Facebook's financials revealed in leak

[Whitey]

Facebook earned $US355 million in net income in the first nine months of 2010 on revenue of $US1.2 billion, according to documents that Goldman Sachs is providing to clients.

Goldman began hand-delivering copies of the 101-page private placement memorandum for the Facebook offering to its wealthy customers a little after lunchtime Thursday in New York, according to a person who received a copy.

The Goldman customer said he received a separate six-page financial statement containing information on the social networking firm.

The document provides some of the most detailed financial information to come to light about Facebook, which Goldman recently valued at $US50 billion in a separate, $US450 million funding.

[smh.com.au...]

[BillyS]

Let's see, that's about a buck for each end user. Now if Facebook could only sign up 9 billion end users, they'd quickly pass Google's earnings.

Let's see now, Goldman thinks a P/E ratio of 120 is fair, sure...

[aspdaddy]

That P/E is higher than the ridiculous peak of 42 in 2001. Theres obviously something else going on here, this isnt a leak its well planned.

[weeks]

ANYONE here have ANY idea how FB could make money? I mean BIG money, without hacking off their user base? The people who post on WebmasterWorld should have a clue, if there was a clue to be had by now.

Maybe the could use Adwords?

Seriously, it's amazing to me how The New York Times, who has struggled to get their huge online audience to be profitable as it needs to be to pay their bills, reports on FB & Twitter as if they are major business enterprises to-be.

Both of these web services have had tremendous social, economic and technological impacts on many other enterprises--including government, non-profits and businesses large and small. The same could be said to some degree about the NYT.

But, $$$$like-Google$$$? How? Where? When?

Yes, FB will be going into search this year, scrambling around like Microsoft has done and continues to do. And it will crash and burn against the established player because they don't have anything new to offer.

Facebook, the AOL of today. (Think about it. How is Facebook not like AOL?)

[Rugles]

Wow, way over-valued. That does not look like a good investment.. except for Goldman who will clearly sell off when it goes public and make a fortune doing it. The rich get richer.

I have no idea how FB will increase revenue without driving away their user base. Might be a good time for a new competitor in social media to start up.

[oodlum]

I remember this argument back in '01. "Google is amazing but how will it ever make money?"

Facebook are in a position to totally reinvent search, leveraging their user data. Not just results based on friends' listed interests but based on friends' (and extended networks') clickstreams. i.e. Google personalised x1000. They could accurately personalise results for stuff you've never searched for before and didn't know you wanted. Then add an ad program.

Powerful stuff.

[weeks]

I remember this argument back in '01. "Google is amazing but how will it ever make money?"

I remember that as well and the point is well taken.

But the contextual search you're talking about with Facebook has been tried before by dozens of people (including me).

Here is what everyone who has tried it sees: People do find the linking in context interesting and entertaining, but it's often not useful. Context does have value, but not as much as suggested by the numbers we've seen.

My bias comes from the data. For example, the low click rate on Adsense on general interest websites such as newspapers.

On the FB pages of others I've viewed, there is not enough context for people with money to spend on high value, high margin products and services.

"Google personalised x1000" sounds great. I think that's as a good description as I have seen. We agree on that.

But I don't think it makes big money. Not only are there are only x number of ad dollars to be had, but there is only so much time and energy people can spend on targeting. There is a point where there is a rapidly diminishing return in targeting. (Also, people are lazy.)

FB is going to have to take the marketing money from someone else. Who will that be? FB got to be both better and easier than what marketers are using now. I worry that Facebook will be neither be better nor will it be easier.

[skibum]

Facebook are in a position to totally reinvent search, leveraging their user data

A company can have all the date in the world but if there is no commercial intent behind the actions of its users it doesn't mean squat and basically all they can do is sell the data. Even if people wondered how Google would make money in the early stages, the merchants who got traffic and tracked it ALWAYS knew where the value was in Google traffic even if it took Google a while to monetize it. How many merchants out there are screaming, this is where the money is in Facebook [traffic]? Probably very few outside Zynga and the companies who sell virtual game things on Facebook and maybe the personals sites. Most everyone here knows something about monetizing traffic but nobody seems to be very concerned about Facebook, Facebook traffic or post anything about losing any sales or anything when something changes at Facebook.

I might eat my words if Facebook is the recipient of "Brand" marketing dollars of which there are billions and am surprised than revenue would be 1.2B and net at 355M. Those are both higher than I'd have anticipated.

[moTi]

thing is, you can target as precisely as it gets, read user data, know his behavior and buying intentions. but if you don't reach him at the right moment, it's all pointless.

when is the right moment? answer: when the user wants it.

with a search engine like google, you get the best targeting money can buy so far. why? because the user is in active buying mode. he decides when the advertiser is allowed to present his products or services to him. no other marketing strategy can beat that.

facebook is push marketing. interrupt conversations of users in entertainment mode. it's old marketing. as long as they don't come up with something overwhelmingly better, their conversion rates will stay at the bottom. so they need a brand new revenue model to satisfy the massive expectations.

the whole valuation thing is a bet or a hope that facebook will invent something as revolutionary as a search engine combined with adwords. at the same time, it must be something that is tailor-made to the requirements of their community.

what does facebook differentiate from other social networks who have been around for years trying things out? the only thing that comes to my mind is: they have a bigger user base - so they have economies of scale. but why that alone should suffice to make them more innovative than any other company in the world when it comes to finding new ways to earn money is beyond me. why should that be facebook of all things?

[Whitey]

The latest valuation on Facebook marks a five-fold increase since May 2009, when DST’s first investment in the company put a value on it of $10bn – a figure seen as extravagant even at the time.

