May 26, 2009

Facebook’s Zuckerberg: $10 Billion Is a “Fair” Valuation

Facebook

by Peter Kafka 

Posted on May 26, 2009 at 10:48 AM PT

 

Looking for lots of specifics about the $200 million at $10 billion valuation deal that Facebook and Digital Sky Technologies just announced? Then you have come to the wrong conference call, my friend. But for what it’s worth, Facebook CEO Mark Zuckerberg did sound fairly upbeat and confident during his chat with reporters Tuesday morning–the way you’d expect someone who just cashed a check for a couple hundred million to sound.

 

The big picture: 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.

 

Zuckerberg’s main talking points were that his company didn’t need the money, but it sure was nice to have, both to fund growth and make any M&A easier to pull off. And when it came to his new partners, he argued that DST’s existing portfolio, which includes several other social networks, would provide models/examples for his company as it continued to expand outside the U.S.

 

Earlier: Facebook and its newest investors Digital Sky Technologies, are holding a teleconference to discuss the $200 million at 10 billion valuation deal the two parties just announced. I’ll be covering the call live.

 

Call starting “momentarily.”

 

On the call: Facebook Mark Zuckerberg, DST CEO Yuri Milner. Also, via phone (from D7!): Facebook COO Sheryl Sandberg and DST’s Alexander Tamas.

 

Zuckerberg reading statement that more or less tracks press release: “Advertising product” improving, “our business is doing really well” and we’re on track to create a “nice” business, and that’s why investors want in. DST approached us, has interesting profile and experience and insight into social networks. “We found their thinking and their leadership to be really impressive.”

 

Money provides “cash buffer” to support our continued growth, also possible other moves. No specific plans to talk about “but nice to have flexibility.”

 

Milner: “I realize not all the participants on the call are familiar with us.” Goes over DST portfolio. “We have now started to actively expand abroad.” We’re a holding company, have raised and invested more than $1 billion since 2005. Rattling off portfolio companies now.

 

Q&A: What does this mean for possible IPO?

 

Zuckerberg: “Our approach to financing has really been that we want to take money and work with partners”…”for a lot of start-ups, you get the feeling that the IPO is really the end goal…that’s not the case for us…we’re not rushing toward it…that’s really all I have to say about that today.”

 

What’s valuation for common stock?

 

Zuckerberg: No comment. “There are different transactions that we’ve structured differently…we hope that there will be different things in the future…probably sometime in the next few months.”

 

What does this say about Microsoft’s $15 billion valuation?

 

Zuckerberg: We did that deal at the peak of the market. That was part of a broader relationship. That investment was just one piece of it. This is also a relationship that we’re forming with DST…we hope we will work with other things over time.

 

“We feel really good about the progress we made…we feel this is  a good and fair valuation for us.” The Microsoft deal was at peak of market and was a strategic deal.

 

“The world was in a pretty different place at that time.”

 

The international audience is 70 percent of our 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.

 

Zuckerberg: 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.

 

What is your ad revenue going to be?

 

Zuckerberg: A couple of months ago, we felt that everyone outside the company was underestimating our performance. We’ve been EBITDA-profitable for five straight quarters coming on six. Revenue growth has been 70 percent. Cash-flow positive sometime in 2010. That’s important because it means this investment is pure buffer. I realize those aren’t absolute numbers, but those are the ones we’re talking about.


Will DST be involved in management?

 

Milner: We have our own businesses to run. We’ll keep in touch.

 

Questions about micropayments.

 

Zuckerberg: We’ve tested a lot of things. It’s not a big part of our business, could be greater one day. They create a lot of value for users, and there are ways to monetize them. I’m looking forward to learning how these models are working.

 

Please talk about common stock/employee stock purchase plans.

 

Zuckerberg: Going back to first question re. IPO. We want to make sure that we can continually make it so employees can be focused on the long term. We felt that if we let people have a little bit of liquidity, it can take some of the pressure off and let people focus on making company as good as it could be. We started to do this last year and had to hold off. Now we hope to be able to do it again.

 

Will that be the only way you are allowing employees or ex-employees to sell shares?

 

Zuckerberg: Still talking about.

 

Is current Facebook ad business to be the main business going forward? Doesn’t mean it will be main business in the long term. You guys know everything that we’re talking about now.

 

Why aren’t you running big brand ad campaigns?

 

We’re very interested in it. We have a big ad sales team. Building out offices internationally: U.K., France, a few more coming up. We think the best way to serve advertisers is to create ads that people interact with, that are “social and engaging.” I don’t want anyone to think that this isn’t a big part of our business, because it is.

 

Sandberg: Heavily engaged with brands. Ads specifically designed for Facebook, so they look different and behave differently than other ads on other sites, and that’s a good thing.

 

Preferred shares–are these are substantially similar to the ones Microsoft bought?

 

Zuckberg: “I’m gonna duck that one.”

 

Does the company have any debt?

 

Zuckerberg: [pause] There’s been some information that’s been public about debt we have for operating equipment. Beyond that, we do equity deals.

 

Will you do other investment deals? How many did you look at?

 

Zuckerberg: He doesn’t really answer this question; instead he goes on to praise DST.

 

Milner: We see things that other people don’t see, which is monetization that other social networks have been able to do. So we “kind of feel comfortable with that valuation.”

 

Is this largest foreign investment in Facebook?

 

Zuckerberg: Um… [pause]. There’s been some public information about other folks we’ve worked with, but I think from reading some of the records you can get the answer to your question.

 

Other new deals?

 

Zuckerberg: It was really at our option to find someone we were comfortable with. We didn’t feel like we needed to take an investment, and now we feel like we have the buffer we want.

 

Working on video chat product? More international products?

 

Zuckerberg: Yes. There are lots of things like that that we’re working on now. We want the site to be available in every country. We’re not translating the site. Users translate the site themselves. And a lot of the features are universally applicable.

 

Call finished.

Source: http://mediamemo.allthingsd.com/20090526/live-facebook-russian-investors-discuss-new-financing/

 

Posted via web from Global News Feed

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