The social network is selling $200 million of preferred stock at a $10 billion valuation; DST will also buy up to $100 million of common stock at a lower valuation later this year.
While significantly less than the valuation of $15 billion established when Microsoft jumped into the Facebook frenzy many feel that the number that Microsoft invested on was inflated. Facebook CEO Mark Zuckerberg touched on the issue in a conference call. Peter Kafka covered it ‘live’ and commented
Even though Facebook’s official valuation has slid from $15 billion–November 2007, when Microsoft (MSFT) invested–to $10 billion, Zuckerberg is OK with that, arguing that 1) that deal was done at the peak of the market and 2) the pact was never really a financial deal, but a way for Microsoft to partner up with Facebook–and, though he didn’t say it, to box out Google (GOOG). That sounds pretty reasonable.
The international aspect of this union is most interesting. DST has ownership in several other social networking sites. They are bringing to the table some opportunities but also experience. This was one of the areas touched on in the call when the question was asked of Zuckerberg and DST CEO Yuri Milner
The international audience is 70 percent of your users. How do you monetize that? Zuckerberg: I have a few things to say, but want Yuri to talk, too. Milner: We have invested in five social networks in Europe. They have been able to monetize better than Facebook because they’re further along the curve than Facebook, which is a global company. But we think that Facebook will improve. Money will come from micropayments and advertising.
So why have these networks been able to monetize better than Facebook? I would guess because the revenue side of their model was addressed from the outset but that’s just a guess. Facebook still faces the fact that it’s best hope is through advertising because most Facebook users won’t pay for anything since they feel they are now entitled to use the service for free forever. Zuckerberg’s follow up was
We can do advertising and have been experimenting with payments. Social networks in DST’s portfolio all monetize in different ways. Each is doing well, with a different model. We’re still growing. Online and direct advertising are growing the quickest, but over time, we expect to be able to build out a large number of these things.
So the net / net of it is that Facebook really didn’t need the money but the extra $200 million certainly doesn’t hurt. I guess it would be hard to think about that kind of money in any other way. As for other equity deals for Facebook? No one said “nyet” yet.