The secretive nature of the transaction, and the fact that it was limited to a privileged few, has drawn criticism in some corners of Silicon Valley, where it has been seen as an attempt by Facebook founder Mark Zuckerberg to avoid full public scrutiny that comes with going public. The private $2bn arrangement stands in sharp contrast to the course taken by Google in 2004, when it raised $1.2bn in an initial public offering.
[ft.com...]

[weeks]

the only thing that comes to my mind is: they have a bigger user base - so they have economies of scale.

And that scale is impressive. FB is worth a lot, no doubt about it. But $50 billion seems a touch on the high side. By, maybe, $45 billion.

I might eat my words if Facebook is the recipient of "Brand" marketing dollars of which there are billions

Skibum, from what I know about branding, I cannot see that. Unless we get Facebook Video. Then, maybe.

What is Facebook Video? It's an idea worth billions of dollars. I just came up with it. It's a great idea. I wish I could tell you what it is. I mean to say, I really, really do wish I could tell you what Facebook Video is.

[skibum]

I'd love to know what percentage of the Facebook revenue is from Zynga and other online games that hook into Facebook. If I had to guess, I'd say it is those games that make Facebook profitable.

[idolw]

I guess if they started to charge $10-$100 per fan page per month they'd clean up a bit and would make some nice cash. Is it innovative though?

[skibum]

That would suck for businesses but it would be a way to strong arm them to either "keep" the investments made in FB advertising to get likes, fans, etc... or have to throw it all away if they didn't want to pay for them.

[hyperkik]

Facebook are in a position to totally reinvent search, leveraging their user data. Not just results based on friends' listed interests but based on friends' (and extended networks') clickstreams. i.e. Google personalised x1000. They could accurately personalise results for stuff you've never searched for before and didn't know you wanted. Then add an ad program.

The thing is, that only work when they have enough information about a user to create a meaningful data set. I'll grant that, combined with other factors, data may allow for improving ads served to its members, but let's just say they do a terrible job with their on-profile ads for me. (Have you ever clicked one?) It's difficult for me to imagine that they have something up their sleeve that will beat contextual advertising, as if the product is what they're using now it's not even effective for low-use (i.e., most) subscribers.

I recognize that over the years many companies have enjoyed high valuations based upon vaporware, and that many people can afford gambling on Facebook being the exception, but we know how most of those stories end.

Charging for commercial fan pages won't generate the type of revenue Facebook needs to justify the GS valuation or anything close (assuming we should even regard the GS $50 billion as an attempt at an accurate valuation).

[true_INFP]

I don't know if this link has already been posted, but the article is quite insightful.

[edition.cnn.com...]

Some quotes from it:

But appearances can be deceiving. In fact, as I read the situation, we are witnessing the beginning of the end of Facebook. These aren't the symptoms of a company that is winning, but one that is cashing out.

Indeed, 11 years ago this week, when AOL announced its $350 billion merger with Time Warner, I was asked to write an OpEd for the New York Times explaining what the deal between old and new media companies really meant. I said that AOL was cashing in its over-valued dotcom stock in order to purchase a stake in a "real" media company with movie studios, theme parks and even cable. In short, the deal meant AOL knew their reign was over.

Unlike a public offering of shares, this private offering to Goldman's clients doesn't obligate Facebook to come clean on its real profits. It doesn't have to submit to standard accounting practice, or indicate how well it's really doing or isn't doing. It gets to remain in the safe cloud of hype that protects all such ventures until they either make a real profit or die trying.

[skibum]

It almost makes it sound like some of the wording in the GM IPO prospectus.

[Rob100]

Why does Facebook have to try and copy Google’s model, it is a different business in a different sector. I believe Facebook should create services that add value to the user experience and monetise them. Take zynga.com, one of the world's fast growing companies, they operate in the games sector leveraged off Facebook so there is no reason Facebook can’t move in TV music etc. They have the platform to do it and the brain power to make it work. Why does everyone get obsessed with this idea that Facebook is going, or should go into search?

[cloudtap]

Facebook needs to stick with what Rob100 said -- They should become more social and feed into the verticals which are most connected to socialization -- entertainment is one, shopping is another; I just hope they don't go the route of MySpace and lose their user-base and everything. Facebook REALLY needs to get onto the Zynga piece of their business and try to create more large gaming companies on their network.

There is so much they could do - what about a possible virtual world powered by their open social graph and such? They could really get VERY cutting edge if they added a physical component to their stuff

[StoutFiles]

I remember this argument back in '01. "Google is amazing but how will it ever make money?"

And they were right. Then Google came out with AdSense/AdWords, which accounts for almost all their money. Unless Facebook plans to sell data for cash, their best hope is to come out with their own ad program to rival Google's.

I guess if they started to charge $10-$100 per fan page per month they'd clean up a bit and would make some nice cash. Is it innovative though?

Facebook's following isn't loyal enough to pay monthly fees, especially on a model that needs your friends and everyone else on it to keep you coming back for more. A fee would destroy Facebook.

[np2003]

I spent $5,000 on various ad campaigns for 2 web businesses on Facebook Ads and got perhaps $200 ROI back. I would spend money, if I could make money on FB, but the question is how? On Adwords, $5k spent would deliver a 2:1 ROI...

[potentialgeek]

Let's not forget Facebook was never conceived to be a business. It was created to pick up chicks. Maybe that's why it's been difficult to make money.

Google was very reluctant to add ads but they did it. They took another company's idea and ran with it. FB keep waiting and waiting hoping to come up with an idea.

WTH is Bill Gross when you need him?

[quora.com...]

[Innovate]

I think I missed something.

Why does Facebook need to make more money?