8 ms·

Goldman docs: Facebook income $355m, revenue $1.2bn (first 9 months of 2010)

76 points by necolas 16y ago

necolas 16y ago
Excerpt: "Facebook earned $355 million in net income in the first nine months of 2010 on revenue of $1.2 billion, according to documents that Goldman Sachs is providing to clients. ... The Goldman customer said he received a separate six-page financial statement containing information on the social networking firm. ... The financial statements were not audited and offered little detail about how Facebook generates it revenue, said the source, who did not want to be identified because he had signed a non-disclosure agreement."
- luckyisgood 16y ago
  what part of "non-disclosure agreement" he didn't understand :-)
  - endtime 16y ago
    Sounds like he understood it fine, since he requested to be anonymous.
    - InclinedPlane 16y ago
      That's not how it works. :P
      - btilly 16y ago
        Sorry, but that is how it works. It is just not how it is supposed to work. :-P
        alphabeat 16y ago
        Maybe they wrote a different value on each document as a fingerprint of sorts. Or maybe they just expected this to get out.
        wladimir 16y ago
        Hopefully the leaker was smart enough to perturb the values somewhat as well :)
        jrockway 16y ago
        Probably the second one. Financial documents are typically prepared by lawyers and bankers, not cryptographers. Or he asked his friend, "hey, can I see your document... yup, they're identical" and then leaked with impunity. If the public really wants something, and you send a document with that information on it to a bunch of people, it's going to be leaked. I think Goldman is smart enough to realize this; the buzz is helping their business, but they knew they would get in trouble if they just announced the numbers. So they just gave it to random people with a I-did-my-due-diligence-NDA and let entropy take care of the rest.
michaelchisari 16y ago
So, assuming this is correct, then we extrapolate their yearly income to $474m, that puts their P:E at about 105:1
- jerf 16y ago
  At that price, it seems like buying into them is a bet that they will be the first company to completely take over the Internet, even moreso than Google. I'm not sure I can buy that, at least not at that price. (Or, more accurately, a bet that enough other people will think so for long enough that you can unload your stock on them for a profit. I wouldn't buy and hold, I don't think.)
  - nixme 16y ago
    Salesforce is trading at over 250 times earnings: http://www.google.com/finance?q=NYSE:CRM http://www.google.com/finance?q=NYSE:CRM
    - jerf 16y ago
      Well, I don't think I'd buy-and-hold that either. I want to jump up and down and yell "bubble" as much as the next guy, but I do have to admit this one seems relatively focused... at least at the moment. Just a small handful of companies trading way above what they "should" from a buy-and-hold perspective.
  - redthrowaway 16y ago
    Exactly. I think most people looking at facebook are expecting it to be a bubble, but they're hoping that getting in pre-IPO will get them a large discount. I wouldn't be surprised if many of them are looking to dump when facebook IPOs.
  - nl 16y ago
    It's worth noting that that high P/E ratio means an expectation in growth in revenue, not just traffic. While I think most people expect Facebook traffic to continue to grow for a while yet, it should also be clear that their moneterization efforts are pretty still primitive. For example, did you know it's possible to get > 50% cheaper advertising on Facebook by selecting CPM rather CPC when you build your ads? Even ignoring that, in my experiments advertising on Facebook is still hugely cheaper than on Google (taking the cost of a customer from acquisition to fulfillment). In any mildly competitive market (like online selling) that difference doesn't seem likely to continue. Anyway, my point is that I think that while "completely taking over the internet" may be crazy, there are plenty of ways for Facebook to easily grow their revenue by huge factors.
axiom 16y ago
Well, a P/E of 100 isn't that outrageous, especially given their growth rate.
