Is Facebook Really Valued at $15 Billion?

The news yesterday that Microsoft won the bidding war for an ownership slice in Facebook included a widely reported line:

The two companies said on Wednesday that Microsoft would pay $240 million for a 1.6 percent stake in Facebook. The investment values Facebook, which is three and a half years old and will bring in about $150 million in revenue this year, at $15 billion.

But, the $15 billion valuation line is wrong because it over-simplifies what Microsoft actually purchased. In addition to the sliver of equity, they received exclusive rights to manage Facebook’s international ad network. That nicely complements the deal Redmond already has to serve up Facebook’s domestic ads. Microsoft was willing to pay a significant premium for control and cooperation with Facebook’s ad network, and to block Google from the same. That’s economic value behind the deal, and its fairly unique to Microsoft’s strategic business plan. It’s silly for the media to extend the $240 million Microsoft paid for a 1.6% share in a linear way to $15 billion. Facebook is worth an awful lot of money, but it probably isn’t anywhere near $15 billion. At least not yet.