Facebook said yesterday that Digital Sky Technologies, a Russian internet investment group, has paid about $200m to buy a 1.96% stake. This not only gives the social networking site a handy cash pile, it also values it at a cool $10bn – way down on the $15bn valuation when Microsoft bought a stake 18 months ago, but still more than most tech analysts were expecting. Given Russia’s financial decline in the last year, this might seem brave – but with Facebook yet to come up with a world-beating revenue model, some reckon that it couldn’t find this kind of valuation closer to home...
Just in case you've never heard of Russian group DST (like us), Facebook’s new investor is an investment group with a $1bn portfolio of 30 holdings in Russia and Eastern Europe. Under the terms of the deal, it will buy $200m of preferred stock (which carries some unspecified special privileges), while also offering to buy at least $100m of ordinary stock later this summer from the site's employees (past and present). So it’s a nice deal for Facebook – particularly since DST won’t even get a seat on the board in return – and according to Mark Zuckerberg, will provide a handy war chest for future investments.
Clearly Facebook’s price tag has dropped substantially since the Microsoft investment in 2007 at the ‘absolute peak of the market’ (which also suggests Microsoft has made a huge paper loss, although perhaps it was happy to accept that as a price worth paying for a seat at the top table). But frankly, the biggest surprise is that the valuation is still so high. Rumour has it that the investors who’ve been sniffing around Facebook lately thought it was worth as little as $2bn-$3bn, and there’s still no evidence that it’s really cracked the whole monetisation thing. It claims to be profitable, and growing revenues at a rate of 70% per annum, but its valuation still seems based on the hope that it will eventually work out a way of cashing in on its vast user base (now over the 200m mark).
Then again, its new Russian investor might actually prove rather helpful in that regard. Not only will it be a useful supporter as Facebook expands into the local markets (where their companies account for about 70% of all social networking traffic), but they also have experience in micropayments. Facebook presumably needs another string to its revenue bow on top of advertising, and persuading users to shell out small sums for premium services is as good an option as any. If it cracks this, today’s $10bn valuation might end up looking cheap. But until that day comes, and until it provides some guidance as to how much money it actually makes, it all sounds a bit ‘dotcom bubble’ to us.
In today's bulletin:
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Facebook gets $200m with love from Russia
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A Steely attitude towards flexible working
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