Russian internet investment firm announces a US$200 million (Dh734.5m) investment in the trendy social networking site Facebook.
Deal has Facebook value of $10bn
NEW YORK // There will be a new face at Facebook. In a deal completed late on Tuesday, a Russian internet investment firm announced that it had put US$200 million (Dh734.5m) into the trendy social networking site, giving the California-based company a cash buffer during the recession and pegging its value at $10 billion.
Sky Technologies, which has invested in leading Russian web properties such as Mail.ru and Vkontakte.ru, will now take a nearly 2 per cent stake in Facebook in exchange for preferred stock. The new valuation is $5bn lower than when Microsoft invested $240m in Facebook in return for a 1.6 per cent stake, in 2007. Mark Zuckerberg, the company's chief executive, explained that Microsoft invested when "we were right at the absolute peak of the market".
Mr Zuckerberg said the Microsoft deal had been more of a "strategic partnership" where the two companies partnered on advertising and search, whereas Digital Sky made a "straight financial investment". "We think of this as a fair and good valuation," he said. Facebook did not need to raise additional funds but welcomed Digital Sky's investment as a "cash buffer" that will help it grow. Other potential investors have also approached Facebook, which has held talks with several interested groups.
Mr Zuckerberg said Digital Sky had won because its founders, Yuri Milner and Gregory Finger, had strong experience running internet firms in eastern Europe and Russia, and "a deep, advanced understanding" of social networking technology. "The fact that there are so many different models for these social networks across the world is a demonstration that these products are really creating a lot of value for users, and therefore there are ways to monetise them very effectively," he said.
"I'm really looking forward to learning and getting more of an understanding about how these models are working in Europe and Asia. Ultimately [it was] this deal and my comfort with Yuri and the team." Mr Zuckerberg, 25, founded Facebook while at Harvard University five years ago. Since then, the social networking site, where people can create personal pages, post pictures and exchange messages with their friends online, has seen rapid growth.
Facebook now has more than 200 million active members, double the number it had last August. About 70 per cent of its members are outside the US. Critics of Facebook, which makes most of its money through advertising, say the company has not yet figured out a sustainable revenue model, but it is on track to increase revenue by 70 per cent this year compared with last year, and to generate substantial profits by next year.
As a private company, Facebook does not disclose financial details. It does not even have a chief financial officer. Gideon Yu left that post in March and the company is still seeking a replacement. "By every important metric, user growth and engagement, technological innovation and financial performance, Facebook is on a similar trajectory, though on a much more global scale," Mr Milner said. The former chief executive of the Russian web portal mail.ru said he hoped Digital Sky would bring its expertise in making money off other web properties to Facebook.
"We've invested in five social networks in Europe," Mr Milner said. "They've been able to monetise better than Facebook because the companies are further along the curve. We believe the same path will follow for Facebook." Founded in 2005, Digital Sky has raised and invested more than $1bn in 30 companies, according to its website. Mr Zuckerberg said the new investment would give Facebook the flexibility to pursue strategic options.
"A lot of the investment is based on the theory that Facebook is still growing our different business lines," he said. "Right now, online and direct sales are the ones that are growing quickest, but over time we expect to be able to grow a large number of these things." * Agence France-Presse and Reuters