Even Microsoft doesn’t value Facebook at $15 billion

26 Oct

Lots of ruckus about Microsoft’s $240 million investment, supposedly valuing Facebook at $15 billion.

Microsoft’s original ad deal was for 3 years (ending in 2009). That was their original relationship with Facebook.

So Microsoft spent $240 million and got 1.6% of Facebook. That means $240 million / 0.016 = Facebook valued at $15 billion right?

To rip from Techcrunch (with added emphasis):

It will invest $240 million in Facebook and expand its existing relationship to international markets, according to the WSJ. (The previous advertising relationship was only for the U.S., now Microsoft is Facebook’s exclusive advertising partner both in the U.S. and abroad until 2011)

So not only was there 1.6% of Facebook given up to Microsoft, but (which everyone seems to miss) – the ad relationship was expanded and extended to 2011.

Microsoft doesn’t value Facebook at $15 billion. It values 1.6% of Facebook and an expanded and extended ad deal at $240 million. That’s it. You can’t ignore the ad deal and magically come to a $15 billion valuation.

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32 Responses to Even Microsoft doesn’t value Facebook at $15 billion


Pilgrim’s Picks for Friday 26

October 26th, 2007 at 8:08 am

[...] Ahmed makes a good point about the MSFT/Facebook deal. Part of the $240M includes extending the ad relationship until 2011. How much of that $240M should go towards that 2 year extension? Does that reduce Facebook’s $15B valuation? [...]



October 26th, 2007 at 9:53 am

Nicely done, Ahmed. I’ll admit that the first thing I did when I saw numbers was do the math… So I think we can say that MS values the Facebook membership in 4 years at $15B, if not the company itself today… which is not quite the same thing.


Michael Schneider

October 26th, 2007 at 2:13 pm

“now Microsoft is Facebook’s [b]exclusive[/b] advertising partner both in the U.S. and abroad until 2011″

If the above is correct, elimination of competition plays a big role.



October 26th, 2007 at 2:14 pm

How true. How stupid some bloggers are.



October 26th, 2007 at 2:16 pm

[...] Even Microsoft doesn’t value Facebook at $15 billion – Tech Soapbox Author: Josh [...]



October 26th, 2007 at 2:20 pm

Well yes Michael – to get more in-depth, with $240 million they got 1.6%, extended/expanded ad deal, and removed the competition.



October 26th, 2007 at 3:52 pm

There are reports of two hedge funds that threw in another $500 mill at the same valuation, so it appears that Microsoft wasn’t alone on this one: http://blogs.forbes.com/meetblog/2007/10/facebook-making.html


Chris Krasowski

October 26th, 2007 at 5:08 pm

The $240 Million was just for the stake in Facebook. That’s what values it at $15Billion. The extension of the ad deal is big for Microsoft but that nothing to do with the purchase price.

How this typically works is that Microsoft probably offered a bigger percentage of Ad revenues than Google or Yahoo. So It’ll be Microsoft’s ad platform supplying ads and Facebook will probably get 60-70% of those ad dollars through Microsoft. The fact that Microsoft bought a small piece doesn’t have anything to do with the ad deal in terms of Money.

However agreeing to own a piece will help in negotiations against the likes of Google and Yahoo.

There were actually a couple of Hedge Funds that pumped almost $500 Million into Facebook and got almost the same 1.6% that Microsoft did.

Facebook’s value is $15Billion because that’s what people are paying for piece of it. The Advertising partnership money is separate and will be coming to Facebook through the years from Microsoft.



October 26th, 2007 at 5:16 pm

@Peter – right – the title says Microsoft, not other equity firms :)

@chris – Thats the thing though. The $240 million was not a one to one relationship. It wasn’t ‘Microsoft gives $240 million and receives just 1.6%’ It was ‘Microsoft gives $240 million and receives 1.6% + expanded/extended ad deal’


Microsoft and Facebook partnership « Eileen’s Technology blog

October 26th, 2007 at 5:19 pm

[...] is a timewaster (and it’s certainly possible to waste an inordinate amount of time on there), Ahmed also has some thoughts worth thinking about how we valued Facebook.    Marc seems to have the best take on [...]


Dennison Uy - Graphic Designer

October 26th, 2007 at 5:41 pm

Microsoft placed itself in a great position. 3+ years is a long time and Facebook has a lot of room to grow compared to, say, MySpace which may be close to reaching its saturation point. Also one factor to consider is Facebook’s target audience. Having a young target market has some great advantages: First, there are more young people than old ones. Second young people has the potential to consume a product much longer, once they are hooked. Third, they get more chances to socialize with their peers. Finally, this means that there is still a huge chuck of untapped resource outside that main target market that, if managed properly, should translate to a large portion of the company’s revenue.



October 26th, 2007 at 5:42 pm

MS has a lot of money. Hell they made over 4 billion dollars in the last quarter. $240 million is not ‘that’ big of a risk for the possible rewards.

Plus, at the suppoused $15 billion ‘valuation’, they are just creating quite the headache for Google and Yahoo.


Blake Brannon

October 26th, 2007 at 5:45 pm

Put the Math where your mouth is! Nicely done.


Scottsdale Web Design

October 26th, 2007 at 5:51 pm

The value of face book right now is huge, whatever way you look at it. I’m not entirely convinced that it’s all that good of a long term investment though, while it’s obviously not a flash in the pot trend I don’t believe it will have the staying power some people seem to be giving it credit for.


Microsoft does not quite value Facebook at $15 billion

October 26th, 2007 at 5:56 pm

[...] An interesting take on Microsoft’s recent purchase of 1.6% of Facebook. [...]



