Facebook at $10 Billion Valuation, Microsoft to Invest?(online.wsj.com)
online.wsj.com
Facebook at $10 Billion Valuation, Microsoft to Invest?
http://online.wsj.com/article/SB119065193646437586.html?mod=hpp_us_whats_news
10 comments
"Acquirers are less prone to irrational exuberance than IPO investors. The closest you'll get to Bubble valuations is Rupert Murdoch paying $580 million for Myspace. That's only off by a factor of 10 or so."
-- PG, circa Nov 2005
:)
-- PG, circa Nov 2005
:)
I was probably wrong in saying it was only worth a tenth of that, but I still think $580 million was high. Remember, what he bought wasn't the present-day Myspace. Most of Myspace's user base (and thus value) was added since the acquisition.
"Most of Myspace's user base (and thus value) was added since the acquisition."
How many of those new users were because of News Corp's acquisition? If majority of those users would be added anyway (if it was just a matter of time), and an astute investor could predict that, its valuation of $580m or even more would be justified.
Today most financial publications believe Murdoch got Myspace for a bargain.
How many of those new users were because of News Corp's acquisition? If majority of those users would be added anyway (if it was just a matter of time), and an astute investor could predict that, its valuation of $580m or even more would be justified.
Today most financial publications believe Murdoch got Myspace for a bargain.
bargain? he got it for a steal. Even sumner redstone (notoriously suspicious of the web "hmm what is that nuisiance stealing from my billions??") said it was worth 1.5B -- conversations with Michael Eisner.
Something is worth whatever people are willing to pay for it, esp. in the case of internet phenoms.
Yeah, but we're not talking about people here. We're talking about one guy, who possibly did a stupid thing by buying it. If someone mistook glass shards for diamonds and bought them for $10k, it doesn't mean the glass shards are worth $10k.
One guy who wouldn't have paid so much if there weren't other people offering similar amounts. My point is that you can't pick an arbitrary amount ($58 Million) for the valuation - but that this amount is always dependent on other people.
The problem with your example is that we all have limited knowledge about any given business transaction. Assuming ten people were standing around bidding on little rocks thinking they are diamonds, for that moment (to those people) they are worth $10k. When they have more knowledge (i.e. that this is glass and not diamonds) then the worth of those rocks drops. So the worth varies based on the knowledge in the market and valuations of others.
Now in any given market if one has more knowledge about a good or service one might be able to say that a good or service is over valued. For instance, I have always believed Myspace to be over valued. However, this realization does not give one the ability to pick a number out of the air and state that it is a correct valuation.
The problem with your example is that we all have limited knowledge about any given business transaction. Assuming ten people were standing around bidding on little rocks thinking they are diamonds, for that moment (to those people) they are worth $10k. When they have more knowledge (i.e. that this is glass and not diamonds) then the worth of those rocks drops. So the worth varies based on the knowledge in the market and valuations of others.
Now in any given market if one has more knowledge about a good or service one might be able to say that a good or service is over valued. For instance, I have always believed Myspace to be over valued. However, this realization does not give one the ability to pick a number out of the air and state that it is a correct valuation.
On average. Murdoch is way over one one end of the bell curve (too early to say which).
> Most of Myspace's user base (and thus value) was added since the acquisition.
Nah, the hot young promiscuous girls were there from early on.
Nah, the hot young promiscuous girls were there from early on.
"Facebook, which is used by over 40 million people to set up their own personal Web pages...has emerged as the poster child for the latest Internet wave."
Yes, the latest e-Wave to hit the the Beach of Interweb e-Shores.
Yes, the latest e-Wave to hit the the Beach of Interweb e-Shores.
Insane. Completely irresponsible. If I were a MSFT shareholder, I'd be pissed.
Just watch... Steve Ballmer will have some extremely hard time at the next shareholder meeting when questions start flying his way.
Just watch... Steve Ballmer will have some extremely hard time at the next shareholder meeting when questions start flying his way.
IN OTHER NEWS: Bill Gates and Steve Ballmer were seen taking hits from a large bong outside the headquarters of the Redmond giant on Monday.
