On Wednesday, Facebook announced its decision to allow Microsoft to invest $240 million in exchange for a 1.6 percent stake in its company. While this certainly does not give Microsoft any increased control over Facebook, it does lend some credence to the worth of the company, which is now estimated at $15 billion. That’s right, a company run by a 23 year old, with only $150 million in projected revenues, is worth $15 billion.
Where are these future additional revenues going to come from? Well, there has been talk about the applications that are being added each day, but advertising has long been Facebook’s weak point, consistently being one of the worst performing sites on the Web:
As one person pointed out, the valuation does seem high when considering current traffic levels.
$15Billion valuation at 42million registered users comes out to over $300 per user. Now let’s say Facebook earns a VERY healthy $5CPM and we assume a 33% sellthru.
That means to recoup the investment, a user would have to log in every day and have 50 page views per day would take over 9 years to make their money back.
Here is what the recent trend looks like…the valuation clearly assumes traffic levels wll quadruple in a rather short period of time.
The New York Times reports:
“What’s significant is how much money Facebook is raising and what it wants to do with it. Facebook took $250 million from Microsoft and hinted that it is looking to raise more. It said it wants to grow from 300 to 700 employees. And it defined its business as “social computing.”
This is a signal that the company wants to take on Google, at least in some realms, by having a battalion of engineers developing original technology. That’s very different from most Web 2.0 companies that pride themselves on using a handful of engineers to do quick, lightweight front ends. And it’s different from MySpace, the other big social network, which is adding media content but can’t seem to improve its central technology.
… [Mark Zuckerberg] talked about how his role models—like many in his generation– are Steve Jobs of Apple and Google’s founders, Larry Page and Sergey Brin. They weren’t chastened by the excesses of the Internet bubble and have been rewarded for thinking big.
Mr. Zuckerberg, at least, has earned the right to at least consider thinking big. Facebook has risen above hundreds of rivals through a good sense of how to please users and an excellent approach to technology. Anyone who lived through the first crash would have simply cashed in his chips at this point. But Mr. Zuckerberg is doubling down.”
Clearly Google lost out on this one, though it probably is more of a loss for Yahoo than anyone else.
That doesn’t mean Google isn’t ticked off:
“Yesterday, in a conversation with reporters, Google co-founder Sergey Brin was asked whether he thought there were similarities between Facebook and Google in its early days.
A somewhat flip Mr. Brin responded: “I think the location was somewhat similar.” Facebook is in Palo Alto, across University Avenue from the former home of Google.
Mr. Brin was more serious when it came to highlighting the differences between the two companies. “We really started to grow (Google) during the bust of the dot com bubble,” he said. “Their timing may be somewhat inverted.” Google, he said, benefited from the discipline imposed on it by the bust. “I think that’s an extra challenge that they face,” he added.
One way that challenge is likely to play out is that Facebook will have to get more creative to offer prospective employees a shot at the same kind of Internet riches that Google afforded to hundreds, if not thousands, of its early employees.”
However, tenured Google employees are already leaving for Facebook, looking to cash out their stock options and strike while Facebook is hot. According to tech reporter Josh Quittner, Benjamin Ling, one of Brin’s “Golden Boys” and a top engineer, is leaving Google for Facebook.
With Google promising to increase its focus on social applications, this battle is just beginning.