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Facebook's revenues this year are expected to be in the neighbourhood of $1 billion (http://www.insidefacebook.com/2010/06/22/exclusive-discussing-the-future-of

Facebook's revenues this year are expected to be in the neighbourhood of $1 billion (http://www.insidefacebook.com/2010/06/22/exclusive-discussing-the-future-of-facebook-and-the-facebook-ecosystem-with-ceo-mark-zuckerberg/ http://www.insidefacebook.com/2010/06/22/exclusive-discussin... ), a near doubling from last year. Given that, their current valuation is totally unsurprising.

michaelchisari 16y ago
With $1 billion in revenues, that puts their valuation at over 33x their revenue. And their operating costs are also off the charts, so that's where questions about profitability come in, since investors expect to be rewarded at some point.
- FreeRadical 16y ago
  Can you please be more specific where you say costs are 'off the charts'?
  - michaelchisari 16y ago
    Culling together various information, we're looking at approximately $100 million a year in new hardware, $20 million a year in leases. They haven't given out numbers for labor, bandwidth and energy (all huge, I'm sure), though there's plenty of articles talking about Facebook's costly infrastructure in the abstract.
- iamcalledrob 16y ago
  You might be interested to know that Facebook is turning a profit, and has done for a while.
  - michaelchisari 16y ago
    I don't disagree with that, however, their profits have not kept pace with their valuation, and their first profitable quarter was only last year. Furthermore, they've taken a huge amount of venture capital in order to get to this point, and have had to get more at points for increased infrastructure costs.
  - koski 16y ago
    I often read this "Facebook is turning a profit" but could someone point me a reliable link where to read more about this? Or at least, does anybody know how much are they making profit?
    - mikeryan 16y ago
      Their were a bunch of articles late last year where they we're claiming that they were cash flow positive http://www.wired.com/epicenter/2009/09/facebook-makes-money-tops-300-million-users/ http://www.wired.com/epicenter/2009/09/facebook-makes-money-... This has been conflated with profitability. (Not that its too different)
  - mikeryan 16y ago
    Yes, but most high growth publicly traded companies trade at 20-40x earnings (profits). Now Facebook has grown tremendously year over year, but this growth has to stop. They already claim 500M active users which is about 1/12th the world's population so their user base is really close to some maximum (3B?). How much higher can their profits actually go in order to match their current valuation?
- nas 16y ago
  That's a pretty poor price-to-sales ratio, based on stock valuation theory. I guess people (again) believe that traditional metrics don't apply to dot-com companies.
  - michaelchisari 16y ago
    Which worries me. I lived through the first dot-com bust, and I'm not interested in living through another. I'd much rather see the industry take a much more conservative approach to economics than giving way to an irrational exuberance.
    - lsc 16y ago
      Now, personally, I agree all this is irrational exuberance. But, I don't see it as a huge problem. As far as that goes, I'm not sure the first .com bubble and crash was really a bad thing for the industry. (the first .com bubble and crash were very good for me personally, even though they were clearly mis-allocations of capital from a societal viewpoint.) Huge amounts of infrastructure (software and hardware) was constructed. Many new Engineers were attracted and trained. (of course, it was bad for those who didn't make the cut during the crash, but it was probably quite good for the industry as a whole) Sure, some speculators are going to get soaked... but that's what happens when a speculator is wrong. I don't see that as a bad thing. Capitalism is based on this idea that speculation is fine; it's just that if you are wrong too many times, well, you can't speculate any more because you don't have any more money. I know that I personally am rather jealous of Zuckburg. I don't feel he "deserves" to be that rich, but eh, that's not mine to decide. He certainly has more of a claim to that money than the CEO of Enron or GM, you know? Sure, we're mis-allocating a lot of capital. But you know? the capital is coming from rich speculators, I believe, as it's so goddamn difficult to IPO these days, and a bunch of it is being used to prop up Engineer salaries, so while I recognize that it's an inefficient mis-allocation of capital, it's a wealth redistribution over which I certainly won't shed any tears. Personally, I think this wealth redistribution from speculators to Engineers will continue this trend towards more realistic and more efficient Internet businesses, as more of the speculators are replaced by Engineers who made it big in the last boom. This is, after all, how we got Paul Graham and Ycombinator.
- jamiequint 16y ago
  This is simple to explain, Facebook isn't anywhere close to its revenue potential, many people think it has the capacity to make Google type money as brand advertising moves online. If you look at their stock price in that light its not overvalued at all. Google's 2004 P/E was around 100, even in 2008 it was 46. EDIT: oops, I pulled revenue not earnings. Its irrelevant in any case. By the time Facebook IPOs their earnings should be on par with Google's IPO earnings.
  - mikeryan 16y ago
    You're conflating revenues and earnings. Their valuation is at 33x revenues. Their P/E right now is likely somewhere in the hundreds.
    - jamiequint 16y ago
      You're right, mixed that up. However, I'd be willing to bet that by the time Facebook IPOs their P/E will be lower or equal to Google's P/E at the time of IPO.
      - jamiequint 16y ago
        How about an explanation instead of just downvotes. This is a totally reasonable statement given FB revenues (yes I know this is not equal to earnings) compared to Google's in 2003.
    - michaelchisari 16y ago
      The most information we've gotten about profits is that it's in the "tens of millions". Now, to make the math easy, let's say they have profits of $33 million. That puts their P/E ratio at 1,000.

michaelchisari 16y ago

With $1 billion in revenues, that puts their valuation at over 33x their revenue. And their operating costs are also off the charts, so that's where questions about profitability come in, since investors expect to be rewarded at some point.

