{"id":949,"date":"2007-10-25T10:56:26","date_gmt":"2007-10-25T16:56:26","guid":{"rendered":"https:\/\/www.roughtype.com\/wp\/?p=949"},"modified":"2007-10-25T10:56:26","modified_gmt":"2007-10-25T16:56:26","slug":"the_15_billion","status":"publish","type":"post","link":"https:\/\/www.roughtype.com\/?p=949","title":{"rendered":"The “$15 billion” nonsense"},"content":{"rendered":"

So Microsoft, under fierce pressure, cuts a complicated deal with Facebook that, among other things, grants the software giant expanded rights to serve ads on the fast-growing social network and requires it to inject $240 million into Facebook’s cash-strapped coffers in return for a modest 1.6% ownership stake in the startup. Immediately, the capital investment is isolated from the rest of the deal, and we are told, through straight-line extrapolation, that Facebook is officially “worth” $15 billion. Reports<\/a> the New York Times: “The investment values Facebook, which is three and a half years old and will bring in about $150 million in revenue this year, at $15 billion.” Writes<\/a> CNNMoney: “Microsoft Corp. announced Wednesday that it is investing $240 million for a minority 1.6 percent stake in Facebook, a price that values the social networking site at $15 billion.” TechCrunch’s Michael Arrington, putting the news into “perspective,” throws together a chart<\/a> that shows that Facebook’s $15 billion “market cap” makes it the “5th most valuable U.S. internet company.”<\/p>\n

Welcome to Fantasy Island.<\/p>\n

Extrapolating Facebook’s true worth from Microsoft’s investment is a ridiculous exercise, for two main reasons. First, the investment is part of a broader deal, the details of which are unknown. Clearly, Facebook needs cash to support its growth, and the cash payment was a price Microsoft had to pay to nail down the partnership. It has to be seen in that light, not as a market-cap marker. Second, and more important, Microsoft’s investment is not financial<\/em> but strategic<\/em>. The company is currently engaged in a multi-front competitive battle under conditions of great uncertainty. Facebook forms one of the fronts, and partnering with the company is far more about gaining future strategic options and blocking the advance of a competitor (Google) than about making a financial gain through the appreciation of Facebook stock. Microsoft, in other words, is about as far from being a dispassionate investor as you can get. Its investment, in isolation, tells us very little about the true worth of Facebook.<\/p>\n

Of course, the “$15 billion” number could become, in the near term, at least, a self-fulfilling prophecy by turning into the mental anchor<\/a> for other estimates. But that’s another story – and hardly a more rational one.<\/p>\n","protected":false},"excerpt":{"rendered":"

So Microsoft, under fierce pressure, cuts a complicated deal with Facebook that, among other things, grants the software giant expanded rights to serve ads on the fast-growing social network and requires it to inject $240 million into Facebook’s cash-strapped coffers in return for a modest 1.6% ownership stake in the startup. Immediately, the capital investment […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-949","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts\/949","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=949"}],"version-history":[{"count":0,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts\/949\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=949"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=949"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=949"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}