- mynameishere 16y ago
  Yeah, if they signed up everyone on earth they could get it down to a respectable 10.
  - axiom 16y ago
    Come on, that's not fair. They only started playing with monetization strategies a few years ago. Not only that but they are the de facto standard of social media online. That's a pretty big asset that can be monetized in lots of creative ways.
    - redthrowaway 16y ago
      Myspace was the de facto standard in 2005. Napster was the de facto standard for filesharing in 98. Facebook is quickly becoming the next Myspace. By leveraging it as a platform, they're ceding control on UX. People left Myspace because most pages were ugly and blared shitty music at you. I can't count how many "friends" I've removed for sending farmville and mobwars invitations, or having astrology crap automatically posted to my news feed, or, or, or... Facebook is facing a position where monetization means shrinking its social graph, which isn't particularly enviable for the King of Social.
      - axiom 16y ago
        I guess what I was trying to say is that there's room for revenue growth, not that there's no chance they'll tank.
        elvirs 16y ago
        I agree with you, targeting on facebook is very poor right now. I can target those who has liked a certain page, while I would like to be able to target anyone who is a member of any group with my keyword in title, etc. new facebook redesign encourages people to add more information that matters (like employers, languages you speak, etc. not what music you like and movies you watch) about them which will enable even better targeting. advertisers will love this for higher conversion rate and users will love it(and less ignore ads) because they will see more relevant ads that are interesting to them.
alexyim 16y ago
So it seems that Facebook is generating significant profits, unless something funky went on in the last few months, so why take such a large investment?
- nrb 16y ago
  It's a win-win for Goldman and Facebook. Facebook gets a sky-high $50 billion valuation, and Goldman gets dibs on underwriting a potential Facebook IPO.
nl 16y ago
Let's do Math! Let's see if the $50B valuation is as outrageous as many seem to think. :) Projecting earnings to $500m for 2010 gives them a P/E of 100. I agree that a P/E of ~100 is high for a mature company: GOOG is ~24, YHOO is ~22, AMZN is ~75, EBAY is ~14. Obviously Facebook isn't a mature company at the moment, though, but what their earnings would have to be to keep the $50B valuation with a P/E of 30? $1.66B Earnings of $1.6B is a lot of money, but Yahoo had earnings of $1.4B last year, and I don't think it's unreasonable to expect that Facebook will be earning more than Yahoo within a couple of years.
- deleted 16y ago
  [deleted]
- chailatte 16y ago
  "Obviously Facebook isn't a mature company at the moment" Mature in terms of what? They are a 7 year old company with 500 Million users and 3000 top tier workers. "I don't think it's unreasonable to expect that Facebook will be earning more than Yahoo within a couple of years." With that logic, I don't see why Yahoo can't earn more than Google within a couple of years. All they need to do is to 'focus on monetizing', just like Facebook can (if they only put their mind to it). Anecdote: Google converts 15X more than Facebook in my circle of peers that have used both.
  - nl 16y ago
    With that logic, I don't see why Yahoo can't earn more than Google within a couple of years. All they need to do is to 'focus on monetizing', just like Facebook can (if they only put their mind to it). Google has a lock on the (incredibly profitable) search advertising market. For Yahoo to match that they would have to increase their search market share (as well as improve their monetization of it). That's a much harder problem than matching Yahoo's revenue. As far as I know, most of Yahoo's advertising revenue is display based, and the money made from that is basically a factor of page views. Anecdote: Google converts 15X more than Facebook in my circle of peers that have used both. Converts what? Sales? If that's the case then it doesn't surprise me (search advertising is incredibly efficient). But what you might find surprising is that I find you can get Facebook advertising for less than 1/15th of the price of the equivalent Google ad (by choosing CPM instead of CPC ads).
