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Microsoft to Buy 5% of Facebook Valuing at $10bn

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  • $10 billion (Score:5, Insightful)

    by Anonymous Coward on Tuesday September 25, 2007 @11:22AM (#20743901)
    $10 billion for a site that has 34 million active users ~= $300 per user. Hmm. I think this site is highly overvalued. But let MS waste their money if they want.
    • by mad.frog (525085) <stevenNO@SPAMcrinklink.com> on Tuesday September 25, 2007 @11:30AM (#20743991)
      ...just require 34 million active Facebook users (who are probably mostly young, rabid web users of other sites too) to install it.

      How long till we see some cool new site feature -- or, hell, even an existing, basic feature -- reworked ("enhanced") to require Silverlight?
    • by Freexe (717562)
      Didn't people say the same thing about Google, Myspace etc... They are all turning into money earner in this new digital landscape.

      The potential of these sites to become long term hubs for people to visit has got to be worth the few million MS is dropping into it.
      • Re:$10 billion (Score:5, Insightful)

        by Chineseyes (691744) on Tuesday September 25, 2007 @11:59AM (#20744451)
        The problem is that sites like myspace and facebook ARE NOT long term hubs for people to visit. They are trendy sites, back in '99 when I was in a freshman in college the place to go was blackplanet, mi gente, Asian Avenue, and livejournal. After these sites it was friendster which was ethnically all inclusive. Now the new trend is myspace and facebook. All of these social networking sites are just fads and when something that looks better comes along everyone will abandon myspace/facebook/whatever and start aggregating friends somewhere else.
        • by PeelBoy (34769)
          Good point. Similar to bars and clubs.
        • by willy_me (212994) on Tuesday September 25, 2007 @02:45PM (#20746795)
          I've come to see Facebook as being the "white pages" for eMail. People change their eMail addresses constantly - usually due to changes in employment or SPAM overload. What is needed is a way to find your friends current eMail address. This is the role that Facebook serves. If I need to send a message to a friend I can just use Facebook and it matters not how they have changed their eMail.

          I'm not suggesting that this is a perfect solution but it does help explain the popularity of these sites. It is the reason why I joined Facebook.

          Willy
        • I'm sure the editors [zawodny.com] here would disagree [kottke.org].
      • by psbrogna (611644)
        I think think your term/concept "long term hub" is the issue at hand. At any one time there's a whole bunch of "hubs" jockeying to be "the one." As the web evolves I think it's always going to be easier for somebody to jump to the front of the line and leverage cool stuff that older sites (that've already achieved wide spread adoption) will take longer to integrate. The leap frogging phenomena exists in many forms across technology. So the valuation of these critters is a dicey prospect: one component of th
    • by Hanners1979 (959741) on Tuesday September 25, 2007 @11:52AM (#20744323) Homepage
      Microsoft calculated the cost per user of these shares in Excel 2007, and found that every user of Facebook would pay them several thousand dollars.
    • by neoform (551705)
      Sale value != Yearly Income.

      It's very possible that over the next 10 years facebook can bring in $300 per user.

      Many companies sell for 10 times what their yearly revenue is.
      • Many companies sell for 10 times what their yearly revenue is.

        Only if they are highly prospective ventures with a large potential upside, little/no earnings and possibly purchased during a speculative bubble. Most firms are purchased for between 1X and 2.5X revenue, or 5X to 8X EBITDA [wikipedia.org]. Any multiple over 3X revenue is a very rich valuation. 10X is purely speculative and the buyer had better hope they have the next google on their hands if they want to get any profit from the investment. Last time we saw

        • by bloobloo (957543)
          Let's look through the DJIA, easily seen on finance.yahoo.com:

          Alcoa's price:earnings ratio over the trailing twelve months is 14.27
          AIG is 10.93
          American Express is 17.89
          Boeing is 22.45
          Citigroup 10.53
          CAT 15.5
          DuPont 14.04

