ON MICROSOFT VALUATION OF YAHOO! AND FACEBOOK

NOTABLE BOOKENDS

A couple of days into Microsoft's audacious $45 billion bid for Yahoo!, the story as expected still dominates the discussions on Techmeme.

The current consensus opinion conveys a sense of fait accompli, even though rumors abound of other companies like News Corp., hedge funds and private equity firms and hedge funds trying to jump into the bidding.

And there are several good posts like this one by Tim O'Reilly on what Yahoo!'s email assets bring strategically to Microsoft.

But what strikes me the most about this bid so far is how Microsoft has chosen to value to important Internet companies, one new and one old.  While it values an emerging internet icon Facebook at $15 billion on October 24, 2007, it then goes on to value an Internet icon like Yahoo! at $45 billion past week.

Admittedly the first valuation is in the public markets while the second is in the far more forgiving private markets.  But it's also interesting to note that Yahoo!'s close on October 24th, 2007 was $30.68, not too far away from Microsoft's current $31 bid.

But as an active investor in both markets, the two valuations do give a moment of pause.

Which valuation is potentially a steal?

DISCLOSURE:  I'm a long-time shareholder in Microsoft, and Yahoo!

Comments

[Scott Rafer]

High valuations accrue to the scarcer commodities, in this case innovation and growth.

[Alex Tolley]

Maybe neither, with Facebook just being absurd.

There seems to be some evidence of "social networking" fatigue has set in. (Even my daughter has reduced her time playing with MySpace. Maybe it will all be seen a fad in hindsight.

Yahoo looks more solid - arbitrage long Yahoo, short Facebook, but even here, there may be less of value than the markets think. Just because they are cheaper than they were, doesn't mean that they are cheap on an absolute basis.

[ashkan karbasfrooshan]

Interesting observation, but there's a simple answer:

To a value investor, YHOO.

To a growth investor, FACE.

Ash