FreeRadical 16y ago
Can you please be more specific where you say costs are 'off the charts'?
- michaelchisari 16y ago
  Culling together various information, we're looking at approximately $100 million a year in new hardware, $20 million a year in leases. They haven't given out numbers for labor, bandwidth and energy (all huge, I'm sure), though there's plenty of articles talking about Facebook's costly infrastructure in the abstract.
iamcalledrob 16y ago
You might be interested to know that Facebook is turning a profit, and has done for a while.
- michaelchisari 16y ago
  I don't disagree with that, however, their profits have not kept pace with their valuation, and their first profitable quarter was only last year. Furthermore, they've taken a huge amount of venture capital in order to get to this point, and have had to get more at points for increased infrastructure costs.
- koski 16y ago
  I often read this "Facebook is turning a profit" but could someone point me a reliable link where to read more about this? Or at least, does anybody know how much are they making profit?
  - mikeryan 16y ago
    Their were a bunch of articles late last year where they we're claiming that they were cash flow positive http://www.wired.com/epicenter/2009/09/facebook-makes-money-tops-300-million-users/ http://www.wired.com/epicenter/2009/09/facebook-makes-money-... This has been conflated with profitability. (Not that its too different)
- mikeryan 16y ago
  Yes, but most high growth publicly traded companies trade at 20-40x earnings (profits). Now Facebook has grown tremendously year over year, but this growth has to stop. They already claim 500M active users which is about 1/12th the world's population so their user base is really close to some maximum (3B?). How much higher can their profits actually go in order to match their current valuation?
nas 16y ago
That's a pretty poor price-to-sales ratio, based on stock valuation theory. I guess people (again) believe that traditional metrics don't apply to dot-com companies.
- michaelchisari 16y ago
  Which worries me. I lived through the first dot-com bust, and I'm not interested in living through another. I'd much rather see the industry take a much more conservative approach to economics than giving way to an irrational exuberance.
  - lsc 16y ago
    Now, personally, I agree all this is irrational exuberance. But, I don't see it as a huge problem. As far as that goes, I'm not sure the first .com bubble and crash was really a bad thing for the industry. (the first .com bubble and crash were very good for me personally, even though they were clearly mis-allocations of capital from a societal viewpoint.) Huge amounts of infrastructure (software and hardware) was constructed. Many new Engineers were attracted and trained. (of course, it was bad for those who didn't make the cut during the crash, but it was probably quite good for the industry as a whole) Sure, some speculators are going to get soaked... but that's what happens when a speculator is wrong. I don't see that as a bad thing. Capitalism is based on this idea that speculation is fine; it's just that if you are wrong too many times, well, you can't speculate any more because you don't have any more money. I know that I personally am rather jealous of Zuckburg. I don't feel he "deserves" to be that rich, but eh, that's not mine to decide. He certainly has more of a claim to that money than the CEO of Enron or GM, you know? Sure, we're mis-allocating a lot of capital. But you know? the capital is coming from rich speculators, I believe, as it's so goddamn difficult to IPO these days, and a bunch of it is being used to prop up Engineer salaries, so while I recognize that it's an inefficient mis-allocation of capital, it's a wealth redistribution over which I certainly won't shed any tears. Personally, I think this wealth redistribution from speculators to Engineers will continue this trend towards more realistic and more efficient Internet businesses, as more of the speculators are replaced by Engineers who made it big in the last boom. This is, after all, how we got Paul Graham and Ycombinator.
jamiequint 16y ago
This is simple to explain, Facebook isn't anywhere close to its revenue potential, many people think it has the capacity to make Google type money as brand advertising moves online. If you look at their stock price in that light its not overvalued at all. Google's 2004 P/E was around 100, even in 2008 it was 46. EDIT: oops, I pulled revenue not earnings. Its irrelevant in any case. By the time Facebook IPOs their earnings should be on par with Google's IPO earnings.
- mikeryan 16y ago
  You're conflating revenues and earnings. Their valuation is at 33x revenues. Their P/E right now is likely somewhere in the hundreds.
  - jamiequint 16y ago
    You're right, mixed that up. However, I'd be willing to bet that by the time Facebook IPOs their P/E will be lower or equal to Google's P/E at the time of IPO.
    - jamiequint 16y ago
      How about an explanation instead of just downvotes. This is a totally reasonable statement given FB revenues (yes I know this is not equal to earnings) compared to Google's in 2003.
  - michaelchisari 16y ago
    The most information we've gotten about profits is that it's in the "tens of millions". Now, to make the math easy, let's say they have profits of $33 million. That puts their P/E ratio at 1,000.