          Microsoft's own ratio is 20.67

          It goes on like this. Now obviously this is only one aspect of valuation: the industrial majors are likely to have a much lower price to book assets ratio than facebook has, but a 10:1 P:E ratio is far from unlikely.
          • ...a 10:1 P:E ratio is far from unlikely

            Earnings [wikipedia.org] are not Revenue [wikipedia.org]. Earnings are profit. Revenue is total sales. It's VERY important that you understand the difference. Companies are not valued based on their P/E ratio. The only real use of a P/E ratio is to determine if a stock price is relatively high compared to similar companies. It tells you nothing about how much the company is actually worth. The market capitalization [wikipedia.org] can be important (if the company is publicly traded) but the P/E does not give

            • by bloobloo (957543)
              The gp talked about "revenue" of $300 per user over 10 years. I interpreted this as in fact referring to earnings, given the context. Obviously price:turnover would be much lower than P:E.

              As it is, I also would not invest in tech stocks such as these (except where they fall in my tracker, but as most are US rather than British I don't have as much exposure there)

              Looking at your figures, with $150k EBITDA, let's allow say 50% tax, interest etc for a profit of $75k. Discounting at say 7% per annum real value
              • by sjbe (173966)

                Basically we are saying the same thing but your correct use of revenue vs my use in the gp's terms got in the way!

                Fair enough. It's an unfortunate reality that in general in the finance world people are too loose with definitions. Drove me nuts when I was first learning about all this in school. You seem to have the concept down but there are a LOT of people who really just don't grasp the difference between revenue and profit. I try to educate where I can to help.

    • No no no.....

      You're making the same mistake as TFA.

      There's a declining net aggregate utility in owning share in the company. A sharply declining one too.

      The first 5% might cost them $300 million or whatever, the next 5% significantly less, etc.

      Its not a linear function, and therefore, you can't make the leap to "Facebook is worth $10 billion, and each user $300"

      Now, that said, I agree no matter what, its still wildly overpriced.
  • by Paktu (1103861) on Tuesday September 25, 2007 @11:26AM (#20743947)
    How the hell is Facebook worth $10 billion? Less than a year ago, they were estimated to be worth $1 billion...does anyone seriously think this site can bring in real revenue?
    • Well, they have millions of users, who are fed ads with every page request. I'm pretty sure that they are making a lot of money -- or else Google wouldn't be doing so well either.
      • TFA itself says that Facebook themselves expect to rake in a piddling $30 million profit on $150 million revenue this year.
    • by monk.e.boy (1077985) on Tuesday September 25, 2007 @11:32AM (#20744043) Homepage

      How the hell is Facebook worth $10 billion?

      Repeat after me: BUBBLE

      Next month it will be worth ONE HUNDRED BILLION DOLLARS, and the month after it'll be worthless.

      • by jollyreaper (513215) on Tuesday September 25, 2007 @12:51PM (#20745251)

        Repeat after me: BUBBLE

        Next month it will be worth ONE HUNDRED BILLION DOLLARS, and the month after it'll be worthless.
        I believe you mean "Bubble 2.0."
        • Maybe this time around we can crowdsource a Web 2.0 revenue model to capture all those eyeballs, and implement it on a scalable platform using best-of-breed licensed and open source technologies.
          • Maybe this time around we can crowdsource a Web 2.0 revenue model to capture all those eyeballs, and implement it on a scalable platform using best-of-breed licensed and open source technologies.
            I feel like slapping you. Well done, sir, well done.
      • I agree completely with the parent, this is most definitely a Bubble. There is no way that the underlying technology of facebook (CSS, HTML, PHP, Apache, and MySQL or Postgresql) or the ad profits that it generates has a present value greater than ten (10) billion dollars. The source code itself, which was leaked a couple months back, appears to be rather mundane stuff (not the best example of quality PHP coding, but then again not the worst either). The only things stopping a potential competitor are new a
    • Well, you have 34 million users, so theoretically they must be worth something if you can leverage that for advertising or something.

