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Facebook's Revenues Leaked
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.
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 ?
Everything I write is lies, read between the lines.
without any trust metric.
Yours In Akademgorodok,
Kilgore Trout
Money must be invested, in companies, marketing, whatever, it doesn't matter. In 10 years tops, there will be a third-party effort to archive as much of the Facebook data as possible before the company turns off the servers.
.. That's impressive.
http://www.snaver.net/
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?
Slashdot: news for Apple. Stuff that Apple.
The reports fail to disclose that I just deleted my account.
So, I'm just saying, the valuations need to take that into consideration.
that Facebook will continue to take in roughly 0.5 billion in revenues year over year. Furthermore, let's assume that money in the future is worth only 90% of its present value. Then, summing up the geometric series, 0.5*(1+.9+.9^2....)=0.5/(1-.9) = 0.5/0.1 = 5 billion dollars. Moreover, even if money was worth more in the future (say 98.5% of its current value (which is absurd)), the sum comes out to 20 billion. So yes, they overpaid. By a LOT.
The only explanation for the valuation is the belief that Facebook will be more valuable over the long term than it is now. Unless you think Facebook will still be a wise investment in 15 years, the valuation is a little bonkers. In the technology space, this seems to contradict observed experiences -- a decade is a very, very long time.
This is particularly so with something as ephemeral as a community-powered product. Diaspora was a disappointment, true. But do you really think no credible Facebook alternative will come along in ten years? And once that crowd leaves, exactly what is Facebook's value? Some PHP? Server farms? Yeah, ok.
Can someone explain to me how they manage to make $1.6 billion in revenue a year? Who is paying and for what? Because I just went to my FB page for the first time after months and I could not see any ads, not a single one.
Spending ~$450m for a 1% stake would yield a company ROI of ~0.75%, which is pretty crappy but not especially bad if the growth angle is there.
That said, I think there is more here than meets the eye. For example, GS loves to do electronic trading. Depending on the employed model, of course, GS needs access to source data in order to supply its systems with the information needed to make decisions. Secretive info that can be mined more quickly than the public is best. I'd be willing to bet that the ~$450m stake they claimed buys them access to mine Facebook user data for purposes such as this...
For example, how killer would it be to have a trading algo based on a feed of public sentiment as expressed on Facebook. Forget about waiting for sales figures from a company every 3 months or so... Facebook could tell GS that 800,000 people bought product X today and loved/hated it.
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 then I think you're looking at a potential to increase that significantly. Facebook hosts its statistics 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. 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. 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 -- they have before for less. Misleading investors is very serious.
My work here is dung.
A relatively high net income is nice (albeit unaudited!), there are other factors to weigh into valuation.
While the numbers in the financial statements are important, this is only part of the overall picture of a company's present and future.
I think for a company like Facebook, the risks stemming from competition and legal liability are tremendous. While Facebook is the biggest social media network out there, you can't be sure it'll be the last. It can get slammed by legal conflicts over privacy issues. Facebook benefits tremendously from the network effect of having so many users, but it can't coast on mere size.
Facebook needs to strike a careful balance between monetizing its resources and erosion of the user experience. There is a lot of risk involved when you put money into a company walking on such a fine line.
The source signed a non-disclosure agreement, on the basis that he was trustworthy, and then disclosed the document anyway. What an unsavoury character.
Advertising is only worth so much. That is what fuels this sites. That is pretty much the only thing. Compare the total amount of money spent on online advertising in 2010 (~25 billion across all companies) with the "value" of facebook (50 billion). Even if they controlled the entire online ad market, they wouldn't have nearly that value. Bubble bubble, toil and trouble.
Fuck Facebook !
Teh facebook owns you, owns your family, owns your next of kin, owns your thoughts, and owns all that you are: past,present, and future!! Best of all, it sells this to anyone willing to pay!! You ARE OWNED by TEH FACEBOOK !! And worst of all, YOU LET THEM !!
You are stupid, stupid mofos, mofos !!