Ballmer was quoted as saying,"This wacky tobaccky is sooo good. Let's buy Dunkin Donuts for $20 billion! Mmmmm, donuts..." He then proceeded to do a Monkeyboy Dance, to the giggling delight of a baked Bill Gates. http://www.youtube.com/watch?v=Nc4MzqBFxZE
Ballmer was quoted as saying,"This wacky tobaccky is sooo good. Let's buy Dunkin Donuts for $20 billion! Mmmmm, donuts..." He then proceeded to do a Monkeyboy Dance, to the giggling delight of a baked Bill Gates. http://www.youtube.com/watch?v=Nc4MzqBFxZE
somehow this doesn't feel right.
Google is nearly impossible to replicate where as social networks is and will always be a trend. Also people tend to use more than one of these social networks.
PG pondered once in one of his essays, if I remember correctly, that naturally myspace or any other current social network will not be the only one in the years to come.
update: "So in a hundred years the only social networking sites will be the Facebook, MySpace, Flickr, and Del.icio.us? Not likely." http://www.paulgraham.com/startuplessons.html
The internet population is already 1 billion. Thats plenty of people and opportunities.
Microsoft and Google with all that money should just buy all the startups they can and kill Facebook for good...
Or we should just expect the new "Norton" to invent the NEW anti-"socialnetwork"/virus
Google is nearly impossible to replicate where as social networks is and will always be a trend. Also people tend to use more than one of these social networks.
PG pondered once in one of his essays, if I remember correctly, that naturally myspace or any other current social network will not be the only one in the years to come.
update: "So in a hundred years the only social networking sites will be the Facebook, MySpace, Flickr, and Del.icio.us? Not likely." http://www.paulgraham.com/startuplessons.html
The internet population is already 1 billion. Thats plenty of people and opportunities.
Microsoft and Google with all that money should just buy all the startups they can and kill Facebook for good...
Or we should just expect the new "Norton" to invent the NEW anti-"socialnetwork"/virus
Facebook is harder to replicate than Google in one way: Facebook has a large network effect on its side, Google (search) doesn't.
That Google maintains its audience despite zero lock in is a testament to just how strong their search product is. I don't see Facebook opening up all of the details of their network.
Did anyone else notice this:
According to (people|person) familiar with (the matter|those talks|the company)
According to (people|person) familiar with (the matter|those talks|the company)
It was painful.
10 billion dollars? My god, if I was a major MSFT stakeholder, I'd be getting the tar and feathers ready.
I disagree. Over 20 million people use FB every single day. Over 40 million active users(used it within 30 days).
They have something in there to monetize, big time. Watch, $20 billion today would be a steal. FB will be worth $100B in 3 years.
They have something in there to monetize, big time. Watch, $20 billion today would be a steal. FB will be worth $100B in 3 years.
Agreed. A lifetime user of facebook is worth $500, easy. I don't see what is going to get me to leave the platform, ever.
Myself in 1999: 'A life time user of AOL is worth $500 easy. I don't see what is going to get me to leave the platform, ever.'
People constantly nagging you about supporting walled gardens?
Because right now that's the best idea I've got for bringing the wall down :(
Because right now that's the best idea I've got for bringing the wall down :(
[deleted]
Keep in mind also that a strategic investor is always willing to pay more for the same stake than a purely financial investor.
This is because the strategic investor -in addition to reaping financial rewards- will also gain something else. In this case, it could be an exclusive agreement for Microsoft's ads, or use of MSN as the default search engine, integration of other MSN products, etc.
Even if Microsoft's deal puts a nominal valuation of $10B on Faceboook, Facebook's IPO (if it happened) could put the valuation lower.
Btw, this is an important point to note when evaluating exit strategies. Depending on the circumstances, getting acquired could be a much better exit even if the public markets are interested in your IPO. Youtube was probably not worth $1.6B based on just its financials, but it was worth that much to Google (or at least Dr. Schmidt thought so).