      Not 10 billion though. If you started charging your users for special features you could start pushing toward that, but as long as you're relying on ad revenue you're screwed.

      It's like cable, or newspapers...The ad revenue is what people talk about, but the bulk of the money comes from subscription fees! Advertising is just the icing on top. The reason you pay 100 bucks a mont
      • Well, you have 34 million users, so theoretically they must be worth something if you can leverage that for advertising or something.

        Yeah, but not all 34 million are active. I'm one of them ... I check it about once a month for 5-15 minutes. Once you are out of college for a few years its really just there to get the contact of a former colleague if you need it. Assuming they kept it up-to-date.
    • by Duncan3 (10537)
      Study after study shows the Facebook demographic completely ignores ads, doesn't even realize they are there, or even run adblock plus.

      That means Facebook is worth almost nothing. The advertisers haven't caught on yet tho, they aren't exactly the type that real research studies ;)
      • by Dunbal (464142)
        That means Facebook is worth almost nothing.

              It's worth whatever someone is willing to pay for it. If Microsoft figures it's worth $10 bn, then it's worth $10bn. Of course, I won't argue that MSFT might be making a huge mistake, but huge mistakes can just be written off anyway... It takes balls to take risk, and risk doesn't always pay off. But when it does, it's well worth it.
      • You are exactly correct.
    • This kind of financing is the ultimate pyramid scheme. Totally legal too.

      Step 1: Sell the first tiny bit of a company to someone for $100.
      Step 2: Sell the next tiny bit of a company to someone else for $1000. You can casually drop impressive phrases like, "My investors..."

      Rinse and repeat minimizing losing control of the company.

      Given the amount of wealth held by the top 2% in the U.S., this kind of private placement financing will be quite the norm going forward. Another reason why income and wealth dist
    • by davidsyes (765062)
      Maybe mshaft is going to change the user terms of agreement and grant themselves the "right" to sell our information, profiles, and more. Or, they're trying to angle in on us to make us addicted to their upcoming products/services.

      Looks like I'm going to start back editing my postings to be "copyrighted material" and dare fb or ms to remove it from my postings. Looks like I'll have to prepare to find another social networking site and minimize my use of fb... maybe...
  • by dermond (33903) on Tuesday September 25, 2007 @11:26AM (#20743949)
    wikipedia reports 34 million users. this would it mean $294 per user... sounds a bit overpriced to me..
    • by AcidLacedPenguiN (835552) on Tuesday September 25, 2007 @11:55AM (#20744381)
      I think instead they should just buy every user an Xbox 360. . .
    • Well, there's a handy chart in TFA that shows Facebook as having 69.3MM unique visitors in August 2007... this figure is more relevant to ad impressions and click-throughs than number of users.
    • "wikipedia reports 34 million users. this would it mean $294 per user... sounds a bit overpriced to me.."

      If the growth has been rapid, then 34 mil today could be 50 mil in a few months. And even more down the road.
    • Re: (Score:3, Funny)

      by NickCatal (865805)
      Wikipedia reports it as "MIKE IS GAY", what does that make it worth?
  • Noooooo!!!! (Score:5, Funny)

    by onosson (1107107) on Tuesday September 25, 2007 @11:29AM (#20743985) Homepage
    Maybe if we all *poke* Bill Gates, we can get him to stop.
  • by Rik Sweeney (471717) on Tuesday September 25, 2007 @11:30AM (#20744017) Homepage
    Mark Zuckerberg would like to keep it independent apparently.