I made a army of fake accounts when I was big into Farmville. Sad I know, but I did it so to not bug my real friends. I stopped using them so there gone now, but out of my forty accounts thirty nine were fake. I'm sure I'm not the only one who does this. My sister uses one to spy on people. My wife made a joke one. I made a fake one to join a controversial group, etc. HOW MANY REAL PEOPLE LOG IN EACH MONTH AND DO SOMETHING MORE SUBSTANTIAL THEN SEND PRESENTS!?!?!?!111?
Do not invest in this company. Period.
a rocksolid stable company like Walmart pays 2.24% dividend out of profits ($4.5 Billion on a valuation of $200 billion). A less stable company like AT&T pays 6% ($10 billion OUT OF PROFITS on a marketcap of $170 billion). Growth companies have the same sort of profits or larger, but they tend to reinvest all of the profits in expansion so they don't pay dividends.
If you think Facebook has as solid a future as AT&T, then at $50 Billion valuation Facebook would need to see $3 billion in excess PROFIT. So, they are tremendously overvalued by today's alleged revenues of $0.5 billion. The only outstanding question is whether they can grow to much greater than $3 billion profits in the next year. I don't see that happening, you are free to smoke whatever crack you can find.
Explain why facebook and goldman sachs are going to get away with their bypass of reporting this income to the SEC? With that sort of revenue, they should be playing by the rules like apple, google, and other companies are.
It's either on the beat or off the beat, it's that easy.
I moderate therefore I rule!
--
Let's see... very wealthy customer receives NDA covered financial document over a recent lunch and decides to violate the NDA he/she signed and publicly disclose it.
I can't imagine it will be very hard for Facebook to track down this customer and use their $500 million profits from this year to sue this customer out of their 'very wealthy' status, perhaps permanently and or sue Goldman Sachs for disclosing the information publicly.
IF that does not happen, I would be very suspicious of the validity of the document for both the lack of details (how the money was spent) and lack of lawsuit.
I am going with the latter option. Sounds like a planted document, if you ask me.
She blinded me with science, she tricked me with technology. ~ Thomas Dolby
Superfluous article. Obviously Goldman are in on just another pump and dump scam. They'll talk up the IPO, make a few billion on it and then dump their stock.
Looks like an appropiate name for everything that comes out from facebook
There was an interesting piece on MIT's Technology Review site 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.
It's really no surprise Facebook is the prom queen in Goldman Sachs' eyes. Both companies don't produce anything and make money from being the middle man, connecting people. They basically are both in the "transaction" game, just a different one. A traditional market will trade money or commodities, this one trades eyeballs.
Tiger Blooded Bi-Winning Machine
I was expecting 5-10X the revs and double the margin given the extrapolation from Goldman's price.
Facebook is worth $10B market cap, tops.
How silly! EVERY company loses favor. Styles change, customs change, companies bet on the wrong horse or stay the course and stagnate.
EVERY company loses favor sooner or later. Facebook is not going to be the first immortal company.
Infuriate left and right
Well, AOL was sold the suckers^Winvestors at Time Warner for how much?
They have the fetus market too!
+1 Placenta
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
Eternal October?
As in, the users are 1 month smarter than the September crowd of ten years ago?
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
(Sarcasm)
The source reserved the right to change the terms of his non-disclosure agreement without notifying Facebook! +1 Ironic hmm?
But this is twice in a row we've seen dangerous stories undersold. A few hours ago we had the re-emergence of Trusted Computing.
Now we have another piece of "Info Is Never Safe".
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
They have 500 million viewers, yet they ONLY make $1.6 billion from them?
Conde Naste makes $4 billion a year from just a few million viewers.
There are some fundamental problems with Facebook that would prevent major-brand advertisements from purchasing ads there, namely, that it's a viewer-driven site - content comes from the viewers, which is a big no-no among advertisers.
Why would a major advertiser, like Calvin Klein, place their high-end ad right next to some picture of a college kids barf? They would much rather have their ads placed next to a picture of Lara Stone.
