same adopting usage but Facebook has been retrieving personnal infos and could use them (behavior adds,…) in the future
I wish we knew an accurate number that’s supposed to replace those ??? for revenue.
Actually, I just paid a dollar to own 0.0000000001% of this new startup (in stealth mode).
That makes the startup worth a 100 billion dollars, taking it to #2 on the list (it is a pure internet play).
Do you think their user base is strong enough? I see a lot of competitors coming in and stealing some of their users, especially with the app functionality.
So you’re valuing the part of the deal that makes Microsoft Facebook’s exclusive ad provider at $0? It sure seems like it. They didn’t pay $240m for only 1.6% of Facebook, so you shouldn’t calculate valuation like they did.
@Anatoly
I agree with your statement, paying the wrong amount of money for a percentage stake in a company can lead to stupid valuations.
There is no doubt Facebook is huge, though really $15b ? Hmm..
Steve Ballmer and Eric Schimit’s ego made fortune to mark zuckerberg1
That’s false!
Somebody is paying big money to spread bullshit like that!
A valuation and market cap aren’t the same (as the title of the blog post would lead you to believe). They may end up in that list but what separates Google, Yahoo, Amazon, Monster, etc from Facebook is that their market cap isn’t “potential”…it’s actual. HUGE difference.
FFS!!!! Call this site FaceCrunch already…. I am looking forward to a week… hell… even 1 single day where techcrunch does not somehow talk about, reference or show facebook in a post!
I am reading here less and less
Dave
I guess Microsoft thought it was worth it to keep Google out of play for Facebook affiliation.
Ok… Interesting.
So if FB is existing, based on the people in the community, approx. 50 mill. and valuated at $15b. That means that every person/asset is worth $300?
Is that so bad?
I guess if they invent smarter ad app then the once they have presented, then that might be even a too small valuation.
Hmmm…
Hate facebook? Tired of Arrington writing about it? Click the link below or my name above…
http://misanthr...-kill-facebook/
Only we can kill facebook.
I think esofthub has it right. It’s worth the money for MSFT to tighten their partnership and keep Google out of this property. Microsoft wants to develop the next generation of behavioral ad targeting, and Facebook’s data is just too good to let slip into google’s hands. Is it worth 15 billion to Joe Blow investor? No. Is it worth it to the most important tech company of the last 20 yrs? Maybe.
MS will make more on this investment in Facebook from ads and equity than Google will make from their AOL investment.
This is really going to end up creating some problems for hiring. “Want to come to work at our hot pre-IPO company? Your options will only be priced at $500 a share!” How are they going to do that in the world of 409A? They are going to have to resort to heady salaries.
STOP TALKING ABOUT FACEBOOK. WE CAN’T TAKE IT ANYMORE!!!!!
@esofthub: agreed. To put it in other words: this transaction does not prove that Facebook is worth $15 billion. It proves that MS is willing to pay $240 million to keep it away from Google.
–
http://viibee.com, online dating is fun again
Next up, facebook donates 15 billion to TechCrunch for their idiotic posts.
Cool News Friend,
15 Billion dollar would be in relative terms less valuable with dollar depreciating.
http://tekno-wo...ld.blogspot.com
I’m not sure it’s not about the direct revenue potential from ads etc. The value Facebook represents for market research is surely huge, given the very specific real-world data that people enter – I wonder what kind of statistical analysis they do behind the scenes?
@TechTownNC
@Shervin,
I agree with both of you.
The new Bubble is officially here.
Just look at the list and admire the surrealism.
Valuatin Facebook just below Amazon, with $ 10 BILLION revenue, and one of the most loyal customer base on the Internet, and above IAC – a lean, mean, Internet money machine – there is no way in hell fot this to happen unless we are in a time-space bubble again.
This is not to say that Facebook is not great. It is awsome.
But the valuation should reflect, at the end of the day, what potential investors would get if they put their money on Facebook stock if it were on the market. It is impossible for a company like that to return so much money to investors.