joe-mccann 16y ago
So based on $133/million per month in revs is ~ $1.6 billion this year. Current valuation on SecondMarket = $50 billion $50 billion/$1.6 Billion = a 31.25 multiple. 5 to 10 times revenues seems to be a reasonable way to value startups/private companies nowadays (for the most part). But a multiple of 31.25? Wow.
- prostoalex 16y ago
  I think the logic of a growth investor differs from the logic of a P/E chaser. Dividend yield is probably 0%, too, so if that's what one is after, it would seem like a crappy deal.
  - joe-mccann 16y ago
    True but I'm not mentioning earnings at all; simply based on revs seems like a LOFTY valuation.
  - hessenwolf 16y ago
    Oooh... are you being ironic?
vaksel 16y ago
personally I think that the 50 billion valuation is just a negotiation tactic. They start off at 50 billion, so that when they actually IPO at 25 billion, everyone will think they are getting an awesome deal that will double their money in no time.
dshjtykyu 16y ago
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herdrick 16y ago
Still undervalued. Goldman got a good deal.
- scorpion032 16y ago
  Well tried, Goldman!
mkramlich 16y ago
So if you bought the whole company at a $50b valuation, and assume that this $355m/yr profit rate for first 9 months held constant and therefore turned into $473m total by end of year, and then that rate held constant each year on forward, and that all profits were always and evenly distributed to all shareholders, then you'd recoup your investment (merely break even, anyway) after 105 years. Add in an unpredictable future growth rate. Add in the fact that they're probably approaching a hard cap on users in the next year or so. Add in bubble-ishness. Add in a big unknown as to whether they find ways to better monetize their users. And all this adds up to telling me either this is a bad investment, or, maybe just maybe it will at least break even within your lifetime. Can't say. But from this data I think it is not clear that this is a slam dunk buy at all. Either bad or meh.
- JonnieCache 16y ago
  Goldman have a lot of other ways of profiting from this other than simply taking a share of FB margins. For a start, they get to be in charge of the entire IPO process. That alone will be very profitable for them. There was a bunch of other stuff like this discussed in the threads on the goldman investment itself.
  - mkramlich 16y ago
    agreed. plus Goldman can profit on the Greater Fool effect. i was just assuming that, if you weren't Goldman, and weren't going to take advantage of the Greater Fool effect, etc., and you wanted to buy-and-hold rather than buy-and-flip, then, the numbers don't look too compelling at the $50bn valuation. but yeah, anything can happen, and there are lots of factors involve.
- bcrawl 16y ago
  or maybe, everyone is going to be worth $10 in a long run. 2bn users * $10, they have already made their money. And its a cheap assumption.
Aegean 16y ago
350M income, $50B valuation? So with today's facts you get your investment back in 142 * 3/4yr = 106 years?
- jamesaguilar 16y ago
  Assuming flat income for that period. You think this is a safe assumption I guess?
  - varjag 16y ago
    Good point, but the valuation is supposed to go higher when Facebook IPOs.
hessenwolf 16y ago
Assuming no growth; risk free + equity risk premium = 8% + company lasts infinitely (or for a long time): 3551e6/.75/.08 = 5.9110e9, or 6 billion. Let's assume they grow to five times their current income over the next five years; and, ooh, I am busy - just multiply the previous number by five to get an approximation.
hessenwolf 16y ago
In pitching as much as $1.5 billion in stock in the closely held social-networking company to wealthy investors, Goldman Sachs disclosed that it might sell or hedge its own $375 million investment without warning clients. Source: http://www.bloomberg.com/news/2011-01-07/goldman-efforts-to-burnish-image-may-be-undermined-by-facebook.html http://www.bloomberg.com/news/2011-01-07/goldman-efforts-to-...

