A good Move

It's always good to see innovation get rewarded. This little cash injection will help Facebook get to the next level.


Oct. 25, 2007, 7:38AM
Ahead of the Bell: Microsoft


© 2007 The Associated Press

NEW YORK — Analysts said Thursday that Microsoft's $240 million investment in Facebook should help the software company gain a stronger foothold in the online advertising and search market.

The investment, for a 1.6 percent stake, values the social networking Web site at $15 billion, a substantial sum considering the online hangout's beginnings in a dorm room less than five years ago.

"We believe that the Facebook partnership represents another step in the right direction for Microsoft in its effort to build a larger online platform," said Lehman Brothers analyst Israel Hernandez. He maintained his "Equal weight" or "Hold" rating and $34 price target.

As part of the deal, Microsoft will sell Internet ads as the site grows internationally, expanding a marketing relationship that began last year.

The investment should help Microsoft claim a piece of the $40 billion advertising market, especially considering Facebook's 50 million active users, Hernandez said.

Cowen and Co. analyst Walter Pritchard maintained his "Outperform" or "Buy" rating on Microsoft, and said the advertising component of the deal is a positive.

"The additional Facebook partnership announced yesterday keeps Microsoft relevant as the strategic provider of display advertising for one of the hottest online properties," said Pritchard.

The partnership, he said, underscores the need for Microsoft's online growth, especially in the face of extreme competition from Google Inc. and News Corp.'s MySpace.com.

Over time, Hernandez expects Facebook to integrate Microsoft's online services _ including its Live Search, a Google rival _ providing the company "a more captive forum for hosting and monetizing" the Internet.

Shares of Redmond, Wash.-based Microsoft rose 30 cents to $31.55 in premarket trading Thursday.