Tan: How I made money from Facebook
By JAGDEV SINGH SIDHU jagdev@thestar.com.my
PETALING JAYA: For a man who does not have a
Facebook account,
Tan Sri Vincent Tan surely knows the value of the Internet giant.
“I
may have one later,” quips Tan on opening an account but he will be
counting the windfall from the 3.5 million shares his company,
MOL Global Bhd, owns in Facebook once the company is listed on either the
New York Stock Exchange or Nasdaq.
Based
on an assumption that Facebook shares start trading at US$40
post-initial public offering, Tan’s MOL Global stands to pocket RM420mil
for its shares.
Speaking to
StarBizWeek, Tan recollects how he came about getting his hands on a tiny but valuable stake in Facebook.
Tan: ‘We don’t want to hold them for too long.’
Friendster
was among the first social networking websites. It preceded
MySpace and
Facebook. Starting operations in 2003, Friendster found the going tough
and lost money for years.
The company continued to raise but
spent money aggressively. In running up losses, Friendster had,
nonetheless, built up a base of 140 million registered users, of which
40 million were active.
Tan said the losses then stemmed from
Friendster not monetising its user base. Finding it hard to make money
from its users, it was losing an average of US$10mil a year.
Eventually,
the patience of the owners and investors in Friendster wore thin and
they wanted to exit the business. Friendster then called for a process
to sell the business and now Friendster CEO, Ganesh Kumar Bangah, who
was then working with Tan, informed him that Friendster was for sale.
“I
asked for the numbers and found that 140 million registered users and
40 million active users was interesting. If we could make them spend
some money, maybe Friendster would be a good investment. Of course, the
downside was the business will continue to lose US$10mil a year,” he
said.
Tan said the owners of Friendster initially wanted
US$100mil for the business but with losses mounting, he knew no one
would pay that much for the company. “At that time, Facebook wanted to
buy Friendster’s patents but Facebook was willing to pay US$10mil cash
and later increased it to US$20mil cash.”
Tan was made to
understand then that the owners felt that taking US$20mil only to lose
US$10mil a year will soon see that cash vanish and then decided to
accept US$40mil for Friendster but wanted a quick sale. “They gave the
potential buyers about a week to decide. Many people were looking,
including large firms from China and Japan, at Friendster.
“They
were much larger than MOL but with the owners of Friendster needing a
fast sale, I told Ganesh to do a quick due diligence on Friendster.
“We took two days for the due diligence and made a bid. We said since Friendster owed people US$2mil, we offered US$38mil.
“With
other potential buyers doing their due diligence, I told them that if
they accepted US$38mil, we will do the deal right away. They accepted
our proposal,” said Tan.
After buying Friendster in 2008, Tan
then turned his attention to Facebook, which remained interested in
Friendster’s patents and whose offer of US$20mil cash for the technology
rights was still on the table. “We had a conference call with the
people at Facebook. I accepted their price but I wanted shares.”
Facebook officials told him that
Mark Zuckerberg,
the boss of Facebook, did not want to dilute the shares in the company
but Tan stood firm and said “if there was no shares, forget it”.
Tan
insisted on getting shares in Facebook because he felt the company will
be big in the future. Finally, Zuckerberg agreed to a share exchange
for the patents and Tan got his 700,000 shares. His shares have grown to
3.5 million following a 5-for-1 split in Facebook’s shares before the
IPO process.
Tan did not leave Friendster to languish but devised
a plan to get the social networking website to breakeven point. He
closed the US, Singapore and Australia offices to cut cost and began
rebuilding the company.
This year, Friendster has stopped the bleeding and Tan felt the company has become “quite valuable”.
“The
number of active users on Friendster has fallen from 40 million to four
million but these four million spend money with us. We put games and
all kind of things on the website and they spend money. If they didn’t,
we cannot monetise the business,” he said.
Potentially, Tan
values his Internet business at around RM1bil. It does business in
Malaysia, Singapore, Thailand, the Philippines, Indonesia and India and
is trying to get into Vietnam and many other countries.
MOL makes
money from points people buy to play online games. It is also a
payments gateway and is a payment partner for Facebook and Zynga, which
is the creator of the hugely popular Farmville.
Tan said business
models employed by companies such as Zynga, instead of relying on
advertising revenue, was how large sums of money can be made from the
Internet.
“People play and buy cows and tractors for their game. It’s amazing why people pay so much for that and I cannot imagine it.
“I
tell my kids ‘you don’t play Farmville. If you want to farm, you can go
to Bukit Tinggi. I will give you a real farm’,” he laughs.
Will he hold or sell his Facebook shares?
“We
will see where it goes,” said Tan. “We will probably sell them for our
business. We don’t want to hold them for too long but will see where the
shares go after the IPO.”
At any price, the Facebook shares Tan
owns has been hugely rewarding and the profit from the shares means the
Friendster acquisition was paid for plus a lot extra profit on the side.
“We were lucky,” he said.
So where does this investment rank among the many that Tan has executed in his corporate life?
“It’s one of the good ones but none can beat
DiGi,”
he said. “DiGi was my best investment and I should have stayed with it.
I sold when DiGi had a market capitalisation of RM5bil to RM6bil.
Today, the company is worth some RM31bil.
“That’s the big one that got away,” he lamented.
Vincent Tan awaits Facebook IPO windfall
By CHOONG EN HAN han@thestar.com.my
PETALING JAYA:
Tan Sri Vincent Tan is definitely going to “like” the much anticipated
Facebook Inc
initial public offering (IPO) as his stake in the world's largest
social networking service company could be worth as much as RM420mil.
