San Francisco — A Russian Internet investment company Digital Sky Technologies (DST), has invested $200 million in Facebook for a 1.96% equity stake, empowering the social networking company a cash buffer during the recession and pegging its value at $10 billion, the social networking site announced Tuesday.
Digital Sky Technologies, a global investment group that has large investments in Eastern European and in prominent Russian Internet companies like Mail.ru and Vkontakte.ru, will take about 2 percent share in Facebook in exchange for preferred stock, the two companies said on Tuesday.
Facebook said DST, however, would not be represented on the board of the fast-growing social network or possess special observer rights, in accordance with Facebook’s normal practices, the company explained in a statement.
DST may acquire at least $100 million worth of Facebook’s common stock from present stockholders to help liquidate current and former employees’ vested shares in the social networking site, according to Facebook’s announcement.
Eligible stockholders will likely obtain details of the plan this summer, Facebook said.
“This investment exhibits Facebook’s continuing success at creating a global network for people to share and connect,” Facebook CEO Mark Zuckerberg said in a statement. “We have worked hard to bring more than 200 million people — 70 percent outside of the U.S. — onto Facebook to share with friends, family, and co-workers. A number of firms approached us, but DST stood out because of the global perspective they bring — backed up by the impressive growth and financial achievements of their Internet investments.”
US software behemoth Microsoft Corp. acquired a 1.6 percent stake in Facebook for $240 million in 2007, a deal that at the time valued the company at 15 billion dollars.
Questioned about the putting a lower valuation, Facebook’s Zuckerberg said Microsoft invested when “we were right at the absolute peak of the market.”
The Microsoft deal was more of a “strategic partnership” where the two companies partnered on advertising and search, whereas Digital Sky made a “straight financial investment,” Zuckerberg said on a conference call.
Given this context and the current economic conditions, “we think of this as a fair and good valuation,” he said.
Althoug its number of users has increased at an amazing speed, Facebook, unlike other Web giants such as Amazon, eBay, Google and Yahoo!, has yet to prove how it is going to translate traffic into cash.
DST chief executive Yuri Milner said he expected his company’s experience running social networks in other countries would prove profitable to Facebook.
“We have invested in five social networks in Europe,” he said in a conference call. “They have provent to monetize better than Facebook because the companies are further along the curve.”
"We believe the same path will follow for Facebook,” Milner said.
DST is based in London and Moscow and is executed by CEO Yuri Milner and his partners, Gregory Finger and Alexander Tamas. Milner was the CEO of Mail.ru. Finger previously led the Moscow office of the multibillion-dollar hedge fund NCH, and Tamas headed Internet and software coverage for Goldman Sachs’ investment banking division.
The trio hold interests in Mail.ru, Forticom, and VKontakte, and other European Internet properties. DST’s main assets draw more than 70% of all page views on the Russian-language Internet, and its social networks reach than 350 million social networking site users in more than 13 countries, the company said. The privately held company formed in 2005.
“Our investment experience in other regions reveals the tremendous value social networking companies create as they redefine how people communicate and interact,” Milner said. “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.”
“I’m sincerely looking forward to learning more about how these models are working in Europe and Asia,” said Zuckerberg.
“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,” he said.
Zuckerberg, 25, who founded Facebook five years ago while a student at Harvard, declined to release figures but said Facebook’s revenue growth was “greater than 70 percent year-on-year, even in this economic climate”.
“We expect that we will be cash flow positive some time in 2010,” he said. “That means this relationship is purely buffer for us.”