May 26 (Bloomberg) -- Facebook Inc. received an investment from Russia’s Digital Sky Technologies that values the company at $10 billion, a third less than the valuation assigned to the social-networking company when Microsoft Corp. invested in 2007.

Digital Sky will buy $200 million in preferred stock, gaining a 1.96 percent stake in the company, Palo Alto, California-based Facebook said today in a statement.

Facebook, which gets revenue from online advertising, is using its dominance in social networking to boost sales and attract investors during the worst ad market for Internet companies since the dot-com bust. The surging traffic requires Facebook to spend more on data centers, the rooms of servers that manage the site.

“Facebook has been growing in leaps and bounds in terms of users,” said Jeremiah Owyang, an analyst at Forrester Research Inc. “It’s been some time since they had a large injection of cash.”

Digital Sky, which has offices in Moscow and London, also is working on a deal that would let Facebook employees sell their shares in the company. It plans to buy at least $100 million of Facebook’s common stock. The terms of that arrangement may be announced within months, Facebook Chief Executive Officer Mark Zuckerberg said.

IPO Freeze

That would let workers make money from their options without having to wait for an initial public offering. Investors have shown little appetite for IPOs this year, with only five U.S. technology companies going public. No venture-backed companies held IPOs between September and March, the worst drought in at least 38 years, according to the National Venture Capital Association.

The company expects to have an IPO, though it isn’t focused on that now, Zuckerberg said.

“It’s something we’ll do when we’re ready for it,” he said on a conference call. “It’s something we don’t see on the immediate horizon.”

Microsoft, the world’s largest software maker, bought a 1.6 percent stake in Facebook for $240 million in October 2007, giving the company a valuation of $15 billion.

That value came at the peak of the market, Zuckerberg said today. The economy has changed considerably since then and the current valuation is “fair,” he said.

Microsoft Stake

Microsoft bought the stake as part of an agreement to sell ads on Facebook. Advertising is the site’s fastest-growing source of revenue, Zuckerberg said. The company also expects to get an increasing portion of revenue from charging users for some features, he said.

“It’s an area we think could be really interesting over time,” Zuckerberg said.

Digital Sky has previously funded Internet businesses in Russia and Eastern Europe, including Mail.ru, Forticom and VKontakte. The companies it backs have 350 million social- networking users and are market leaders in more than 13

Digital Sky began in 2005, when Yuri Milner and Gregory Finger merged their interests in Mail.ru, a Russian Web portal. The company has since invested more than $1 billion in more than 30 businesses. Russian billionaire Alisher Usmanov is an investor in Digital Sky.

The company decided to back Facebook because of the value created by its previous social-networking investments, said Milner, Digital Sky’s CEO.

“Facebook has the potential to be one of the most valuable Internet companies globally,” Milner said on the conference call. “We believe the company is well on its path to become one of the most interesting and valuable internet companies.”

Equity Investments

Facebook has received more than $400 million in equity investments from Microsoft, Peter Thiel’s Founders Fund, and venture capital firms Accel Partners and Greylock Partners. At today’s valuation, Facebook would be worth more than most of the companies in the Standard & Poor’s 500 Index, including Starbucks Inc. or Safeway Inc.

Facebook Chief Operating Officer Sheryl Sandberg said last month that the company had enough money to ride out the economic slump, though it hadn’t ruled out accepting more funding to fuel its expansion.

The company had valued itself at $3.7 billion during negotiations over a legal settlement, according to a transcript of a court hearing obtained in February. The company appraised its stock at about $8.88 a share, according to the transcript, which was part of a court case over Facebook’s settlement with ConnectU Inc. Facebook’s lawyers argued at a June hearing that the prices weren’t comparable because Microsoft received a different class of shares.

Facebook expects revenue to climb 70 percent this year and plans to be profitable by 2010. Facebook is the eighth most- visited Web site in the U.S., with almost 70 million monthly visitors, according to Reston, Virginia-based ComScore Inc.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

Last Updated: May 26, 2009 19:49 EDT