It was officially announced today that Facebook has sold a 1.96% stake for 200 million dollars to Digital Sky Technologies. If you do the simple math this values Facebook at roughly 10 Billion dollars. While this is short of the 15 Billion dollar evaluation that Microsoft effectively gave Facebook back in 2007 the numbers remain mind boggling.
Let's first explore both deals; we'll start with Microsoft which paid $245 million for roughly a 1.6% stake. The deal wasn't just about buying shares however, and included a large advertising agreement that is still in place and should be for the next 3 years.
The new deal with Digital Sky Technologies (DST) also appears to have extras. Not only have they purchased a 1.96% stake, they have also been given the option to purchase additional shares from employees and existing investors up to 100 million dollars. DST owns a number of popular web sites, primarily in Russia, including vkontakte.ru which ironically is a rather obvious Facebook rip off for Russians. The site has 35 million members and growing. Russia happens to be one of the few countries in which Facebook has struggled to gain market share.
So while the latest investment does valuate the company at 10 Billion there are additional benefits to both sides.
The issue today is that many believe Facebook is still losing money and the valuation exceeds what the revenue dictates it should be. Many of the comments on popular tech blogs this morning echo this, but there is an issue with these comments. First off most of the naysayers don't understand the business world and the other issue is that Facebook is a private company; their earnings are all based on speculation rather than actual data. They don't need to provide their revenue numbers and because of this most of the data we see is probably incorrect.
Mark Zuckerberg, the creator of Facebook, said this morning that revenue has been climbing steadily this year despite the economic environment and Facebook is on target to break even sometime in 2010. You have to realize that Facebook is spending millions of dollars a month just on servers and electricity. Add in bandwidth costs, nearly 1,000 employees and office space all over the world and the revenue they are expected to hit in 2010 is huge. All of this from a site that charges its users nothing to use.
Facebook is so big, and has spanned globally, that in my opinion it's here to stay. They are working on new revenue models, some of which are being launched as you read this. When it comes to the internet only a few big players ever succeed; Facebook has a very good chance of being a strong long term player. And to all of the naysayers out there, just remember everyone said Google was doomed because how could a search engine possibly make money??
