Facebook just closed its latest round of capital and, even though the Digital Sky Technologies (DST) valuation of $10B is a significant haircut from the $15B on Microsoft’s $240M infusion last year, Facebook seems happy.
DST basically controls the Internet in Russia and with Facebook’s international growth objectives the partnership seems to make a lot of sense. It’s not clear what Facebook intends to do with the money but I’m betting on a series of acquisitions.
Many in the tech space dismissed the MSFT valuation by saying the deal was more about a strategic partnership and didn’t represent a true value of the company. I think that’s valid but this investment appears to be different and all indications point to DST honestly believing the company is worth $10B.
Why do they think it’s worth so much? Well, that’s a complicated and multi-faceted discussion where opinions could vary widely on every component of value. However, one of the factors has to be revenue growth. I have seen several posts doubting the $550M revenue projection Facebook was supposedly pitching in this latest round but, for the record, I believe they will beat this number.
I don’t have a copy of Facebook’s general ledger but I do spend a lot of time digesting board and management reports with several covering Facebook ad campaigns. I have seen how recent product iterations have impacted price and performance and Facebook has consistently moved things in the right direction over the past 18 months.
In total, I have detailed access to over $15M (annual run rate) of Facebook media buys. Although this only represents 3% of Facebook’s projected revenue, my opinion is based in large part on fact and personal experience. Without getting too specific, these media buys range from direct response (DR) to branding campaigns. In addition, I have spoken with numerous media buyers and there’s a lot of buzz around Facebook ads.
Facebook ads are meeting ROI objectives in the DR channel and nearly everyone is looking to expand in an effort to keep up with Facebook’s growth. Many are working hard on international campaigns, which is a huge opportunity for Facebook. Providing respectable ROI to DR buyers enables Facebook to unload excess impressions. The better the ROI, the more DR buyers compete for remnant inventory and the more valuable it becomes for Facebook.
Facebook also recognizes the importance of providing brand buyers with engaging ads higher in the clickstream. As they continue to iterate these products I believe they will attract meaningful brand dollars. Branding agencies are a little behind their DR counterparts on leveraging the huge supply of social impressions but they all seem to be working on various Facebook campaigns. I expect to see a continued shift from more traditional online media into social with Facebook leading the way.
So, what will all of this equal in 2009 revenue? The line is $550M. I’ve got the over and I’m taking friendly wagers.
What does it mean for the rest of us? I'll try to offer some thoughts on that a bit later.
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