Microsoft - Face(off)book

Everyone knows about the talk of the town - Microsoft MSFT buys 1.5 % stake in Facebook for $240 million. Microsoft also gets to serve ads in the social-networking website. This makes the valuation of Facebook at a whooping $15 billion ! The very next day Microsoft released their quarterly result and we see the stock has jumped almost 10% in couple of days. While many argue that this deal makes no sense, some say it is a fair deal.

Mostly companies are valued with what they have today and what they can offer tomorrow. In that sense, Facebook with about 50 million customer base - each customer is valued at around $300. This is quiet a good money, considering the fact that these are young people (often students) and serving ad. to them may not make them spend more. In this perspective, the money paid by Microsoft looks too much for the return it gets.

What is Facebook going to do with this money? May be it will hire more talent and set path towards a successful technology company. May it will grow to take on Google GOOG and the likes. May be when it starts showing up signs of ready for a war, will Microsoft invest more in them. If you look in that prespective, may be Microsoft is feeding a pet (heavily) to take on its rival. There is also a phenomenon brewing up recently - Microsoft's going the way of Berkshire Hathaway BRK.A (just saw this theory in a blog). May be all these are focussed towards this direction.

One thing is sure - until someone from inside say the real reason, it will take time for others to understand. Till that time there will be theories and its gonna keep the company name reflected in many places (brining in free publicity). No wonder, why Warren Buffet doesn't interests investing in Techonology companies.

Do you get the underlying business here?

Microsoft pays $240 million for stake in Facebook
Microsoft's Facebook deal makes no sense
The greed of Facebook
More evidence Microsoft's going the way of Berkshire Hathaway