Facebook gets $200M cash infusion

IDG News Service - Facebook, whose dizzying growth in recent years has been rumored to put a growing strain on its finances, has sold a stake to investment firm Digital Sky Technologies (DST) for $200 million.

DST, which invests mostly in Internet companies from Russia and Eastern Europe, has acquired Facebook preferred stock equivalent to a 1.96% equity stake.

The investment gives Facebook a $10 billion valuation, a third less than the value of the social-networking company when it sold a 1.6% stake for $240 million to Microsoft in October 2007.

In addition, DST plans to offer to purchase "at least" $100 million of Facebook common stock from existing common stockholders, the companies said Tuesday.

This would "facilitate liquidity for current and former employees' vested shares in the company," DST and Facebook said, adding that eligible participants would be notified of the plan details this summer.

The investments will not get DST a seat on Facebook's board or grant it special observer rights.

In November of last year, Facebook CEO Mark Zuckerberg said the company wasn't starved for money, as some pundits were suggesting at the time.

He also said Facebook officials didn't obsess about the $15 billion valuation of the Microsoft investment and didn't feel pressure to live up to it by modifying the company's business strategy.

Facebook's ad business was generating a healthy annual revenue of "hundreds of millions of dollars," Zuckerberg said at the Web 2.0 Summit in San Francisco.

Of course, since then, Facebook's growth has continued unabated, while online advertising's growth has slowed down considerably, affecting to different extents all major players, including Google, Yahoo and AOL.

Still, Zuckerberg went to great lengths during a press conference on Tuesday to stress that Facebook was under no financial pressure to take DST's investment.

"Our business is doing really well and we're on track to create a nice self-sustaining business," he said.

Facebook has been profitable on an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis for five straight quarters, and its revenue growth has been north of 70% year-on-year, he said. The company expects to be cash flow positive in 2010, something it would have accomplished even without the DST investment, he said.

"The financing will serve as a cash buffer to support our continued growth, allowing us to scale comfortably. Having a good cash cushion also gives us strategic options in the event we want to use them. We have no specific plans to talk about at the moment but it's nice to have the flexibility that having this extra capital will afford us," Zuckerberg said.

Facebook was approached by various potential investors but chose DST, which is based in London and Moscow, because its international expertise meshes well with the fact that 70% of Facebook's members are located outside of the U.S., the companies said.