Chicago (IL) – We know many of us spend much more time on Facebook than we should, and how the social networking site's become a big part of everyday life for millions of people. But how much value can really be placed on Facebook from a financial perspective? The only real indication we've had so far was Microsoft’s $240 million stake in the company. And now, if a new report is right, it appears Microsoft may have wasted $180 million with that move.


According to an AP article released by Reuters, Facebook estimated its own value at about $3.7 billion or $8.88 per share during a court hearing in June of 2008. That number is substantially below the $15 billion valuation that was indicated by Microsoft’s $240 million investment in the company in October of 2007, which gave the software giant a 1.6% stake in Facebook.

If the information presented in the AP article is correct, then it seems that Facebook’s valuation dropped by 4.04x between October 2007 and June 2008. In that case, Microsoft should have received either 6.5% for its $240 million or paid just under $60 million for its 1.6% stake.

From the AP article:

"Facebook, which runs the Internet's largest social network, made the assessment after striking an October 2007 deal with Redmond, Washington-based Microsoft. As part of a broader advertising partnership with Microsoft, Facebook agreed to sell a 1.6% stake to the software maker for $240 million.

The Microsoft investment implied Facebook's stock was worth $35.90 per share - a figure that was relied upon in the settlement of a lawsuit that accused the company's founder, Mark Zuckerberg, of stealing the idea for his online hangout from three former classmates who started another social network called ConnectU."

It’s easy to assume Microsoft got creamed in this deal. However, it's important to see how Facebook was in a favorable negotiation position when it struck the deal with Microsoft -- as Microsoft may have been desperate to get a portion of the social networking world regardless of cost. During the court proceedings, it was Facebook’s intent to keep its value as low as possible to decrease the cost of the settlement. If Facebook keeps growing as it is right now, however, then Microsoft’s investment may not be as terrible as this report makes it look.