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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.
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.
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.
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.
You're not the customer. You're the product.
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.
The source signed a non-disclosure agreement, on the basis that he was trustworthy, and then disclosed the document anyway. What an unsavoury character.
Yeah, why would we trust these numbers, since they are provided by a source proven to be untrustworthy, about a company proven to be untrustworthy, led by a guy proven to be untrustworthy?
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
because facebook is a private company and hence doesn't have to meet all the requirements of a public company.
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
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
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...
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.
Read Matt Taibbi's blog post over at Rolling Stone. They are using what's called a "Special Purpose Vehicle." Basically, the SPV invests in Facebook, and Goldman's hand-picked clients invest in the SPV. You don't have to disclose financials if you have less than 500 investors, and the SPV only counts as one.
Ceci n'est pas un sig.
Unless of course you expect the revenue to change rapidly in the next few years. Which is what people expect to happen to facebook. I would say $16B is undervalued, for such a company (i also believe $50 is really over valued though)
...should Facebook be valuated...
We should have more financious intellectious discussions like this.
I prefer to say, "the investor made a revision to their privacy policy."
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.
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.