Report: Facebook Revenue Was $777 Million In 2009, Net Income $200 Million | Hacker News Reader

Report: Facebook Revenue Was $777 Million In 2009, Net Income $200 Million

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16 pointschailatte29 comments

Let's say that they have quadrupled that, so $3.2 B revenue, and that they have greatly reduced their operating expenses (new servers, etc.) - so let's say they are making 50% net income, which would be almost impossible - that is still at best-case scenario $1.6 B a year, which hardly justifies $50B .

Even the most optimistic growth targets are going to bump up against hard limits: people can't spend more than x hours a day online, there are maybe 5 billion users worldwide as a potential market.

Unless the CIA is going to pay them a couple billion a year for data mining access (CIA's VC arm was an early investor) since we have all so nicely classified ourselves and our social graphs for "TIA" purposes, I can't see the valuation sticking.

So, where the heck is this $50B valuation coming from? I know those are '09 numbers, but even with wicked growth, that's quite a P/E.

it's called faith-based investing.

Brought to you by Goldman Sachs.

The user base is growing at something like 200% a year. In five years, they'll have over 32 billion users. Just figure out a way to make one or two dollars off each user...that can't be so hard, right?

Unfortunately there's a hard cap on the number of potential users in the world. There's about 7 billion people in the world right now, even if we're generous and suggest that 50% of the population are potential users you're limited to a 3 billionish maximum. They currently claim over 500 million active users, which means they're already at 1/6 of their maximum. Furthermore, the law of diminishing returns suggests that their growth will slow as they get close to their population limit. So unless they can figure out how to monetize those users in some significant way I can't see the potential for revenue being close to what the current evaluations are suggesting.

Irony is no fun when it is explained.

Ironically that was sarcasm anyway.

You're right! I'm so terribly sorry for getting my words all confused. It's a great thing that HN has such sharp and savvy editors like you to set shmucks like me straight.

You're very welcome :-).

Yeah, I figured it was, but I wasn't completely clear on it, so I commented.

Or is it pseudo-irony?

It's Alana Morriset irony.

The same place as the magical $15B valuation Microsoft set way back when.

It's a scam of the pump-and-dump variety, plain and simple. Look forward a few investors and investment banks making out like bandits and the rest getting screwed.

At least. Some numbers. NOW the debate is going to be fun, with some numbers to play with...

So let's see...

Google is valued at $195B, and had a profit of $6.5B in 2009. 6.5/195 => 0.033

Apple is valued at $306B, and had a profit of $14B in 2009. 14.0/306 => 0.045

Same ballpark.

Now...

Facebook is valued at $50B, and had a profit of $200MM in 2009. 0.2/50 => 0.004

Facebook over-valued in the long term ? Sure. In the short term ? It's the (speculative) market at work.

The average of both Google and Apple = (0.033 + 0.045)/2 = 0.039

Assuming a profit of 500M over a revenue of 2B , the valuation should be = 0.5/0.039 = 12.82B

The valuation of Facebook is 3.9x over this, which does not look so bad !

My place of employment currently allows users to surf Facebook, though it blocks many other sites. I wonder if the guys upstairs will one day pull the plug on FB when firing people is no longer an option to boost productivity. I wonder how much of a risk this scenario is to FB. There are a lot of un/der employed folks out there though.....

So we find out the emperor has no clothes. Unsurprising.

Can anyone get profit/revenue to valuation ratios on pre-IPO Google so that we can do some more rational comparing?

At it's highest, I recall Google's was around 100:1. This puts Facebook's at 250:1.

Correct me if I'm wrong, but it looks like you're using (rumored) 2009 income numbers with the Jan. 2011 valuation in your calculation. Income surely would have changed since then.

Yes, that's true. Assuming 2009's valuation of 25 billion, that would mean a P:E ration of 125:1.

You're comparing their 2010 year-end valuation with their 2009 year-end net income...

In December 2009, Facebook repurchased shares at $25 for an implied valuation of $11 billion. That's a 55 P/E.

How would this be rational? Facebook is not Google. Google's primary market (search) is nothing like Facebook's (personal communication).

Both of them market in advertising. The delivery method is different, but it's still advertising.

That's like saying that because Fry's and The Olive Garden both accept cash that they are in the same business.

Just because Facebook and Google both make money by selling advertisements doesn't mean they are in the same market.

For example, Google makes so much money from advertising because they can show users ads pertinent to their search query at the point they are often making a buying decision.

However, Facebook users are on the site because they bored or communicating and not even considering buying something. Not to mention that a large portion of Facebook users have very little discretionary spending money or ability to purchase online anyway.

The market and motivation involved between the two companies is completely different and not comparable.

Bingo! I purchase a lot of online ads, and I can tell you, I give nearly all my ad budget to Google. I tried Facebook for a while, with the exact same ads and the exact same product, and the result was shocking. Nearly 10x less conversions than with Google. I think the reason is simple. Google users were already searching for me, facebook users were just bored looky-loos. When people start to realize this about fb it could be the short of the century.

>more rational

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