Facebook’s Valuation is NOT $15 Billion
Claiming that Facebook is valued at $15 billion makes a great headline, and further feeds the incessant chatter about the Web 2.0 Bubble. But, like many intriguing headlines, it’s largely bullshit. MSFT didn’t pay $240 million for JUST a 1.6% stake of Facebook. They paid $240 million for the exclusive advertising opportunities laid out in the deal, and got a small ownership interest in the business.
That exclusive ad deal they struck with Microsoft as part of the deal isn’t something you can sell multiple times. I’d wager that most sane investors would scoff if they were asked to buy in at the same valuation.
Remember when Google bought a 5% stake in AOL for $1 billion a few years ago? Why would they buy into a business with declining revenue, members, profit margins, etc? For the advertising partnership, stupid! Just like Microsoft is doing now with Facebook.
What about those Hedge Funds who supposedly invested in Facebook at the same valuation as Microsoft? Well, that story is “total fiction” according to a member of Facebook’s board and investor in Facebook - story at Techcrunch.
Yet, even after these revelations, Techcrunch’s Erick Schonfield is still acting as if Facebook’s true value is $15 billion. In the same post in which he writes that the hedge fund rumors aren’t true, he writes:
Accel has invested $12.7 million in Facebook for an 11 percent stake now worth $1.65 billion….
Doesn’t make any sense to me. A large part of the deal was based on an exclusive ad partnership. Therefore, Facebook is NOT WORTH $15 BILLION FREAKING DOLLARS. Maybe it will be, someday. But not based on the Microsoft deal.