Facebook has not been “valued” at $15 billion.
As though Facebook doesn’t get enough attention in general, yesterday brought wave upon wave of stories about Microsoft’s tiny minority investment in the company. “Tiny” is the right word because Microsoft gets just a 1.6% stake in Facebook, which is next-to-nothing, for spending only $240 million, which is right-next-to-nothing for Microsoft.
Various stories include the basic bit of math that $240 for a 1.6% stake in Facebook comes out to $15 billion for 100% of Facebook.
- Microsoft Beats Google on Facebook Deal; Valuation $15 Billion (Read/WriteWeb)
- Microsoft Bets On Facebook Stake And Web Ad Boom (Wall Street Journal)
- Perspective: Facebook Is Now 5th Most Valuable U.S. Internet Company (Michael Arrington at TechCrunch)
Yes, the math is correct . . . but let’s not get all hasty about proclaiming that Facebook has been “valued” at $15 billion. His eye-catching headline notwithstanding, Michael Arrington alludes to this truth further down in his post:
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.
Precisely. There are all sorts of reasons why Microsoft in particular would want to make this particular investment in Facebook, among them:
- advertising revenue (and “synergies” more broadly);
- cachet, because Facebook is really cool right now;
- long-term Internet strategy;
- to spite Google, which was also looking to invest, and to foreclose Google’s long-term strategic interest in Facebook.
Google might have made a similarly-priced investment, and for similar reasons. But none of this means that Facebook is “really” worth $15 billion in the sense that the stock market would value it that way. So Arrington’s caveat quoted above actually throws into a cocked hat his whole comparison of Facebook to Google, eBay, Yahoo, et al. It’s an interesting point of cocktail conversation, but that’s all.
Until much more of Facebook is up for sale, investments like Microsoft’s should be viewed more as strategic markers in a very large game of Risk. They simply don’t tell us much — certainly not as much as we might like to read into them — about the real financial valuation of Facebook.
~
UPDATE: Nick Carr and John Murrell agree with me, for what it’s worth (i.e. something less than $15 billion).
Category: Deals, Internet
If you liked this post, please consider subscribing to the RSS feed so you can receive future articles delivered to your feed reader.
2 Comments so far
Leave A Comment
[...] enough things that I can still take it as a real comfort when I’m right. So far, Facebook has still never actually been valued at $15 billion. Henry Blodget points out how un-$15-billion-like Facebook is looking today: Facebook: Who Else [...]
[...] but I would argue that if anything that is too modest.” Now, probably he’s not talking about me, but it’s worth noting that he doesn’t actually back up his argument. Instead, he uses [...]