Facebook's Latest International Move: Taking on Russian Investor

DST's $200 Million Stake Values Social Network at $10 Billion

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NEW YORK (AdAge.com) -- Facebook will get some help dealing with its already-commanding international presence from a Russian investor group, which today took a $200 million stake in the social network that valued Facebook at $10 billion. The money will also provide what CEO Mark Zuckerberg called a cash "buffer" in difficult economic times.

Mark Zuckerberg
Mark Zuckerberg Credit: Paul Sakuma
The social network's global growth has been rapid, and while it's had a hard time figuring out how to turn its U.S. visitors into revenue, it now has to figure out what to do with all the international visitors that have signed up in the past year as well.

Of course, the investment also means Facebook is valued less today than in summer 2007, when Microsoft pumped in $240 million at a $15 billion implied valuation. But Mr. Zuckerberg argued that Microsoft's investment was made near the market peak and was part of a multifaceted business relationship that included an advertising deal and an agreement to work together on search.

"That was a strategic relationship with a lot of different components," Mr. Zuckerberg said on a conference call. "It was a year and a half ago, and it was a different world at the time."

Multiple revenue models
Digital Sky Technologies, which holds stakes in Russian portal Mail.ru and social network Vkontakte.ru, got a 1.96% preferred equity stake in the company for its cash and also said it agreed to buy "at least" another $100 million of Facebook stock from current and past employees.

Mr. Zuckerberg said Facebook chose DST because it has investments in several overseas social networks, all with different business models, such as advertising and direct payments.

Facebook has more than 200 million registered users, 70% of which are outside the U.S. Overseas audiences are a tough sell for advertisers, but Facebook is testing a payments system that would help it tap one area of business that is growing internationally: the sale of virtual goods.

"Payments are not a large part of the business so far, but we believe it could be in the future," he said.

Employees cash out
The deal will allow Facebook employees to cash out at least some of their sizeable stakes, which some have been trying to do for some time. Mr. Zuckerberg declined to comment on a Wall Street Journal report that those shares would be purchased at a $6.5 billion valuation, indicating a big gulf between employee-held stock and preferred stock.

"As a private company, there is no market in our shares, so it's tough to say what a valuation would be," he said. "It is accurate to say the common stock would be different from this because there aren't any preferences."

DST, led by former Mail.ru CEO Yuri Milner and two other partners, won't join the Facebook board and won't be given "special observer rights" to the board's activities. Mr. Zuckerberg said the investment doesn't affect Facebook's plans for an initial public offering, rumored for some time. "It's not something we're thinking about right now and not something we're rushing towards," he said.

Mr. Zuckerberg stressed that the investment is a cushion and is not required for Facebook to reach its goal of becoming cash-flow positive in 2010. Facebook is expected to earn $500 million in revenue in 2009 and has more than 850 employees.

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