Microsoft’s Face-Saving Move; MySpace Now Undervalued?
After more than a month of rumors, Microsoft announced that it had invested $240 million in social networking site Facebook, in return for a 1.6% stake in the company. In doing so, it nosed out Google, a late entrant into the Facebook race.
The $240 price tag places a lofty $15 billion valuation on Facebook, an impressive number for a company whose revenues are projected to be in the $150 million range this year.
The deal held strategic importance for Microsoft, which already had a deal in place for display advertising sales for Facebook in the US market. As part of the deal, that partnership will be expanded to the European market as well. According to Cowen & Company analyst Walter Pritchard:
Facebook lends additional credibility. Microsoft cannot afford to diminish what little presence it has online.
To justify the valuation, Microsoft suggests looking at the overall run rate, projecting a potential user base of 200-300 million users. From yesterday’s Microsoft conference call, Microsoft executive Kevin Johnson indicates:
You combine that number of users with the monetization opportunities and you can figure out a fairly modest average revenue per user per year and you can very quickly get to these level of valuations
Meanwhile, CIBC analyst Jennifer Dance suggests that the deal indicates that News Corp’s MySpace is a significantly undervalued asset.
Our analysis of MySpace’s audience suggests it is 15% less valuable per unique visitor than Facebook. However, when we factor in that MySpace has 225% more unique visitors in the US, with 22% higher time spent, we believe MySpace is worth at least double the value of Facebook.
In other notes and commentary on the Microsoft-Facebook deal:
Forbes reports that there are also two financial investors (hedge funds) involved in the deal, each investing an additional $250 million in the Company for a total investment of $740 million.
On his Rough Type blog, Nicholas Carr parses the deal terms to show that the $240 million investment does not equal a $15 billion valuation when you factor in the strategic aspects of the deal.
Marc Andreesen notes Steve Ballmer’s changing position on Facebook.
Content Matters looks at the winners and losers in the deal.
CNET provides a copy of the email sent by Kevin Johnson, president of Microsoft’s platform & services division to Microsoft employees announcing the deal.
Foreign Policy captures a quote from Google’s Sergey Brin in response to the deal, saying “We don’t feel, at a higher level, that we need to own every successful company on the Internet”.
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November 2nd, 2007 at 12:26 pm
[...] week, much of the Internet world was anxiously awaiting the answer to who would win the chance to invest in Facebook. Microsoft “won” the opportunity to invest $240 million in the social networking [...]