THIS is why Facebook only pulls in a few cents CPM, whereas an ad in Vogue goes for $150 CPM.
The more democratic you get, the less interesting you are to advertisers.
Price:revenue is 50:1.6 or 31+. Nope, not worth it.
Price:earnings is 40:0.355 or 140+. Nope, not worth it.
Price:book is not specified.
Price:quick is not specified.
Margin is 0.355:1.6 or 22%. Worth looking.
Revenue growth is the wild card. For this to be a "good" buy, Price:future revenue should be about 5, or four doublings in revenue. 30% revenue growth for 8 or 10 years would do it. Buy and hold - it's the only option that I can see. That must be what everyone is planning to do...
From what I've learned from a CFO in the past, an offer to purchase on a good company is usually somewhere between 7-10x the revenue of the company annually. If that holds true, then FB could be bought for up to $16 billion reasonably. $50 billion is assuming 3x that much value. This is ridiculous. No wonder the investor was scratching his head.
Facebook will NEVER put porn on their site-thus they will not become "The Portal".
Porn is the great equalizer, the guarantor and canary-in-coal-mine of free speech, and the last bastion of privacy. As long as there are porn sites (and 4chan/ED for the trolls and squick-junkies), the internet will continue to be free.
Here's to hot beer, cold women, and Glaswegian kisses for all.
Facebook may be maxing out on number of customers. They have 500 million accounts. Tencent's QZone, in China, is slightly larger; Facebook isn't going to take over China.
If they're near max growth, they have to be priced as an ongoing concern, and should have a P/E around 15 to 20. (Microsoft's P/E is around 12, Apple is around 21, Google is around 25.) So if net income is $355 million, market cap should be around $7 billion.
$50 billion, no way.
Did they count "investments", like Goldman Sachs crap, as revenue?
For a pyramid scheme it would be valid, as this is the only way they get any revenue. As for marketing data, I am sure, census bureau provides more useful and reliable information when it comes to predicting consumers' behavior.
Contrary to the popular belief, there indeed is no God.
> said the source, who did not want to be identified because he had signed a non-disclosure agreement
Here we are talking about something that's believed to be true, from a source that admits to being intentionally dishonest...
So, Goldman Sachs is already paying a premium (25x of their revenue) for Facebook shares.
Is it just me or something doesn't feel right? Google shares is worth 9x their revenue and Amazon 2,5x.
Goldman Sachs is renowned for lying to everyone, including (especially?) their own clients. So I wouldn't be surprised at all if Facebook was actually losing a lot of money, and that the old Fraudsters at GS are up to their old Ponzi tricks.
...should Facebook be valuated...
We should have more financious intellectious discussions like this.
Facebook have clearly taken a leaf from Apple's iPhone-leaking book. Build the hype, build the value. I'd bet my lunch on this being a deliberate 'shady' disclosure by FB themselves.
But then again look at the financials -- if the OP's figures are to believed, this means that FB has a P/E ratio over 100. This sets off every warning bell in the book.
Buyer beware!
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> Given that, should Facebook be valuated at $50 billion?
'Valuated'? WTF? Is there really any need to use that instead of 'valued'?
The usual way to fingerprint a small number of financial documents is to have slightly different, but still plausible and within like 3%, numbers within the document. Since the original leak is in broad figures you will not determine their identity.
I think Facebook will grow when the start selling ads outside of facebook too (a-la-Google). It took google many millions to get to know and separate demographics so advertisers could get better results, and since results on the net are measurable (as oposed to TV, Radio, or Printed Media) better results turned into returning customers; So in the case of facebook it has been way cheaper to get the same and more demographics, and soon enough they will have more customers (in the advertising arena). All they have to do is keep providing "Single Sign On" to as many websites as it can, and/or keep websites placing facebook-widgets, and then provide a solution like adsense so that you can sell targeted advertising for better profitability.
