Facebook First Half Revenue Hits $1.6 Billion

http://www.reuters.com/article/2011/09/07/us-facebook-idUSTRE7863YW20110907

by pathik • 15 years ago

67 49 15 years ago

protomyth• 15 years ago

"Net income in the first half of 2011 came to almost $500 million, according to the source, who wished to remain anonymous because privately-held Facebook does not disclose its results."

shoham14• 15 years ago

80-1 P/E valuation seems a bit steep to me. I still see this as a $25 Billion company in the long term, which isn't bad for a site that gets much of its revenue from display ads.

Here's a list of websites by 2010 revenue:

http://www.incomediary.com/top-earning-websites-in-the-world...

You'll notice that just about every site in the top 15 sell goods and services (physical: Amazon, eBay or digital: Netflix, iTunes) or search ads (Yahoo, and Google). Display ad based sites languish at the bottom for several reasons, including the fact that the content of those ads are not what you came to the site to engage with.

If the numbers are right, then Facebook is bringing in about 1/3 the revenue of eBay, but analysts on secondary markets and elsewhere are giving it a valuation twice that of eBay's: http://finance.yahoo.com/q?s=EBAY or five times that of Yahoo's which has twice the revenue: http://finance.yahoo.com/q?s=YHOO

Hopefully people can see through the hyperbole, and find a fair market value for this company.

ig17• 15 years ago

Facebook's ad platform is still relatively immature, especially when it comes to long tail advertisers. Hence they have much more potential for growth than say eBay which is a much more mature product.

There are standard advertising features such as day-parting and A/B testing that don't exist on Facebook but would significantly increase conversion rates. They're also choosing at the present not to offer targeting on high-value demographic information (for example by job title - linkedin's CPM is 10x that of Facebook on job title targeted ads) which again would allow them to significantly increase revenue.

shoham14• 15 years ago

Interesting points, ig. When it comes to revenue, I ask myself "Why do people come to your site". The magic for Google/Yahoo is that you come to their site to leave their site, to find answers to questions like "Where can I find a diamond engagement ring?" and then they get the answers, and some highly relevant, highly lucrative ads.

For eBay, and Amazon, you come specifically with the intent to spend money on their site.

For Facebook, the name of the game is to get you on their site, keep you there, and to bring you back tomorrow to chat with your friends, something like AIM was 10 years ago, but with a better ad network. So far, with all of the businesses that want me to like them on Facebook, none of them have asked me to buy anything on Facebook, just spread their ads -- paid and earned.

Could Facebook be the next ebay or Amazon? Sure, if they want to let every business on their site use their "Pay with Facebook" feature to sell anything. For me, this would justify the current valuation not display ads.

Here's a link to LinkedIn's Q2 revenue (120 Million: http://mashable.com/2011/08/04/linkedin-q2-beats-street/), which again shows that display ads (plus premium membership fees) don't add up to what search ads, or commission fees do. Even for a site like LinkdIn which is more popular than either Amazon (30 Billion in annual revenue) or eBay (8 Billion in annual revenue).

I don't doubt the social utility (pardon the pun) of such networks (I am a founder of one myself), but I question just how much revenue these kind of peripheral ads can really generate.

cletus• 15 years ago

When the high P/Es are pointed out about Facebook, the defenders nearly always point out that the platform is immature and/or they haven't monetized yet (this last one is a huge one for Twitter defenders too).

To this I say: you're missing the point and you're basically wrong.

Ads on Facebook are basically spam. They are not things people want to see, not related to anything they're doing, they are at best crude attempts to convert likes into an audience. But they are as welcome as ads on TV are.

Not that advertising isn't (and can't be) effective but there is a time and a place.

On Ebay, if you're looking on Ebay you want to buy or sell something. The intent of an Ebay user is about by definition: you almost certainly want to transact something.

On Google of course you have the intent of search (disclaimer: I work for Google), which is huge.

But on Facebook? Most people just want to share photos, send messages and send updates. Ads are an intrusion.

Probably the most important sentence in this piece is:

> It was not clear what portion of Facebook's $1.6 billion in revenue in the first half of the year came from advertising sales.

Bingo.

Within probably 6 months Facebook will have filed an S1 for IPO. At that point we'll get a far better picture of the sources of their revenue. If the $1.6 billion 2011H1 figure is true I suspect a huge portion of that comes from virtual goods. That's bad.

