JKarr's  Instablog

Digital Sky Technologies (“DST”), a private, Russia-based investment fund, just paid $200 million for less than two percent of Facebook, yielding a valuation of approximately $10 billion. Facebook insists they do not need additional capital to continue operations, and that this deal was simply opportunitistic.

About a year and a half ago, Microsoft invested $240 million, which valued Facebook at approximately $15 billion. Mark Zuckerberg, Facebook's CEO, acknowledged that Microsoft’s investment came at the "absolute peak of the market". If Facebook truly does not need the capital, DST’s investment suggests that even Facebook realizes the 33 percent lower valuation is more realistic.

With 200 million users, Facebook is rapidly expanding into international markets. However, the question of how Facebook will be able to capitalize on this user base in order to monetize such a large valuation remains. The most likely scenario for the founders and current investors to monetize their investments is through the public market. Transparency on future revenue streams to the public is minimal, but based on current information, these investments could be aimed at guiding a public valuation more than actual cash flow streams.

Last week, the Obama administration released its Cyberspace Policy Review. While many of the points highlighted in the review are not new, it marks the first time they are coming directly from the White House. In conjunction with the release of the review, President Obama announced a new focus on cybersecurity.

In an effort to help secure cyberspace, the President will appoint a government-wide cybersecurity coordinator and cybersecurity concerns will be a top priority for the US government. The new cybersecurity strategy includes “innovation and adoption of cutting-edge technology” through public-private partnerships.

The President’s focus on cybersecurity was extremely well received by industry insiders and the public. However, past public-private partnership efforts for cybersecurity have had mixed results. In this effort, public-private partnership will rely on a number of factors including information sharing and the purchase of new, innovative security technologies.

The cybersecurity market could be worth about $10 billion per year, according to Ronald Sugar, Chairman and CEO of Northrop Grumman (NOC). This push can breathe new life into the IT security sector. The big forces, such as Lockheed Martin (LMT), Microsoft (MSFT) and IBM (IBM) have been investing large sums in R&D of security software over the past several years. Their focus and buying power will bolster smaller IT security companies (both public and private) with whom larger players and government will look to partner. It can also make certain companies attractive acquisition targets for the big players in the industry.

One such company is NCI, Inc (NCIT), which provides information technology, engineering, and professional services and solutions to Federal Government agencies. It has shown solid growth over the past several years, but additional focus on IT security solutions could push the stock much higher.