There, a free quick-and-dirty business plan that will work for facebook, as long as they keep being relevant (which is easy enough if they keep providing the farmvilles and other stupidities that keep users logged in for hours).
Now if you have any suggestions for a good business plan for a startup Internet Radio with no budget at all, I would love to hear about it.... I can figure out business plans for others, but they require money, which I lack. LOL You can email me at AnonymousCoward [at] axiomradio.com
Facebook will be the ultimate survivor. They own the social space, and they know it. hey are counting on us all to follow the Facebook Creed - http://youtube.com/watch?v=Akb5NyZaA9c
I woke up breathing today. Everything else is a plus.
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.
Growth stocks trade at P/E premiums to the market based on their earnings growth rate, but you can't figure growth from a single datapoint! ... not enough information
That said, with annual sales of $1.6B and earnings of $0.473B, a market cap of $50B would give a(VERY high) P/E ratio of 105.7 and P/S of 31.25
Compare these with Google, with a market cap of ~$200B, P/E of 24.75 and P/S of 7.12
So, Facebook certainly looks pretty rich at that valuation, but it's early days for them in terms of monetizing their user-base, so there may well be rapid earnings growth to come for a number of years, possibly enough to justify that P/E ratio. OTOH a market cap of $50B isn't small, so there's only so much they can grow... They've got the momentum going for them now though, so they should be able to post good numbers at least for a few years.
The trouble with investing in tech companies though is that the tech future is hard to predict. It's not just about valuation but rather how the competetive landscape changes, and it can change very rapidly. Google could announce a Facebook killer tommorow. Who knows?
Things are somewhat dicier with a high profile company like Facebook, which already has a sky-high value placed on it. The potential upside is severely limited -- Facebook shares simply aren't going to increase in price by ten-fold within the foreseeable future, simply because that would give the company an insane market capitalization of a half trillion dollars (Exxon Mobile is currently the highest valued American company, at $314billion, followed by Apple at $259 billion and the likes of Walmart at just under $200 billion).
I joined Facebook and looked up the girl I had the hots for in high school. I found out that she's a health food shaman who gives people enemas for a living. Do I care what movies she watches or what brand of sneakers she wears?
I'm over Facebook, like people who are over AOL, MySpace and all sorts of other so-called tech businesses that have come and gone. But who cares about my personal anecdote when you can clutch a briefcase of unaudited financial results?
And somewhere in the folds of my brain, I remember that Wall Street makes money from commissions, fees and expenses, and not from careful analyses of the fundamentals. And wasn't Goldman Sachs sued by the SEC a few months ago for fraud over mortgage-backed securities.
'Twas obvious that this was a humor (a decent attempt, IMHO)
Neither the actual I Kings 9:21 nor II Kings 9:21 seem relevant.
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
Camp counselor: It was a pain in the ass this week, but it was fun
Me: That's what she said
Other camper: That was the best "That's what she said" I've ever heard.
Sometimes those hackneyed lines are indeed contextually fitting. :)
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
I just took a class on this kind of thing. Basically, you take the forcasted cash flows and discount appropriately depending on your required rate of return. We only have one data point, so it's very difficult to really project, but given an approximate cash flow of $500 million and a valuation of about $50 billion, the difference between Goldman's required rate of return and Facebook's growth rate is about 1%. From this, I can deduce that Goldman Sachs either thinks Facebook is a very safe investment or a high-growth company or both. In my opinion, you can only have one or the other and my gut feeling is that they overpaid. On the other hand, I'm just one guy with one data point. They have a ton of quants analyzing this thing, so you can take that how you will.
Let's see: * Goldman gets its transaction fee on the $450 million. Win! * if Goldman holds any shares and sells them for a profit... it wins! * if Goldman holds enough shares and loses their shirts when a Facebook competitor obliterates Facebook... and cumulatively they've made a lot of unfortunate decisions like this... then the US government will bail them out. It wins! Why would they give a flying f$%k whether Facebook is worth $50 Billion? It's good to be Goldman.
>who did not want to be identified because he had signed a non-disclosure agreement.
