Filed under: Google (GOOG), Microsoft (MSFT)

As I posted this morning, there was a face-off between Google Inc. (NASDAQ: GOOG) and Microsoft Corp. (NASDAQ: MSFT) for a stake in Facebook. This afternoon, according to the New York Times, Microsoft won.

Specifically, Microsoft paid $240 million for a 1.6% stake in Facebook. This values Facebook’s equity at $15 billion — that’s $100 for every one of the $150 million in revenue it’s expected to generate in 2007. CEO and Harvard dropout Mark Zuckerberg’s 20% stake is now worth $3 billion.

But the really stunning thing about Facebook’s valuation is how it compares to Microsoft’s and Google’s. Specifically, $1 of Facebook’s sales is worth 7.1 times more than a dollar of Google’s — whose Price/Sales (P/S) ratio is 14.1 — and 17.5 times that of Microsoft which sports a P/S ratio of 5.7.

The beauty of private company math is that even though Facebook can’t really be worth that much, the bidding between these two powerhouses makes it so. And it looks like the old school Harvard ties paid off (that’s where Gates dropped out and Ballmer graduated). And whether Microsoft earns any revenue on its advertising deal, I’d be willing to bet that Microsoft’s 1.6% stake will more than double today’s $240 million when Facebook goes public.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Google or Microsoft.

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This entry was posted on Thursday, October 25th, 2007 at 5:29 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.