Microsoft Buys into Facebook’s $15B Valuation

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The New York Times is reporting that:

The two companies said on Wednesday that Microsoft would invest $240 million for a 1.6 percent stake in Facebook. The investment values the three-year-old Facebook, which will bring in about $150 million in revenue this year, at $15 billion.

While I’m happy for the Facebook and Accel folks(Jim Breyer of Accel Partners bought into the promise of Facebook early on with a $12.7 million investment, now worth $1.65 billion on paper – Way to go, Jim!), it seems like an incredibly high valuation for a company with $150 million in revenue.

It goes to show the power of greed, liquidity and fear in driving up the value of a term sheet. Microsoft, Google and Yahoo all saw huge dollar signs available to whoever gets to serve ads on Facebook(the greed factor). Facebook has done an excellent job playing them off against each other to get some competing offers from Microsoft and Yahoo (the liquidity part) and to drive it home, Microsoft is desperate to stop the Google train somewhere(the fear part).

To put the valuation in perspective, Yahoo is worth $41.6 billion on almost $7 billion in revenue, so to me it’s hard to see how a $15 billion valuation makes sense on $150 million in revenue even if Facebook is on a revenue rocket.

So now that I have put my two cents into the discussion, I wanted to know what other folks think so I reviewed the Techmeme links to see what leading bloggers think about the deal. Here’s a few llinks that seem to round up the opinions

Don Dodge – This isn’t about valuation

Terrence Russell at Wired : Three Reasons Microsoft Underpaid For Facebook

Web Strategy – Why this deal makes sense

TechCrunch – Face Book is Now the 5th Most Valuable US Internet Company

TechDirt – The Difference Between Sense and Non-sense

And while they all seem to know that the valuation is wacky they do point out that Microsoft only put $240 million at risk, got a strategic foothold and perhaps blocked Google. Although Google has it’s own Facebook like site, Orkut which is on it’s own high growth path.

It will be interesting to see how the rest the social networking war plays itself out.

UPDATE: Apparently, the dumb money is flowing behind Microsoft’s strategic investment with two PE funds putting in another $500 Million.

[tags]Facebook, Microsoft, Yahoo, Google[/tags]

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