    In any case, register your complaint by joining this group

    http://www.facebook.com/group.php?gid=6197556554 [facebook.com]

    Everyone knows that joining a group on Facebook can move mountains and change the world...
  • Scrabble (Score:5, Funny)

    by LordSnooty (853791) on Tuesday September 25, 2007 @11:34AM (#20744071)
    As long as I can still play Scrabble, I don't care!!!1

    Actually, this input from Microsoft might help to fix the problems that Scrabulous seems to suffer every day... right, gang?? As you can see, I only use Facebook for Scrabble. There must be a group for me.
  • by duppyconqueror (1161341) on Tuesday September 25, 2007 @11:42AM (#20744209)
    of Ballmer and Gates doing Jello Shooters at a rager.
    • by Dunbal (464142)
      No one does Jello shooters anymore. At least not in that tax bracket. You get people to drink them for you, while you smirk at them over cognac and caviar.
  • How many real users? (Score:5, Interesting)

    by vux984 (928602) on Tuesday September 25, 2007 @11:51AM (#20744305)
    Great. Just another reason not to use facebook.

    As for the number of users, I wonder how many of them actually USE facebook, vs simply having registered in order to see someone elses crap. I know a lot of people who've been roped into 'signing' up to these sights in order to see their cousins christmas pictures, or to rsvp to a wedding shower where the idiot hosting it sent out the invitations via facebook.

    So far: I don't have a facebook profile; I don't want a facebook profile; and I'm dreading the day where I have to get a facebook profile because I need to see someone elses effing facebook crap. I just know that sooner or later an important client is going to send me a facebook invitation that I'll -have- to register on the site to properly respond to...

    I hate social^H^H^H^H^H^H viral networking sites.
    • Re: (Score:3, Informative)

      by HarvardAce (771954)

      As for the number of users, I wonder how many of them actually USE facebook, vs simply having registered in order to see someone elses crap.
      According to Wikipedia [wikipedia.org], 60% of users log in at least once per day. This number is probably a little old (my guess is the number has decreased as more and more people have joined), but even at half that number it is still impressive.
  • Hey! If I add Gates and the rest of the MS staff, I can start using my Star Wars Jedi plugin and start using the force on them! Maybe even recruit some of them to the Jedi Linux side! I think Darth Gates might be a tough opponent though his minions will be very easy to manipulate..

    "These are not the code bugs in Vista you are looking for" could have a whole new meaning... :)
  • by Random BedHead Ed (602081) on Tuesday September 25, 2007 @11:52AM (#20744333) Homepage Journal

    I'm sure Steve Ballmer discussed this with Rupert Murdoch over drinks.

    "So how are profits from your MySpace purchase, Rupe?"

    "Oh, well ..." said Murdoch, looking nervous. "Actually, great. Great! It's going to be worth billions real soon now." He laughed icily at his own irony.

    "Really? Because we were thinking of buying a stake in Facebook at Microsoft."

    "Oh, you should totally do it," said Murdoch, grinning wildly.

    "Yeah, we thought the developers would love using it on a sort-of group connection to MSDN."

    "Do it! There's nowhere for these social sites to go but up."

    "And we're thinking of extending the Welcome to the Social campaign to include it."

    But Murdoch was laughing to hard to hear the rest.

    • There's already a few companies who've realized that social promotion is a significant under/untapped advertising/marketing opportunity, and it's going to get bigger. It may not always be MySpace and Facebook where it happens, but the companies that build tools and gain expertise in it are going to see some real success.

      I think it took a media guy to understand this. MySpace is actually a "social channel" of sorts... a kind of new entertainment media all its own. Like Fox or NBC it may not always be on top
  • buy people (Score:5, Interesting)

    by kurtis25 (909650) on Tuesday September 25, 2007 @12:01PM (#20744487)
    Face it we are being bought and sold like cattle. In this case MSFT is buying a place to plug in their future office live apps. A few updates down the road you will see the edit interface look like office live. This will mean that thousands of people are getting used to a MSFT product on Facebook and will use office live when they have to decide where to type their next document. Let's say Google buys Slashdot and changes the Post Comment screen to a docs.Google style screen (with awesome presentation style comment ability) then when it comes time to choosing a Word Processor in 3 years I'm going to choose docs.Google since I've already been using it on Slashdot and you will make the same choice. So this 5$ share is nothing more then MSFT buying future customers. They didn't buy the farm for the land they bought it for the cattle. ---- Mooooo....
  • Mark Zuckerberg is the Steve Jobs of our time! He's 23 years old and worth billions! Same as Jobs back when he was Zuckerberg's age. It just goes to show, if you're enthusiastic and driven, and you have an idea to satisfy a need people don't already know exists, you stand to make billions!
    • Re: (Score:3, Insightful)