MOL Global Bhd, which is controlled by Tan, is said to have 3.5 million shares in
Facebook
and assuming the IPO price is set at US$40 a piece, this would
translate to US$140mil (RM420mil), and even more after the listing.
sources said.
However, the amount is still an estimated value as
Facebook has yet to reveal its share price information and its valuation
is still speculative.
Facebook
has been discussing raising as much as US$10bil, making the IPO the
biggest Internet or technology IPO the market has ever seen.
“With
the outstanding shares of Facebook of about 1.88 billion, the stake of
MOL does not even come close to 1%,” said the source.
Given the share base of Facebook, MOL Global's stake represents about 0.19% of the social networking service.
MOL
Global is currently the payment partner for Facebook, as well as with
game developer Zynga, which made its name through popular social games
such as Farmville.
MOL Global first got its hands on the stake in
Facebook in 2010 when it sold off the patents of Friendster, the
world's first social networking site, to Facebook.
As part of the
deal, it received 700,000 shares in Facebook which subsequently
increased to 3.5 million shares last year after Facebook initiated a
5-for-1 split of the company's shares.
MOL Global made global
headlines when it acquired Friendster for US$39mil in 2008, after
winning the bid in an open tender against Chinese game and instant
messaging company Tencent and other bidders.
According to regulatory filings for the US IPO, Facebook
founder Mark Zuckerberg currently has a 28.4% stake in his company, with about 533.8 million shares.
The
company said it conducted its own valuation of its stock at the end of
each quarter, and as of Dec 31, it had determined its shares to be worth
US$29.73 a piece.
In 2011, Facebook pocketed about US$1bil on a
revenue of US$3.7bil with over 845 million monthly active users. In
2010, it made US$606mil.
The company's main revenue are derived
from advertising, while another US$557mil came from payments, with most
of the non-advertising funds coming from social-gaming partner Zynga.
M'sians to benefit from facebook IPO windfall
A FEW weeks ago, the fortunes of 70 households in an isolated farming village in Spain changed forever.
Initially
the residents of Sodeto wanted to give Spain's huge Christmas lottery,
known as El Gordo, a miss, because they were facing tough times due to
the economic downturn and a severe drought.
But they bought
tickets anyway out of loyalty to the homemakers' association and they
hit the jackpot. Some of the farmers and unemployed people became
instant millionaires.
Everyone in town had a share except for one
man, who was apparently overlooked. Sadly, he will never find out what
it takes to make a bet.
That brings me to the topic of
Facebook.
Facebook
is a social networking company that has changed the lives of many, and
perhaps, destroyed some too. But who would have thought that
Mark Zuckerberg
and his college roommates could have created such a company way back in
2004 that could be raking revenues of more than US$3.7bil today.
Facebook
started as a site that allowed students to interact via the Web, but
later made accessible to everyone, thereby intensifying competition with
sites such as MySpace and Friendster, founded two years before.
Going public:
A ‘like’ sign is seen at the main entrance of Facebook’s headquarters
in Menlo Park, California. Zuckerberg (inset) says the scale of the
technology and infrastructure that must be built is unprecedented — AFP
Eight
years later, it is going for a listing on the New York Stock Exchange
or Nasdaq. The company is considering a valuation of US$75bil to
US$100bil. Going forward, its biggest challenge is about keeping the
advertising momentum because advertising is its key source of revenue.
Today,
Facebook has over 800 million users and the numbers are growing every
day because Facebook has created enough buzz that even a seven-year-old
or a 60-year-old wants to get connected on Facebook.
Out of all this buzz, who would have thought that a Malaysian company
MOL Global Ltd would have something to cheer about as Facebook goes for listing.
This smallish company is making headlines like never before.
MOL Global is majority owned by billionaire
Tan Sri Vincent Tan and MOL group
CEO Ganesh Kumar Bangah holds just over 10% in the company.
Tan
is a well-known billionaire who has made a lot of bets, some have made
him richer, others just fizzled out. Today, his empire spans across
several sectors and several countries and he continues to make more bets
to expand it further.
The story of MOL Global began in 2000, during the dot.com era.
He bought over his brother
Tan Sri Danny Tan's company,
Dijaya Corp, and renamed it
MOL.Com Bhd.
Like a venture capitalist, he invested in over 30 Internet companies,
including Bangah's MOL Access. Of the 30, perhaps two or three grew.
MOL Access is involved in online games and was subsequently listed on the Mesdaq board in 2003, but privatised in 2008.
In
late 2009, MOL.Com bought over Friendster for US$39mil and, in the same
year, MOL Global was set up in Singapore. Today MOL Global owns
Friendster and the MOL Access Portal.
In July 2010, Facebook
forged a partnership with MOL Global for the patents of Friendster. For
that, MOL Global received 700,000 shares in Facebook stock and that
explains why it has a stake in Facebook.
Today, MOL Global's
stake could be potentially worth US$140mil on assumption that Facebook
may be valued at US$40 a share but any gain can only be realised if the
shares are sold and there is a capital repayment or dividend payout.
Analysts are comparing
Google's
valuation with that of Facebook. The world's favourite search engine
went public in 2004 and Google's shares were priced at US$85 at issue
but are now at US$583. Can Facebook reach that level?
That aside,
a question to ponder is, had Tan pushed the growth of Friendster, would
Friendster's position be like Facebook today?
Whatever, only Tan knows if this was his best bet ever. Who will ever know?
Deputy
news editor B.K. Sidhu hopes Zuckerberg will know how to reward the 845
million Facebook users who have helped him get his biggest break in his
life and if he needs lessons on goodwill, then he should read up how
Maxis Bhd rewarded some of its users when the company was listed and
re-listed.
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