Microsoft Buys Tiny Stake in Facebook For $240 Million

Posted on October 24, 2007

The New York Times reports that Microsoft has purchased a 1.6% stake in the Facebook social network for $240 million. The investment gives Facebook an extremely large valuation: $15 billion.

The two companies said on Wednesday that Microsoft would invest $240 million for a 1.6 percent stake in Facebook. The investment values the three-year-old Facebook, which will bring in about $150 million in revenue this year, at $15 billion.
The deal ends two months of jockeying between three major Internet players for the right to invest in and forge close ties with Facebook.
As part of the deal, Microsoft will sell the banner ads appearing on Facebook outside of the United States, splitting the revenue with it. Last year, Microsoft struck a deal with Facebook to run banner ads on the site in the United States through 2011.
The astronomical valuation for Facebook is evidence that Microsoft executives believed they could not afford to lose out on the deal. Google appears to be building a dominant position in the race to serve advertisements online. Fearing it might lose control over the next generation of computer users, Microsoft has been trying to match and in some cases block Google's plans, even if that effort is costly.

The Times article says Facebook has annual revenues of $150 million a year so the $15 billion valuation is 100 times its annual revenues. It's hard to see how this is not an overpayment on Microsoft's behalf but they do need to keep Google away from Facebook and News Corp. already has its social network investment with MySpace.