Microsoft Reaps the Reward From its Investment in Pre-IPO Facebook

A little more than a decade ago, Microsoft helped out a promising social media outfit called Facebook with $240 million in capital.

Author:: Edward Hardy
Publish date:: Nov 15, 2017 5:51 AM EST

A little more than a decade ago, Microsoft (MSFT) - Get Report helped out a promising social media outfit called Facebook (FB) - Get Report with $240 million in capital.

Microsoft may reap billions in the coming years as it harvests gains from the investment, MoffettNathanson LLC analyst Adam Holt suggested in a recent report.

Microsoft CFO Amy Hood noted during the company's recent earnings call that the tech giant is taking "gains in our equities portfolio." Sales of equities drove Microsoft's "other income" line to to $450 million in the recent quarter, up from an already-higher-than-expected $215 million in the prior three-month period. Reading between the lines, Holt suggested that Microsoft is likely tapping its long-held Facebook stock.

Back in October 2007, Microsoft beat out Alphabet's (GOOGL) - Get Report Google unit and other investors who wanted to fund the pre-IPO Facebook. The enterprise software powerhouse took a 1.6% stake in Facebook and provided funds to expand its advertising capabilities.

During a call with analysts and the press to announce the deal, Microsoft co-president of platforms and services Kevin Johnson actually had to defend the $15 billion valuation that the fundraising ascribed to Facebook.

Microsoft's Facebook stake is worth a respectable $8 billion to $9 billion, Holt suggests, and could take six to eight years to fully exit. The proceeds could add 6 cents to fiscal year 2019 earnings per share and 5 cents to 2020 EPS.

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