Dear Little Class,
Forgive me for the lack of originality, but I must begin by discussing Facebook and then question myself or even contradict myself. So here are my thoughts:
Microsoft bought Facebook equity at a $15B value. This is a mind boggling fact, one which I personally find insane. Not to say that Gates and Co. don't have a clue to what they're doing, but does anyone believe that FB would generate future cash flows of $15B? Think about it - Google is worth around $157B, Apple is worth over $160B. Is FB worth 10% of these two ginormous entities, or is this just the newest mutation of the internet bubble? Let's call it the Social Network Bubble...
So what makes Facebook so attractive to the world? As mentioned in class, Facebook offers the complete Big Brother experience, one which enables advertisers and marketers to reach all of us more effectively than ever, as they snoop into our demo-techno-psycho-AndEverythingElse-graphics. This does not only enable marketers to send us pinpoint targeted messages to the extent of replacing our personal assistants in reminding us of our anniversaries (which we were about to forget and for which they would be handsomely rewarded), but also helps President W types to get all of the information they need about any of our terrorist friends. I just hope FBI agents don't come knocking on my door due to a blog.
I will summarize and say:
Indeed, Facebook offers a unique opportunity for advertisers, one which only a few years ago did not exist. But just as Facebook busted into the scene as the biggest thing since Chicken Noodle Soup, more or less out dating MySpace, as MySpace did to Friendster, who says that MyHotFriends.com, a futuristic social network for people who want even more intimate relationships with their communities, would not do the same to Facebook.
So is Facebook really here to stay? The answer is probably yes.
$15,000,000,000 has lots and lots of 0's. In my opinion, a few too many.
1 comment:
I agree the $15 Billion Facebook valuation is completely insane. I haven't heard of a dumber valuation number since Ebay bought Skype. (For the record, I think Skype & Facebook are both great companies - just over-valued) Many people have talked about why the deal makes sense strategically: Microsoft blocks Google's entrée to Facebook, and keeps Google from building an even bigger block of advertising partners. (Google has already partnered with MySpace and AOL)
However, here's why the facebook deal makes sense financially and is completely different - Microsoft is essentially buying revenue at no true cost. Huh?
Facebook will end 2007 with roughly $150M in revs and $30M in EBITDA. Even with Microsoft's investment, Facebook has raised less than $290M in preference. Although I haven't seen the exact deal terms yet, at a minimum the deal definitely has a 1x liquidation preference, which means that Microsoft will get it's money back in any acquisition greater than $300M. Yes, if Facebook does in fact go public in 2009 or 2010, then Microsoft's preferred stock will convert to common, but by then Facebook may have grown into the $15B valuation. Either way, Microsoft will make money on this deal, Facebookers and its investors are buying new green-friendly Tesla cars in San Francisco, and Google's annoyed. In the short-term Google will be fine, but in the long-term Google will have to deal with it's top engineers slowly 'retiring', starting their own companies, or getting picked off by Facebook.
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