October 26th, 2007 at 6:20 pm

MS invested 240million for an ownership stake of 1.6%. They don’t give up that ownership at the end of the ad contract. That very simple fact sets facebook at a current valuation of $15billion. what is so difficult to understand?

the ad agreement can be a simple experiment or a deterrent for other companies to invest or it can be totally irrelevant. the only relevant fact is, regardless who takes over the agreement 2011 and further, MS will continue to be an owner at 1.6% stake.

This valuation will not change unless tomorrow someone comes and grabs a 1.59% stake at 240million of above.



October 26th, 2007 at 6:45 pm

Faramarz – you are completely missing the point. Yes it got them 1.6%. But it got them MORE than that.

What you are basically doing is valuing the ad deal to be zero. And that is a giant mistake.



October 26th, 2007 at 7:03 pm

The good thing is that MS by doing that (and by overpaying a bit) sets the price for Faceboook so high that nobody will be willing or able to buy it. In other words it guarantees that Facebook will stay independent, and in good terms with MS (because of the ad deal and the fact that provided such a high valuation and cash). To me it was a brilliant move. Also note that Yahoo and Google were just outside the door but probabaly they wanted a bigger share of the company. MS prefers to see Facebook by itself rather than part of Google or Yahoo. – Leo



October 26th, 2007 at 7:12 pm

What you guys all seem to not understand, is that this is nothing.
no big deal.
who cares?

If you think that it is sustainable, then you are clearly not thinking straight.
This type of stuff peters out rapidly once it reaches a climax.

Sure money well spent. If you are into sheep.

It is all hype, and the money generated will not last.

looks good on MS. good for facebook.

Good luck with your investment.



October 27th, 2007 at 7:44 am

I guess since MS saves time and money by following trends of other tech leaders, and since they charge an arm and a leg for their apps, they can afford to sink a few million into social networking, which is already heading downhill as it is.



October 27th, 2007 at 3:14 pm

I also wondered why those guys missed the ‘real’ deal but finally caught your blog from digg.

Its true 1.6% is so small that you cannot have even 1 chair in FB’s office with that share.

The real ‘deal’ is with the extension of accord.


Facebook ne vaut pas 15 milliards de $ | bbxdesign

October 28th, 2007 at 5:35 am

[...] ce que souligne Ahmed Farooq dans son blog. En effet, l’accord publicitaire entre les deux groupes qui devait [...]


David Mackey

October 30th, 2007 at 10:10 pm

1.6% for $240 million does seem a bit pricey…And I’d have to know more about the ad deal to know whether it really reduces the supposed valuation of Facebook.


Eric Hates corps

November 5th, 2007 at 5:16 pm

A great opportunity to stop using sites such as facebook, Micro$oft just wants to know about everyone’s preferences, since they already know what you listen to, now they’ll have a name “ yours” to sue if they don’t like the way you obtain your music, people stop using these type of sites!!, specially if they are owned by corporations.



May 20th, 2008 at 10:26 am

Come on guys, this deal is a simple deal to understand. I don’t understand this nonsense about the deal being worth less than $15B. If you pay $240 Million for 1,6% then the company is worth $15B, that’s it. Terms or not.

Financial investors can’t see this strategic value, that is something I understand. But you need to understand that the deal between MS and FB is a strategic deal all over. Nothing else. It has nothing to do with Wall Street “talk” at all. This is called a “business” transaction. It has nothing to do with stock exchanges and when it will be anything to do with stock exchanges FB will be capitalising on the MS deal and the P/E ratio will have reached lower numbers (hopefully). MS would be able to trade the value on the stock exchange very soon (unless ad revenues from FB will be a total flop).



November 24th, 2008 at 1:00 am

I do not know how or why this Ahmed can speak for Microsoft… If you bought a garage in a house for a certain—for whatever reason or use you might have in mind and for however long you want to use it—then the price of the house can be deduced from the price of the garage itself!… This Ahmed is a charlattan…



November 24th, 2008 at 1:02 am

Pardon me, my post should have read, “… for a certain price…”



November 24th, 2008 at 1:04 am

And I also mispelled “charlatan.”



November 24th, 2008 at 1:28 am

You are obviously stupid, which is why your analogy fails.

It isn’t that you just bought the garage in the house – you also bought the shiny Mercedes in there. THAT is the correct relationship with Microsoft, ownership in Facebook, and the ad deal.

Thanks for trying :)


Leif Harmsen

November 8th, 2009 at 4:51 pm

What will the value do when ordinary folks figure out WHY we have a domain name system in the first place, and consequently leave Facebook and the like in droves. Mention proprietary “social” networking in a year and everyone will think “trashy, cheap, unprofessional, pathetic, stupid”. Oh, we think that already – it’s a year on since the last post. I guess things like Facebook, cigarettes, casinos, opium, hotmail, subprime, etc. can only fool so many people for so long, then we mostly get wise to them. Those that don’t earn the label “loosers” and carry that stigma, because however unkind, that’s what they are.



February 9th, 2010 at 11:07 am

microsoft did the right thing.! Facebook ranks 2 in World..! Thats really very good..!



June 18th, 2010 at 8:50 pm

Well Microsoft isn’t paying the 240 mil for the 1.6% some people have failed to understand that the money is also going towards eliminating the competition. Facebook would have asked for quite a larger amount to do that as they will be losing lots of money from lots of different investors. You cannot value a company on the basis of a business offering. They must also take into account the lifespan of social networking websites, whether Facebook decides to start charging money to use their service etc….there is too much to take into account to simply base the value of a company on one business transaction.