This is because the strategic investor -in addition to reaping financial rewards- will also gain something else. In this case, it could be an exclusive agreement for Microsoft's ads, or use of MSN as the default search engine, integration of other MSN products, etc.
Even if Microsoft's deal puts a nominal valuation of $10B on Faceboook, Facebook's IPO (if it happened) could put the valuation lower.
Btw, this is an important point to note when evaluating exit strategies. Depending on the circumstances, getting acquired could be a much better exit even if the public markets are interested in your IPO. Youtube was probably not worth $1.6B based on just its financials, but it was worth that much to Google (or at least Dr. Schmidt thought so).
Isn't Vista enough of a reason to get the tar and feathers ready? ;)
Can Microsoft, with a $237 billion capitalization, or Google, $177 billion, could afford acquiring Facebook at $10 billion (nevermind the $15 or $20 billion that they seem to expect)?
(In any event, they seem to only want a small stake.)
Last I heard their revenues were less than $50 million. This puts their P/E ratio in the triple figures. The whole business seems too risky. I don't think I would sleep well if I had a lot of my money in Facebook.
(In any event, they seem to only want a small stake.)
Last I heard their revenues were less than $50 million. This puts their P/E ratio in the triple figures. The whole business seems too risky. I don't think I would sleep well if I had a lot of my money in Facebook.
P/E ratios in cases like this can be misleading - it is hard to predict earnings for what is the poster child for the social app phenomena.
Put another way, facebook isn't really focusing on monetizing its users yet - it is (rightly) focusing on becoming the platform of choice for the social web.
10B might be a steal in the long run if you believe a site like this is the future of content distribution or advertising.
Put another way, facebook isn't really focusing on monetizing its users yet - it is (rightly) focusing on becoming the platform of choice for the social web.
10B might be a steal in the long run if you believe a site like this is the future of content distribution or advertising.
While I agree about the P/E ratios, I think Facebook has definitely started monetizing it's users, short of charging them a monthly fee anyway. Logging in now gives me a home page with banner ads to the left, and at least 3-4 ads in my 'News Feed'. Not to mention the marketplace aspect of it. If Facebook becomes the de facto identity manager on the web, I could see a sky high valuation like this, but I think they will piss off their users if they keep going like this.
I read somewhere else that they suspect that Microsoft just wants the 5% so it has more control over serving ads, much like Google owns 5% of AOL so it can serve a ton of ads to AOL users/visitors.
I read somewhere else that they suspect that Microsoft just wants the 5% so it has more control over serving ads, much like Google owns 5% of AOL so it can serve a ton of ads to AOL users/visitors.
The ads on Facebook get abysmal clickthrough rates (often less than 0.1%). $10 billion is a P/E of more than 300, and even for a very hot company, that is pretty far into outer space. If these are in fact the numbers being thrown around behind the scenes, you're probably right that it's because Microsoft wants a place to improve its ad serving (and to deny Google that same place).
Something tells me this approach towards the concept of platform, will be the beggining of the new bubble every single irrelevant reporter has been praising for the past 2 years.
And there are a tons of reasons that make it clear to a technology person, that bussiness persons will ignore and some will get the money and others lose big.
And there are a tons of reasons that make it clear to a technology person, that bussiness persons will ignore and some will get the money and others lose big.
Fred says the 10billion is not real
http://avc.blogs.com/a_vc/2007/09/facebook-really.html
http://avc.blogs.com/a_vc/2007/09/facebook-really.html
But then a few interesting things started happening, my friends started using these little facebook applications (oh how much I hate the installing software analogy they've gone with is a whole other post) and I started using them as well. Like in the olden days (ie last year) when someone found a fun flash game and sent you the link and you sent your scores back and forth.
Like all these social networking sites its asynchronous communication with a low social overhead (your friends just happen to see what you're doing) and with lots of stuff to do. I think its going to become the internet for a large proportion of the population.
It might get beaten eventually, but in the short term the biggest potential challenger is google. If google leveraged the gmail user base to make orkut bigger and integrated it with igoogle widgets, it'd be something approaching facebook. I think they are somewhat reluctant to do that to their user base though, although it could be done unobtrusively.