Facebook is not worth $15bn. And no, Microsoft did NOT value it at $15bn when they bought 1.6% for $240m. We see through it! And our goal in this blog is to expose the ridiculous deals constructed to con people into thinking there is huge value where there is not.
The “Microsoft invest in Facebook” is great example of how to “inflate value”. The morons of the world saw:
Microsoft invests in Facebook, $240m for 1.6% – which is a $15bn valuation!
http://www.nytimes.com/2007/10/25/technology/24cnd-facebook.html
This is my synopsis of what really transpired:
1. FACT: Facebook was shopping to do an exclusive deal with either Google or Microsoft to sell it’s ad space thru’ 2011
2. FACT: It became a bidding war
3. My view: MSFT won that bidding war, agreeing to buy $240m worth of space from Facebook
4. My view: Some clever CFO or finance guy at Facebook then came up with a proposal:
a) $240m in revenue over 4 years = $60m per year = which values facebook at $180m (if @ 15% profitability), which is way too small.
b) For MSFT, $60m out of their pocket per year, at their PE of 20 (@ Nov2007) is a reduction in Mkt cap of $1.2bn!
c) So MSFT, instead of paying us $240m, you buy 1.6% of stock for $240m and we’ll give you the space for free. That way, you buy an asset (rather than reducing your net income) AND you will end up with 1.6% of our company. Much better deal for you (oh, and it values us at $15bn, which will cause other morons to invest, which will increase your 1.6% value, so you’ll end up getting the adspace at no cost!)
Any investor worth his salt would steer clear of ever investing in them.
