Microsoft takes $240m stake in Facebook

Gartner alert just in. It starts.

By Chris Nuttall and Richard Waters in San Francisco
Published: October 24 2007 21:53 | Last updated: October 25 2007 04:40

Microsoft on Wednesday took a $240m stake in Facebook, the online social network, a move that puts a value on the site, which has yet to make a profit, of $15bn.
The software group has also beaten Google to striking a key advertising deal.

Microsoft said it would take a $240m equity stake in Facebook’s next round of financing and the companies would expand their existing advertising partnership.
The cash payment equates to a 1.6 per cent stake in Facebook, which is currently growing faster than the top social networking site MySpace, owned by News Corp.

Mark Zuckerberg, Facebook’s founder, has remained doggedly independent in spite of a string of suitors and reports in recent months that Microsoft might favour a full acquisition of the company.
The deal instead seals Microsoft’s exclusive relationship with Facebook to serve ads on its website and beats out competitors, including Google.

“We were very fortunate that a lot of folks were interested in partnering around advertising,” Owen Van Natta, chief revenue officer at Facebook, told a media conference call.

But he said that Facebook had been working successfully with Microsoft for a year now and had decided to expand its partnership to a global relationship.

Microsoft has been the exclusive provider of banner advertising in the US on Facebook in a deal that extends to 2011. It will now be the “exclusive third-party advertising platform partner for Facebook and will begin to sell advertising for Facebook internationally, in addition to the United States,” the companies said.

They would not reveal if this included search advertising as well as display advertising. Google and others could seek a separate deal to sell search advertising if this was not included.

Facebook has nearly 50m users and its membership grew more than 6 per cent in September, compared to MySpace growth of 1 per cent to 107m users, according to the comScore research firm.

Kevin Johnson, president of Microsoft’s Platform and Services division, said its investment in Facebook was justified by the service’s growth opportunities.

“They have the opportunity to get to 200m-300m users, we think that’s in the realms of possibility. If you combine that with monetisation and modest average revenues per user, then you can get very quickly to these valuations.

So, a valuation of $15 billion dollars. That puts it currently in the region of $300 per user. That's pretty high by my estimates. And it relies on the average user being able to generate $300 worth of revenue.

Also interesting (I guess I'm not up to date with this whole thing) - I didn't know FaceBook hadn't shown a profit yet? Sniff Sniff? Bubble?

Whatever the situation - Mark Z, founder of FaceBook is sitting pretty. Big ad partners. The chance to still sign Google as a search ad partner. And people continuing to flock to the social platform of choice.

Where does it end?


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