>he
but, it was okay to allude to the person's gender? Or is it "universal he" bull-crap?
Everyone I know uses Facebook less. I won't even touch an app anymore. I hardly update my status. And everyone is so angry at the never-ending privacy changes that it won't be hard to get them to switch once there's a viable alternative. I just don't see a rosy future for them when their only asset is a ticked off user base.
Actually, thanks to android, I'm giving up most of my privacy to google these days. I know a number of people, who won't touch FB with a ten foot pole, give in to owning a smartphone once they see how much easier it can make their lives (privacy be damned). I predict a much rosier future for them.
If I was GS and were serious about sending this information to select clients who might leak it; I'd be inclined to fuzz the numbers in the financial report such that they didn't significantly effect the representation of the numbers but made identification of leaks possible...
Facebook is just AOL 2.0
Facebook is just a trend.
Facebook is going to dwindle as users get bored with being contacted by losers from their past and learn about privacy.
sharing the wealth
A) The financial statements have not been auditted. Which would be a great time for the IRS to pop in and say hi to the facebook accountants. Might turn out that simply having an active account on facebook is considered on-going revenue in facebook's eyes (based on whatever information the person updates / adds, and regardless of whether it's a spam account or not).
B) I don't see why the source would want to remain anonymous. Leaking these details is no biggie. Zuck himself said that privacy is dead. Why should that not apply to companies & websites as well?
This is just my theory.
If Facebook goes public, it will be under extreme operational legal scrutiny. Enter the lawyers writing 'corporation guidelines'. As this happens, the people who made Facebook as effective and usable as it is will lose full control of internal decisions.
The value of Facebook, even though it will continue to add users, will drop as the people who use Facebook login less, give less personal information, and spend less time viewing other's profitable 'Facertisements'.
I don't think what I did what I did six years ago as a college student are relevant to advertisers seeking my attention as a 27 year old biologist.
Koalas. They're telepathic. Plus, they control the weather. -Margaret
These new social networks, of course, grew out of the old ones and tended to keep their names and pay lip-service to their ideology.
But the purpose of all of them was to arrest progress and freeze history at a chosen moment.
The familiar pendulum swing was to happen once more, and then stop.
As usual, the incumbent was to be turned out by the faddy start-up, who would then become the incumbent;
but this time, by conscious strategy, facebook would be able to maintain its position permanently.
I'll spell it out for the benefit of geniuses like Mr. AC here
Counselor metaphorically referring to how the week was a lot of hard work on the camp staff's part, yet still a worthwhile endeavor.
My comment pretends that there actually were sexual experiences (there actually weren't), being literally described by a female involved.
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
Given that users pay no money, where is the massive influx of money coming from? Developers who pay to put their applications on FB (doubtful), advertising pay-per-clicks, or wholesale selling of user info to direct marketing scumbags? I'm betting it's the last one.
I found-out about FaceCrook and MyDisgrace on it's profile information scam, that I created a throw-away Yahoo Email Address and changed the NAMES information to the actual words "First Last" then redirected to the throw-away email.
Then with these two procedures verified, I chose to delete the accounts, and then unregistered/expired the throw-away eMail address.
Only problem is now the US Goobermint is getting involved with all kinds of agency dogma to earn money by lending their registries to these private corporations, and so nowtime soon you can't do this namechange anymore because it will be linked to the Federal State and might attach to you as your "alias" for "probable criminal activity."
Enjoy your police-state you tards. That's why AnonOPS was created by the Federal State employees to slander and libel Anonymous to earn Americunts of the Jewnited States all this reciprocal profiling behavior courtesy of Safety VS Security. I suggest you go back to using Sound-Tumbler-encrypted CB Radio and Bulletin Boards and Peer 2 Peer networks for your communications and socializing with fellow unknown people rather than online.
Blame the government, because they are nothing more than a private corporation looking to earn money by mudding the waters of commerce to earn an industry protecting the world from problems they intentionally caused.