Google is overvalued. You have a company that’s nine years old whose primary product is selling advertising based on the popularity of its search engine. I am not criticizing their products because I use their search, gmail, and a few others. However, they are not diversified enough to weather a bubble. I know that this may be difficult to envision, but what happen’s if Google’s search popularity plummets? With the Microsoft, Yahoo, and Ask search engines starting to differentiate themselves in one way or another and newcomers like Mahalo, it is a possibility.
Google has a market cap of $211 bln with a share price of $676 (as of 10/24/2007) and approximately 312 mln shares outstanding. Google doesn’t pay a dividend so investors are valuing Google their historic results versus what they will do in the future.
Microsoft has a market cap of $293 bln with a share price of $31 (as of 10/24/2007) and approximately 9.4 bln shares outstanding. Microsoft pays a dividend of 1.40% ($0.44/share) which based on shares outstanding, is approximately $4.1 bln paid to stockholders. This creates a value for Microsoft beyond their trading price in the capital market.
If I had to make a bet on which company would be around longer, I would wager on the company that that throws $4 bln to its stockholders, and still has a warchest.
@Rajeev – You got it. With FaceBook valued $15 billion, no wonder why the dollar is depreciating.
Value stems from what a buyer is willing to pay.
It just so happens that Microsoft needs this stake in Facebook to compete with Google. Hence, Facebook is worth that much. Revenues and projections in the short term have nothing to do with it.
I just wrote a post on this too.
To Anders (comment 14):
This calculation only shows the irrationality of this valuation.
It is extremely hard to get a user to generate an average of $300 in ad-revenue for facebook.
Let’s run a quick calculation.
I don’t know what is the real CPM for facebook ads, but I don’t think it is in the high range. For the same of this example let’s assume $2.0 CPM.
To generate $300, each user on the average has should have 150,000 impressions. A very savvy Facebooker will look at Facebook, say, 150 times a day? this means that EVERY SINGLE DAY, for about 3 YEARS, every Facebook user has to view 150 Facebook impressions.
In reality, the frequency of FB impressions per user is much lower.
So potential revenue by itself does not justify such value. Not by a longshot.
I bet somewhere in the fine print it says “investment to be paid by Microsoft Canada in pro-rated 2009 Canadian funds” so really, this $240M US is really only about $100M CND (the way things are going) which would make the valuation a more $6B total. Still crazy money but not as crazy as first reported
Jon
TECHFACECRUNCH!
This is assuming that the market will follow Microsoft’s TINY 1% investment as a cue to fill in the 14.75 BILLION DOLLAR GAP.
They will not.
Bottom line, Microsoft is their ad network. They know exactly how much Facebook pulls in, in actual revenue. They chose to make a tiny investment. I’m not saying investors are smart people, but I think they could be smart enough. Well, probably not on 2nd thought.
The rest of the companies are public, whoever wrote up that chart, better put a squiggly line by facebook and a footnote for SEC in big bold type.
I didn’t imagine that Facebook is THAT important O.o
OK, I’m living in Germany and here Facebook isn’t used this often, there was a time when MySpace was used very often, but now there is another Service called schuelerVZ (German for: pupil / student network or community).
I’m using Facebook as well
In other news I am planning on selling 1 share of our million private shares to IBM for $1000. Once the deal goes through BeerCo will be worth 1B. Or doesn’t that work for the rest of us?
Please enlighten me some one? Otherwise I’m flying to new England today with a minute book and a dream.
Mike actually myspace was bought in 2006 I believe not 2005.
Fred/Dobizo.com
We have to accept the reality . Facebook has been valued at least with this deal. This should boost up facebook.Of course its not an hit to Google.
http://blogkatt...-turn_6464.html
“Mike actually myspace was bought in 2006 I believe not 2005.
Fred/Dobizo.com”
Fashion Network, actually, you’re wrong and Mike is right.
“We have to accept the reality ”
Why do we have to? I challenge Microsoft’s reputation as the valuating buyer. They’re not an investment bank. This was a private common stock sale.
