Facebook Valuation At $10 Billion Following $200M Investment

NEW YORK — Facebook is getting a $200 million investment from a Russian Internet investor that values the social networking company at $10 billion even though it has yet to turn a profit.

The investment gives Digital Sky Technologies a nearly 2 percent stake in Palo Alto, Calif.-based Facebook's preferred stock. Digital Sky won't get a board seat.

The $10 billion valuation for Facebook is less than the $15 billion value implied in 2007, when Microsoft spent $240 million for a 1.6 percent stake in the company _ even though Facebook has substantially grown since then. However Facebook's own appraisal after the Microsoft deal gave the company a market value of about $3.7 billion, according to details revealed in a legal settlement.

The latest investment, in preferred stock, does not necessarily compare with what the company's common shares would be worth on the open market. That would be determined if the company were to go public, which is likely a ways off.

During a conference call Tuesday, Chief Executive Mark Zuckerberg said an IPO is "not something we are rushing toward." He called the Digital Sky investment a "good cash buffer" to support its growth. Facebook now counts 200 million users, 70 percent of whom live outside the U.S.

As a private company, Facebook does not disclose financial details. It doesn't even have a chief financial officer. Gideon Yu left that post in March and Facebook says it is still searching for a replacement.

The company says it has been profitable by one measure _ earnings before interest, taxes, depreciation and amortization, or EBITDA _ for the past five quarters. Zuckerberg reiterated Tuesday that the company expects to generate positive cash flow in 2010.

Zuckerberg also repeated his claim that Facebook will grow revenue by 70 percent this year.

Debra Aho Williamson, a senior analyst with Internet research firm eMarketer, questions whether that projection is achievable. EMarketer estimates that Facebook's worldwide ad revenue will be $300 million this year, up 20 percent from last year.

In other words, to hit 70 percent growth, Facebook might have to ramp up the sale of products or services on the site. The company has experimented with some ideas, such as letting users send each other tiny virtual "gifts" for $1 each.

Yuri Milner, Digital Sky's chief executive, said he is "confident that Facebook has the potential to be one of the most valuable Internet companies globally." In addition to the $200 million preferred stock investment, Digital Sky also plans to offer to buy least $100 million of Facebook's common shares from the company's existing shareholders.

Based in London and Moscow, Digital Sky also holds a stake in vKontakte, a Russian online social network that is far more popular in that country than Facebook.

Its investment brings the total amount that Facebook has raised to more than $600 million since its founding five years ago.

Comments

[hartkid]

I hope whoever is willing to cough up that kind of change has a plan to get a return on their investment within 3 to 5 years. Facebook is a passing fad. It'll be hanging out with friendster in no time flat.

[hu.man]

Most all media-related internet outfits are going to get hit hard when they fall short of required monetization to continue on. Ultimately, traffic is a meaningless proposition unless you have a viable business model as Google does. This is going to be another big technology let down after the dot com bust of early 2000. Too much emphasis on technology and not enough on business side of the equation. The business folks are once again getting taken for a ride. This type of a cycle is going to continue on until capital switches hands from a non-technology savvy investors to tech savvy investors.

[jsgaetano]

Zuckerberg's gonna party like it's 1999!

[lawrencemuh]

with 200 million ..maybe we can get live streaming on facebooK???

[Eusebio]

Mark Zuckerberg, his advisors, Microsoft, the Russians and anyone at Facebook would be wise to read the story of theglobe.com, a social networking site founded in the late 1990s. theglobe.com experienced the largest single day increase in share price by an IPO and eventually had a market capitalization of nearly $1 billion dollars at its peak and a stock price of $97. Right now the shares are available for 1 cent if you can't afford to make an overvalued investment in Facebook. Great, Facebook has 200 million users, unfortunately without a plan to monetize this user base, there is an enormous and unsustainable cost burden (staff, servers, overhead etc.). Facebook seems to be more solvent than previous incarnations of the social networking model, but to obtain these bizarre valuations it would have to fundamentally change its business model. The Facebook user base will evaporate if Facebook tries to charge for any service, so where are the revenues going to come from? Good luck trying to establish a $10 billion dollar business selling virtual gifts whilst offering users essentially free unlimited server space. It's not working for hotmail or gmail and won't work for Facebook.

These investments are purely speculative, any other assessment is giving the money too much credit. If there is one thing we have learned it's that there is always stupid money in the market that is willing to invest without conducting any due diligence. Cash out Mark, while there's still some upside.

[4TJefferson]

Why? Oh... You actually think we are going to look at your home movies!

[philss]

a sucker is born every minute
ptbarnum

[DennyCrane]

Ask Facebook users how much they would pay for month to use it. I bet you won't find many. People love what's free, but the real value comes in what you're willing to give up for it.

[JQ]

Facebook, Myspace, and the like are really not good investments even aside from the fact that they're not really making any money. The sites don't really have anything proprietary to hold on to their users with. I mean Google at least has its search algorithms so if you go to another search engine you don't get the benefit of such. But if overnight some other social networking site came along and caught fire, there's no reason for people to stay with Facebook or Myspace other than they're just used to having an account there. If some other site suddenly appeared that had the features and cache to get everyone to migrate overnight, Facebook or Friendster would just go the way of Friendster and any investment would be nearly worthless in an instant.

[Tyroc]

now can we get a thumbs down option?

[Paul Krik]

http://www.amazon.com/Able-Danger/dp/B0027HM7GY/

[amymsewell]

It's funny -- a company that has not yet posted a profit gets money to keep existing. And yet when I had a problem on my account (it was hacked), I could not get a human on the phone to help me. The pure exhaustion of trying to rectify the situation -- which by the way has had a negative effect on my professional relationships -- has caused me to make the move to get off all social networking sites. A colossal waste of time, I think I'll go back to focusing on making movies, writing books and talking face to face, by phone or regular email to my friends. Funny, I seem to contribute more to society this "old-fashioned" way.

Amy Sewell
writer/filmmaker
Mad Hot Ballroom
What's Your Point, Honey?
She's Out There! The Next Generation of Presidential Candidates

[Truby]

10 billion, really? Hard to imagine the math involved in this valuation.

[AngusC]

To any Russian billionaires out there, I have a beautiful painting to sell.
It looks like a blank canvas but it is actually 2 polar bears fighting in the snow.
Buy it now for the low low price of $10 million.

[FairAndUnbiased]

It's only worth what some fool is willing to pay for it...Smart investors wouldn't invest $200 Million in a company that has never turned a profit.

Facebook is about over just like MySpace had it's own run...What's next?