Comments on: Social Networking http://www.airs.com/blog/archives/80 Ian Lance Taylor Wed, 8 Oct 2008 05:28:56 +0000 http://wordpress.org/?v=1.5.2 Comment on Social Networking by: Ian Lance Taylor http://www.airs.com/blog/archives/80#comment-6459 Wed, 07 Nov 2007 15:17:04 +0000 http://www.airs.com/blog/archives/80#comment-6459 It is in the interest of Facebook, Microsoft, and all of Facebook's existing investors to claim as high a valuation as possible. That will minimize dilution if any further investment is required, and it will maximize the stock price if Facebook goes public. The revenue for Microsoft from the deal is not relevant in the public market sense, so they don't have to disclose their thinking. Therefore, I think we can reasonably discount Facebook's statements about the valuation. The exclusive deal signed last year was for the U.S. only. The new deal makes that international, and extends the time period. Microsoft presumably has some real revenue results from the first deal, and presumably used that to put a value on the expected revenue they would get from the new deal. However, that information has not been and will not be disclosed. My point is that we don't know what Microsoft considers Facebook's valuation to be. $240 million is small compared to $15 billion. To the take the maximal albeit unlikely case, if Microsoft expects to earn that $240 million back by selling international ads, then Microsoft effectively paid nothing for 1.6% of Facebook. That would put Facebook's value at much less than $15 billion. I don't know the expected numbers, and nobody outside of Microsoft or Facebook does either. It is in the interest of Facebook, Microsoft, and all of Facebook’s existing investors to claim as high a valuation as possible. That will minimize dilution if any further investment is required, and it will maximize the stock price if Facebook goes public. The revenue for Microsoft from the deal is not relevant in the public market sense, so they don’t have to disclose their thinking. Therefore, I think we can reasonably discount Facebook’s statements about the valuation.

The exclusive deal signed last year was for the U.S. only. The new deal makes that international, and extends the time period. Microsoft presumably has some real revenue results from the first deal, and presumably used that to put a value on the expected revenue they would get from the new deal. However, that information has not been and will not be disclosed.

My point is that we don’t know what Microsoft considers Facebook’s valuation to be. $240 million is small compared to $15 billion. To the take the maximal albeit unlikely case, if Microsoft expects to earn that $240 million back by selling international ads, then Microsoft effectively paid nothing for 1.6% of Facebook. That would put Facebook’s value at much less than $15 billion. I don’t know the expected numbers, and nobody outside of Microsoft or Facebook does either.

]]> Comment on Social Networking by: rmathew http://www.airs.com/blog/archives/80#comment-6444 Wed, 07 Nov 2007 11:48:11 +0000 http://www.airs.com/blog/archives/80#comment-6444 <blockquote> Facebook is in the news these days because Microsoft paid them an amount of money which gives them a $15 billion valuation. Of course that is a very misleading number: Microsoft paid to place ads on Facebook, and Microsoft took a stake in the company. Microsoft will make money selling those ads. In order to determine the valuation that Microsoft put on the company, one needs to distinguish the amount Microsoft paid for ad placement and the amount Microsoft paid for a stake in the company. We don’t know those numbers, so we don’t know what Microsoft really thinks Facebook is worth. </blockquote> First off, Facebook <i>itself</i> claims to have been valued at USD 15 billion: http://www.facebook.com/press/releases.php?p=8084 The exclusive deal was signed <i>last</i> year: http://www.facebook.com/press/releases.php?p=635

Facebook is in the news these days because Microsoft paid them an amount of money which gives them a $15 billion valuation. Of course that is a very misleading number: Microsoft paid to place ads on Facebook, and Microsoft took a stake in the company. Microsoft will make money selling those ads. In order to determine the valuation that Microsoft put on the company, one needs to distinguish the amount Microsoft paid for ad placement and the amount Microsoft paid for a stake in the company. We don’t know those numbers, so we don’t know what Microsoft really thinks Facebook is worth.

First off, Facebook itself claims to have been valued at USD 15 billion:

http://www.facebook.com/press/releases.php?p=8084

The exclusive deal was signed last year:

http://www.facebook.com/press/releases.php?p=635

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