While I believe that Facebook is a very valuable property I also believe that it comes with huge risks. A few years ago Facebook was scared at the (then) meteoric rise of Twitter. Social networks seem to be incredibly fickle, possibly even generational (as Myspace was). Even with 700+ million users there is always the risk of users abandoning Facebook for the next thing (IMHO).

Also, the games thing is a risk too. Facebook faces the risk of games going elsewhere (eventually as they have an exclusive on many Zynga properties but Zynga doesn't want to be dependent on Facebook long term) or simply new platforms and paradigms emerging, particularly mobile games.

What will be interesting to see is whether Facebook enters the search space in coming years.

gojomo3• 15 years ago

Value is more a function of future revenue, and margin, than it is of past revenue. So upward momentum, which Facebook has and Yahoo and EBay do not, explains the higher valuation.

Also, valuation comes from the expectation over all possible outcomes. Perhaps there's a 60% chance Facebook winds up just a $25B company. But there's also a 38% chance that it becomes a $200B Google and a 2% chance it becomes a one-of-a-kind $400B post-Google monopoly. The weighted average of those outcomes is $99B, even though your "$25 Billion company" sense remains the modal/most-likely outcome.

shoham14• 15 years ago

My question is "Where is that revenue supposed to come from?". Let's assume Facebook's userbase doubles in the next year, and tops out/ holds steady at at 1.5 Billion people for the foreseeable future, and that their revenue per user doubles from $4/year to $8/per year -- there's a reasonable $80 Billion valuation for you, but where to from there? Investors buy stock they think will rise in value. Will FB offer a dividend?

Here is the rub with/for FB: The best ads are no ads-- playing the 'Like' game is cheaper, and more authentic for advertisers. Better than Google's search results your posts are more social, cost nothing, and show up in between pictures and posts by friends.

zyfo• 15 years ago

You seem to be missing the 10% or so chance that Facebook is obsolete in 5 years time.

dkrich2• 15 years ago

What kind of analysis is that? Valuations aren't based upon some arbitrary assignment of percentages to various outcomes. They're based upon hard numbers. I'm not a Facebook hater, I think their revenue will continue to grow, especially if they are able to successfully expand into new markets (hardware for example). But as for now, seeing as how they have really hit a saturation point in the US market in terms of user base to the point where usage is actually dropping, I have a hard time seeing them as anything close to a $100 billion company.

I would have a very hard time investing in any company whose sole source of income was based upon display ads, and was still trying to figure out a solid revenue model. You can say that they already have one, but if you compare the long-term viability of social ads to Microsoft for example, I think you would agree that the revenues that Microsoft generates are likely to be a lot more stable than those of Facebook. I think that social networks in general are still in their infancy, and anybody who tries to peg a valuation on any of them without some more data is acting rather foolishly. I'd be very curious to know what kind of numbers Twitter is generating.

It's important not to confuse hype with value. What generates the hype is not necessarily something that people are willing to pay for, and at the end of the day that's what determines a business' value.

plainOldText• 15 years ago

Quote from incomediary.com (the above link): "Turnover is vanity, profit is sanity, but CASH is king". :)

deleo2• 15 years ago

Facebook could cannibalize all of these markets you mention: nothing prevents them from turning it into a marketplace of new/used stuff and a platform to watch movies on or sell songs. Have a look at the (pirate friendly) Russian vkontakte.ru: whole american TV series and movies can be watched there.

shoham14• 15 years ago

could-- more likely, I think that it won't. What's Facebook do? It helps you connect, and reconnect with friends and family -- what's that have to do with buying and selling goods? Why do I need to watch shows on Facebook, and not somewhere else?

zerostar072• 15 years ago

I am not convinced that facebook's advertising can ever be as effective as adsense. In fact, i think these numbers represent the revenues from game developers switching to facebook credits (facebook made it mandatory in july, but most developers started earlier).

ig17• 15 years ago

How are you defining effectiveness in this context ?

zerostar072• 15 years ago

return of investment? my experiments show that facebook ads are only good for advertising facebook games.

bane• 15 years ago

Also known as $2.30 per user this half...or about $5/year.

typicalrunt• 15 years ago

If I search the article for the word "profit", I get 0 results.

Revenue is all well and good, but what's the profit number? That's a very important, but missing, part of the story.

mdasen• 15 years ago

The first line of the article has it:

Net income in the first half of 2011 came to almost $500 million, according to the source, who wished to remain anonymous because privately-held Facebook does not disclose its results.

Zakuzaa• 15 years ago

Try synonyms.

Facebook First Half Revenue Hits $1.6 Billion

Related Stories