The "$15 Billion" Nonsense

That's true enough. Of course, it applies to every other stock, too: Google's ~$200 billion market cap is based on the price of the last trade, which for all we know was a 100-share buy that mostly constituted an investment in smugness. Since there are so many small investors, and since large investors have lower turnover, the vast majority of investment transactions are non-representative, but they're still the best information we have.

It wouldn't be especially surprising if MS overpaid -- but I don't think that's what Facebook wants. Companies usually like to IPO at their peak valuation. Investors very rarely want to buy discounted goods during the IPO (which is why many startups would undervalue their early venture capital investments: if they were funded at $.25/share in January, got another round at $5/share in July, and were going public at $20/share in December, they give new investors a comfortable trendline to look at. Swap the last two valuations, and you start scaring people).

Why aren't people looking at this deal and saying "$240m is the price to secure their ad revenue deal?" If they paid the same amount and didn't get the equity, would FB still we worth $15b?

Paying $240m to secure their ad relationship may have been a good deal in and of itself.

Well, I think the point is that Microsoft gave Facebook $240 million in exchange for a few things. A "strategic alliance", 1.6% equity stake, an advertising deal for Facebook ads outside the US, etc. Now, it's not correct to just multiply those numbers to arrive at Facebook's book value, but the deal certainly values Facebook very highly: as a company that Microsoft is willing to essentially give $240 million to at a very generous valuation. So while Facebook aren't a $15 billion company, they're a company that can raise $240 million in exchange for a small equity slice and an ad deal -- which is a very highly-valued (overvalued?) company indeed.

I agree with the blogger's reasoning, only now there's a rumor of a $500 million investment from two NYC hedge funds (http://news.ycombinator.com/item?id=72562). The hedge funds would be making a financial, not strategic, investment so the straight-line extrapolation approach would be supported.

The point is this post is nonsense. Facebook's current valuation IS $15 Billion. Because of Microsoft's stupid investment we now have to live in a world where Facebook has a $15 Billion valuation. Thanks M$!

Does this mean new engineers who join facebook will get stock options with a strike price reflecting the $15B valuation? Won't that make it harder to recruit people?