      by Anonymous Coward
      Unlike Zuckerberg, Jobs actually innovated and evangelized real technology. Facebook rehashed a viral formula in a niche market and grew it successfully. Facebook is valuable because the site is popular, but this can change on the whims of a user-base. Facebook has made no significant technological contribution to the internet and overvaluing popularity is a huge mistake for long-term investments---it's almost like we don't remember 1994-2001 anymore.
  • Oh, goodie ... (Score:2, Insightful)

    by the bluebrain (443451)
    ... then we can expect similar groundbreaking, innovative improvements as we saw when hotmail was microwashed.
  • So... Dr. Evil is doing due diligence for MS? Who knew.
  • by hey (83763) on Tuesday September 25, 2007 @12:37PM (#20745017) Journal
    Facebook is nicely done. They keep everything lowkey. No blinking, no spam, etc. They appear to respect user's privacy.
    Its what users who aren't children want. That is one of the reasons it got so many users. Well, that and the network effect. But niceness certianly helps. Of course, Microsoft knows nothing about making an application low key and pleasant to use.
    • by Burz (138833)
      Yeah, which is why they encourage their users to enter the email addresses of all their friends and family.

      Did you know that I have a facebook profile, without ever previously visiting their site? So now I have to sign up myself to find out what this profile says about me!

      It's like automated blackmail.
      • Re: (Score:2, Funny)

        by onosson (1107107)

        Yeah, which is why they encourage their users to enter the email addresses of all their friends and family. Did you know that I have a facebook profile, without ever previously visiting their site? So now I have to sign up myself to find out what this profile says about me! It's like automated blackmail.
        He said they respect users' privacy. He didn't say anything about non-users.
        • by Burz (138833)
          It doesn't matter to me whether a users' privacy is invaded before or after they give in and sign up.
  • or infringed a patent or other IP - they tend to pay off by buying shares - when you have a small firm "potentially" worth billions, it's hard to get cash sometimes.

    Remember Borland and other such "investments"?
  • by rinkjustice (24156) * <rinkjustice@NO_S ... m ['roc' in gap]> on Tuesday September 25, 2007 @03:27PM (#20747349) Homepage Journal
    According to the latest ish of Wired magazine, Facebook has 40 million active users (real people and not sock puppet accounts, thanks to the fact users can only view other's profiles upon confirming relationships) who generate more than a billion page views a day. Lately, Facebook has also been signing up 1 million new users a week.

    Facebook also has that supercool Newsfeed feature which aggregates the latest activities on friends, family and associates, and manages to connect people who haven't seen each other in twenty years. Admit it, it's like nothing we've ever seen before (Myspace shouldn't even be in the same category).

    I'm not a Facebook fanboy (alright, maybe I am), but I marvel at how well its connecting people in meaningful ways. It's a social universe within the internet. It's going to be bigger than money, because of it's worth and usefulness to you and I.

    I don't like Microsoft one ioda, but they made a smart move here.
  • by dwater (72834) on Tuesday September 25, 2007 @07:32PM (#20750163)
    I've refused to use Facebook (despite some pressure from friends) since they won't allow me to use my chosen email address, despite it being perfectly standard.

    The problem is that I use 'plus addressing' (eg me+facebook@home.com) and their email validation scripts has a bug that claims it is invalid. It's not uncommon for validation scripts to have this bug, but most web sites are happy to find the bug and fix it. Not so with facebook - my impression is that they're just a little bit arrogant. So be it.

    Yeah, I could not use plus addressing, or use some other account, but it hasn't got to the point where I want to bother yet. It's still annoying though.

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