Facebook's Revenues Leaked 295
eldavojohn writes "Think that Goldman Sachs spent too much on Facebook with the $450 million investment? Well, a very wealthy customer of theirs decided to leak Facebook's financials yesterday after receiving it over lunch: '... during the first nine months of 2010, Facebook generated $1.2 billion in revenue. Net income at the firm was $355 million. The financial statements were not audited and offered little detail about how Facebook generates its revenue, said the source, who did not want to be identified because he had signed a non-disclosure agreement.' Expanding this nine-month period to a year yields $1.6 billion in revenue and under half a billion in income. Given that, should Facebook be valuated at $50 billion?"
Reader frontwave adds news that other social tech companies are hurriedly considering IPOs of their own.
50 Billion, really? (Score:5, Interesting)
Facebook has five hundred million users. Is each user really worth a hundred dollars? Facebook is going public soon. What are the chances that this 'leaked' report is designed to pump up the stock, and therefore Goldman's profit?
Re:Is Facebook a viable long term business model ? (Score:4, Interesting)
Is Facebook a viable long term business model ?
I have never been using Facebook although I have heard a lot about it. Obviously some people, mostly mainstream from what I can understand, seem to enjoy it a lot.
What would be the percentage of "Facebook penetration" amongst the /. users ?
Among /. users, lower than average because we have a lot of privacy nuts here.
However, among the general population, Facebook is huge. Go on, sign up and see how many of your friends are on there (you can always put fake details in and delete the account afterwards). If you're in an English speaking country and younger than 50, I bet it's more than half. ... and it's a medium that lends itself well to ads etc.
My biggest issue is, penetration is so high already, how much bigger can it grow? How can it monetize the existing user base more, without alienating them? Possibly by "replacing" the internet. I already see things like nightclubs choosing to have a Facebook page *instead* of their own dedicated site. There are lots of people who send each other FB messages instead of using email. Will we see an Amazon-like store hosted inside Facebook -- with a cut going to Facebook on every sale?
Reconsider What That Estimate Represents (Score:5, Interesting)
Facebook has five hundred million users. Is each user really worth a hundred dollars?
I'm not a businessman but I'm not so sure this is the correct way to think about this.
... but there's no guarantee that Facebook remains the de facto standard that far out. You need to consider future growth.
Everything depends on how much the market is penetrated for social in two ways: users and advertisers. Can they grow that revenue/profit? And if so, to what point? If Zuckerberg sneaks it into China [slashdot.org] then I think you're looking at a potential to increase that significantly. Facebook hosts its statistics [facebook.com] so you can guess if it's got a half billion in revenue yearly at half a billion users and it scales perfectly, that's a dollar per year per user. Can it get up to a billion users? It's probably clear that in the long run as the younger generation matures, that penetration will slowly expand
The other factor, advertisers and game publishers, could also be troublesome. Is this a "Honeymoon Period" for advertisers where they're paying an unsustainable amount to Facebook for the time being just to gain exposure? Could the above assumptions about scaling with userbase actually be false if advertisers aren't willing to spend more than they are now once more users join?
Consider that these numbers put Facebook's Net Profit Margin at almost 30%. That's very high for the industry [cnn.com]. They're in the same region as Google and Microsoft but as I stated above can it scale?
One last thing, you seem to think that Facebook's worth is only its users. They are also a large company with almost two thousand employees and are building infrastructure [datacenterknowledge.com]. Include that on your assets sheet.
Facebook is going public soon. What are the chances that this 'leaked' report is designed to pump up the stock, and therefore Goldman's profit?
I think the SEC would come down pretty hard on GS if they did that [telegraph.co.uk] -- they have before for less [sec.gov]. Misleading investors is very serious.
Re:Is Facebook a viable long term business model ? (Score:5, Interesting)
Is Facebook a viable long term business model ?
All internet companies are butterflies. Something newer and hipper will come around. Facebook too will one day go the way of MySpace and LiveJournal.
(And Google will one day go the way of Altavista, Hotbot and ftpsearch.ntnu.no)
Normally I would agree, but I don't think so in this case. Facebook has done one thing well, and it's appealed to the masses across all demographics. MySpace was too quirky, convoluted, etc. Facebook has kept things relatively simple. As long as they don't result in mass bank fraud due to users' personal information being listed, they have a pretty safe model.
Facebook also does not appear to be stagnating the way MySpace did when it thought it was the only option. They have a pretty good partnership with Zynga that supplies gimmicky, addictive games for Joe Public and they continue to add new "features." Whether those features are beneficial to the end-user or Facebook itself, it still comes across as innovating.
I think companies have started to wisen-up after the dot-com burst. Investors are also going to be prone to stay with companies that have shown some resilience in the downed economy.
Re:Is Facebook a viable long term business model ? (Score:4, Interesting)
Is Facebook a viable long term business model ?
If you ask me, social networks become more viable the longer the exist in a successful form, and the more people adopt it. FB would've been useless to me if only a fifth of my friends and relatives used it, but now even my mom and aunt use it. Suddenly it becomes a *very* strongly founded network. A new social network pops up? Well, ask Google how well Google Buzz went, and that was Google being the challenger. Why switch? We're already on one. We and 500 million others.
Yes, Facebook is a viable long term business model, and it becomes more viable by the day.
I'm not joking when I'm saying that to many, Facebook is already their central website, and the rest of the sites on the web mere "sidetracks".
Internet ID - killer app (Score:4, Interesting)
There was an interesting piece on MIT's Technology Review site [technologyreview.com] about how Facebook is doing something that VeriSign, Microsoft, Yahoo, and Google have all tried and mostly fail at, which is providing a single id and single log in for the internet. There are, distressingly, a whole bunch of sites that have jumped on the Facebook Connect service as a way to sign in to their website for, for example, posting comments. And, of course, there's also all those annoying "Like" buttons that keep popping up everywhere. So long-term? I don't know, but I don't think we are getting rid of Facebook any time soon.
Fully disclosure: I briefly played around with Facebook a couple of years ago, but quit after a couple of months after getting sick of seeing spam about which Sex in the City character somebody I barely knew back in high-school is supposed to be. Or how they scored in a "know your one-hit wonders of the '80s" quiz.
Valuation is wrong. (Score:3, Interesting)
Ordinarily, (and according to all the market analysts at the WSJ and elsewhere), a "valuation" is performed by market-driven factors when an equity interest is purchased in an arms-length transaction. The calculation of valuation is easy: If you buy 1% of the company for X, then the company must be worth 100X, right? Here, Goldman bought 0.9% of FB for $450M, creating a valuation of $450M/0.009 = $50B.
Wrong. It's not an arms-length transaction. Goldman is getting a lot of value out of the deal aside from the value it expects to earn purely as a shareholder.
(1) Goldman is setting itself up to be the underwriter for Facebook's IPO. That's worth a lot.
(2) Goldman is getting a lot of press, advertising, good will, bragging rights, etc. That's worth a lot.
(3) Goldman may get other business opportunities associated with Facebook such as contacts, financial services for FB & related companies & executives, a potential talent pool for ppl looking to jump ship (esp. at executive level?), etc.
If Goldman put a value of $441 million on all those "extras", the intrinsic amount paid for the 0.9% stake in FB is only $9M, putting Goldman's valuation of FB at a measly $1B.
Looks a lot different now, doesn't it? That Goldman's "internal" valuation of FB must be so different from the "external" market valuation just goes to show you how ignorant most financial types (and reporters) are.
The reported valuation (or any valuation based on an investment) is only accurate if you know the full extent of what was purchased.