Why are people so easily persuaded and fooled by the elite?
Didn’t anybody here go to college?
Chris:
The reality is that we have to come out of the 90’s valuation. Its not a couple which had boomed during 90’s is in the market. Because they have not quickly adapted to the current reality.
http://blogkatt.blogspot.com
Is Facebook worth $15 billion at this very moment? No, it is not. Could Facebook have this value in the (near?) future based on ad revenue? It’s quite possible. Will that make Facebook a stable stock? No, Facebook will be overvalued and a bit unstable just as Google is today. As some have mentioned here, if anything comes along that is better than Google (and something will sooner or later, Murphy’s Law) Google could be in big trouble because the overwhelming majority of their revenue is based on online ads, hence the reason Google is trying to diversify their revenue. Facebook will be in a similar situation. If you don’t think this can happen, take a look at Yahoo!
As for Microsoft pulling off this deal, a good move on their part. Keeping Google out of this is key to Microsoft regaining lost ground in the online ad business. Microsoft will make way more with Facebook than Google will ever make with AOL. A really great decision on the part of Microsoft management http://www.news...soft-diver.html . However, no one has mentioned Yahoo! yet and how they will react to this. I’m curious as to their reaction.
Let’s use this sale as a boiler plate and superimpose the same principle on a similar website. Let’s say IBM invests 100M in %1 of Friendster. Is friendster now instantly worth 10B ???
If the answer to that question is yes, then there will be a whole new cottage industry of stock bending like people have never seen before.
If the answer is yes, there should be a Friendster rep on a plane to IBM RIGHT NOW working this out.
This is going to be used as precedent, and it could mean catastrophe for investors, not just for this venture, but for others that use this as a boiler plate.
People are just going to start putting together any seemingly legit deal based on this, like an IBM investment in Friendster for 1% at 100M could seem just as legit as this deal because people ARE NOW SHOWING a tolerance for it.
Do you see my point or are is this above your head?
Until someone comes along and shows me how Facebook are making a cash flow of 15 billion dollars or how they are being a strategic resource which will at the end make 15 billions, I won’t believe the hype. If some company is willing to pay so much, then that company is managed by fools.
“then that company is managed by fools.”
=~ s/fools/thieves/;
I went to college!
And, I am working on a new mozilla-based browser with:
1) the ability to extract all of a users data from any social network
2) adblockplus
3) integrated vmware player (allowing any vmw appliance to be added)
4) tight integration with Amazon
It’s called LeevMeAlone
-sam
Facebook is the only upstart which can give a tough fight to Google and MSFT wants to have a handle at them.
This is a big loss for Google.
http://www.meetingflex.com
(Upcoming Facebook)
After the .com bubble, the value of internet companies were reevaluted now. May be now the value is real. And I believe so.
This is actually a horrible deal for Facebook – and the PR people are spinning it, and Mike, you’re not even digging deep or putting this in context!
Remember the last major payouts for Advertising rights, both by Google – MySpace – they paid $900M for 40 months of exclusivity. AOL, they invested $1B for 5% ($20B “valuation”) for extending search advertising to 2010.
Lets say I want to buy exclusive rights to advertise on your site – I have to pay you for that right. Well, lets say your VCs decide to give me a very small percentage of the company in return for a large payout. In the case of MySpace, no percentage ownership was given. Lets say, however, that MySpace gave google 1% – well that is a valuation of $90B.
The “investment” should actually be REVENUE – but using this technique, they will have a lower tax burden. And as far as revenue is concerned, $240M for a 4 year exclusivity is very low and an affirmation that the ROI on facebook is pretty poor. Come on Mike, I thought you were objective?
TechCrunch should get down on its knee and propose marriage to Facebook. TC has already given it plenty of blowjobs.
Why would you buy such a small position at such a large valuation? It seems like a defensive move that would deter anyone else buying Facebook outright. 15B is a large deterrent.