"According to the document, Facebook earned $355 million in net income in the first nine months of 2010. Net earnings were a crucial detail left out of another leak, now confirmed by the document, that Facebook earned $1.2 billion in revenue during that same time period. In case you're keeping track, that means that $50 billion valuation is roughly 142 times what they earned (during those nine months)."
This is so wonderful. Extrapolating out from 9 months to 12, Facebook will make a profit of $444 million for 2010. That means its price to earnings ratio is 113. From 08 to 09 the amount of money it took in rose by 25%. From 09 to 2010, its revenue rose 20%.
Now, consider that according to the official Facebook Timeline, it had 100 million users in Dec 08, 150 million in Jan 09, 350 million users in Dec 09, and reached 500 million users in July of 2010.
And remember that it's the #2 most popular website in the world and in the U.S. (http://www.alexa.com/topsites)
So, from the info we have, their revenue is rising, but the rate at which it is rising is slowing down. At the same time, their user base has absolutely exploded and is reaching its upper limits. I mean, just how many internet users are there that don't know about facebook? And at this stage how many people know about facebook, aren't on it but can now be convinced to join? (Add to that the fact that the most *profitable* types of consumers are the ones already on FB.)
So where is any more growth supposed to come from? How can they improve on their profits? (By selling more about you to advertisers?). Look, I'm shocked that FB is making a profit at all, and I'll have to eat my words that the company will never make a dime. At least for 2009-2010. But I simply don't grasp how this company will actually be profitable. I think it will fail, and fail spectacularly, just like Friendster and Myspace. And they will lose a ton of money in the process.
Here's the whole piece:
Well, now we know why Goldman Sachs was so reluctant to give its millionaire clients any concrete details about the Facebook deal (save that vague appetite-whetting pitch letter that could easily have been mistaken for an entreaty from a Nigerian prince). Leaked copies of a 101-page private placement memo Goldman hand delivered to hand-picked potential investors a little after lunchtime yesterday — probably as they were leaving the Grill Room — reveal closely guarded details about Facebook's actual earnings, its plans for an IPO, and the SEC's investigation of Goldman's attempt to value Facebook at $50 billion. According to the document, Facebook earned $355 million in net income in the first nine months of 2010. Net earnings were a crucial detail left out of another leak, now confirmed by the document, that Facebook earned $1.2 billion in revenue during that same time period. In case you're keeping track, that means that $50 billion valuation is roughly 142 times what they earned (during those nine months). But after looking at the memo, Ryan Jacob of the Jacob Internet Fund told Reuters, "It just shows you that these business can generate 30 percent to 40 percent, potentially, operating margins."
However, the six-page financial statement included in the memo is unaudited, and sources say it doesn't address how Facebook earns its revenue. From acai berry weight loss ads and blackmailing you for that private Four Loko Me = album, obvs! The document also says Facebook plans to increase its number of shareholders above 500 this year, a threshold that would require it to start disclosing (audited) reams of financial data on executive compensation and profit and losses and its competition in advance of going public by April 2012.
According to the Journal, it wasn't just Goldman and its Russian buddy at Digital Sky Technologies that were interested in getting that $50 billion valuation. "People familiar with the matter have said Facebook sought a benchmark valuation from a leading investment bank in preparation for a potential initial public offering next year and was keen on a 'round-number' valuation of $50 billion." Yeah, the roundness was what they were worried about, not the teeteringly high sum.
Goldman's memo to investors also confirms speculation that the SEC is looking into the deal. Sources tell DealBook that they're investigating several issues, "including the structure of the deal and media reports about the offering, which was supposed to remain private." That's ridiculous. How could Goldman create a giant bubble out of Facebook frenzy if they kept the deal private?
This is so wonderful. Extrapolating out from 9 months to 12, Facebook will make a profit of $444 million for 2010. That means its price to earnings ratio is 113. From 08 to 09 the amount of money it took in rose by 25%. From 09 to 2010, its revenue rose 20%.
Now, consider that according to the official Facebook Timeline, it had 100 million users in Dec 08, 150 million in Jan 09, 350 million users in Dec 09, and reached 500 million users in July of 2010.
And remember that it's the #2 most popular website in the world and in the U.S. (http://www.alexa.com/topsites)
So, from the info we have, their revenue is rising, but the rate at which it is rising is slowing down. At the same time, their user base has absolutely exploded and is reaching its upper limits. I mean, just how many internet users are there that don't know about facebook? And at this stage how many people know about facebook, aren't on it but can now be convinced to join? (Add to that the fact that the most *profitable* types of consumers are the ones already on FB.)
So where is any more growth supposed to come from? How can they improve on their profits? (By selling more about you to advertisers?). Look, I'm shocked that FB is making a profit at all, and I'll have to eat my words that the company will never make a dime. At least for 2009-2010. But I simply don't grasp how this company will actually be profitable. I think it will fail, and fail spectacularly, just like Friendster and Myspace. And they will lose a ton of money in the process.
Here's the whole piece:
Well, now we know why Goldman Sachs was so reluctant to give its millionaire clients any concrete details about the Facebook deal (save that vague appetite-whetting pitch letter that could easily have been mistaken for an entreaty from a Nigerian prince). Leaked copies of a 101-page private placement memo Goldman hand delivered to hand-picked potential investors a little after lunchtime yesterday — probably as they were leaving the Grill Room — reveal closely guarded details about Facebook's actual earnings, its plans for an IPO, and the SEC's investigation of Goldman's attempt to value Facebook at $50 billion. According to the document, Facebook earned $355 million in net income in the first nine months of 2010. Net earnings were a crucial detail left out of another leak, now confirmed by the document, that Facebook earned $1.2 billion in revenue during that same time period. In case you're keeping track, that means that $50 billion valuation is roughly 142 times what they earned (during those nine months). But after looking at the memo, Ryan Jacob of the Jacob Internet Fund told Reuters, "It just shows you that these business can generate 30 percent to 40 percent, potentially, operating margins."
However, the six-page financial statement included in the memo is unaudited, and sources say it doesn't address how Facebook earns its revenue. From acai berry weight loss ads and blackmailing you for that private Four Loko Me = album, obvs! The document also says Facebook plans to increase its number of shareholders above 500 this year, a threshold that would require it to start disclosing (audited) reams of financial data on executive compensation and profit and losses and its competition in advance of going public by April 2012.
According to the Journal, it wasn't just Goldman and its Russian buddy at Digital Sky Technologies that were interested in getting that $50 billion valuation. "People familiar with the matter have said Facebook sought a benchmark valuation from a leading investment bank in preparation for a potential initial public offering next year and was keen on a 'round-number' valuation of $50 billion." Yeah, the roundness was what they were worried about, not the teeteringly high sum.
Goldman's memo to investors also confirms speculation that the SEC is looking into the deal. Sources tell DealBook that they're investigating several issues, "including the structure of the deal and media reports about the offering, which was supposed to remain private." That's ridiculous. How could Goldman create a giant bubble out of Facebook frenzy if they kept the deal private?
via nymag.com
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