Facebook sells 1.6% stake to Microsoft

SAN FRANCISCO — Rapidly rising Internet star Facebook Inc. has sold a 1.6 percent stake to Microsoft Corp. for $240 million, spurning a competing offer from online search leader Google Inc.

Culminating weeks of negotiations, the investment announced Wednesday values Palo Alto-based Facebook at $15 billion — a stunning figure for an online hangout started in a Harvard University dorm room less than four years ago.

Microsoft also will sell Internet ads for Facebook as the site expands outside the United States, broadening a marketing relationship that began last year.

"This is a strong statement of confidence in this partnership and in Facebook," Kevin Johnson, president of Microsoft's platforms and services division, said during a Wednesday conference call with reporters and analysts.

Besides validating founder Mark Zuckerberg's decision to rebuff a $1 billion takeover offer from Yahoo Inc. last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.

Zuckerberg, 23, has indicated he would like to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its current worldwide audience of nearly 50 million active users, who connect with friends on the site through messaging, photo-sharing and other tools it offers.

Although News Corp.'s MySpace.com remains the largest social network, Facebook has been growing much faster the past year.

Facebook attracted 30.6 million U.S. visitors during September compared with 68.4 million at MySpace. Microsoft's entry in the social networking arena — "Windows Live Spaces" — attracted 9.8 million U.S. visitors, according to comScore Inc.

To support its growth, Facebook is gearing up to more than double its payroll during the next year to about 700 employees. The company currently employs about 300 workers with annual revenue believed to fall between $100 million and $150 million.

With the Facebook investment, Microsoft dealt a rare setback to Google, which trumped its rival in earlier bidding battles involving a stake in AOL and ownership of online video-sharing pioneer YouTube and Internet ad service DoubleClick Inc.