76 points by necolas 16y ago

Excerpt: "Facebook earned $355 million in net income in the first nine months of 2010 on revenue of $1.2 billion, according to documents that Goldman Sachs is providing to clients. ... The Goldman customer said he received a separate six-page financial statement containing information on the social networking firm. ... The financial statements were not audited and offered little detail about how Facebook generates it revenue, said the source, who did not want to be identified because he had signed a non-disclosure agreement."

luckyisgood 16y ago
what part of "non-disclosure agreement" he didn't understand :-)
- endtime 16y ago
  Sounds like he understood it fine, since he requested to be anonymous.
  - InclinedPlane 16y ago
    That's not how it works. :P
    - btilly 16y ago
      Sorry, but that is how it works. It is just not how it is supposed to work. :-P
      - alphabeat 16y ago
        Maybe they wrote a different value on each document as a fingerprint of sorts. Or maybe they just expected this to get out.
        wladimir 16y ago
        Hopefully the leaker was smart enough to perturb the values somewhat as well :)
        jrockway 16y ago
        Probably the second one. Financial documents are typically prepared by lawyers and bankers, not cryptographers. Or he asked his friend, "hey, can I see your document... yup, they're identical" and then leaked with impunity. If the public really wants something, and you send a document with that information on it to a bunch of people, it's going to be leaked. I think Goldman is smart enough to realize this; the buzz is helping their business, but they knew they would get in trouble if they just announced the numbers. So they just gave it to random people with a I-did-my-due-diligence-NDA and let entropy take care of the rest.

michaelchisari 16y ago

So, assuming this is correct, then we extrapolate their yearly income to $474m, that puts their P:E at about 105:1

jerf 16y ago
At that price, it seems like buying into them is a bet that they will be the first company to completely take over the Internet, even moreso than Google. I'm not sure I can buy that, at least not at that price. (Or, more accurately, a bet that enough other people will think so for long enough that you can unload your stock on them for a profit. I wouldn't buy and hold, I don't think.)
- nixme 16y ago
  Salesforce is trading at over 250 times earnings: http://www.google.com/finance?q=NYSE:CRM http://www.google.com/finance?q=NYSE:CRM
  - jerf 16y ago
    Well, I don't think I'd buy-and-hold that either. I want to jump up and down and yell "bubble" as much as the next guy, but I do have to admit this one seems relatively focused... at least at the moment. Just a small handful of companies trading way above what they "should" from a buy-and-hold perspective.
- redthrowaway 16y ago
  Exactly. I think most people looking at facebook are expecting it to be a bubble, but they're hoping that getting in pre-IPO will get them a large discount. I wouldn't be surprised if many of them are looking to dump when facebook IPOs.
- nl 16y ago
  It's worth noting that that high P/E ratio means an expectation in growth in revenue, not just traffic. While I think most people expect Facebook traffic to continue to grow for a while yet, it should also be clear that their moneterization efforts are pretty still primitive. For example, did you know it's possible to get > 50% cheaper advertising on Facebook by selecting CPM rather CPC when you build your ads? Even ignoring that, in my experiments advertising on Facebook is still hugely cheaper than on Google (taking the cost of a customer from acquisition to fulfillment). In any mildly competitive market (like online selling) that difference doesn't seem likely to continue. Anyway, my point is that I think that while "completely taking over the internet" may be crazy, there are plenty of ways for Facebook to easily grow their revenue by huge factors.

axiom 16y ago

Well, a P/E of 100 isn't that outrageous, especially given their growth rate.

mynameishere 16y ago
Yeah, if they signed up everyone on earth they could get it down to a respectable 10.
- axiom 16y ago
  Come on, that's not fair. They only started playing with monetization strategies a few years ago. Not only that but they are the de facto standard of social media online. That's a pretty big asset that can be monetized in lots of creative ways.
  - redthrowaway 16y ago
    Myspace was the de facto standard in 2005. Napster was the de facto standard for filesharing in 98. Facebook is quickly becoming the next Myspace. By leveraging it as a platform, they're ceding control on UX. People left Myspace because most pages were ugly and blared shitty music at you. I can't count how many "friends" I've removed for sending farmville and mobwars invitations, or having astrology crap automatically posted to my news feed, or, or, or... Facebook is facing a position where monetization means shrinking its social graph, which isn't particularly enviable for the King of Social.
    - axiom 16y ago
      I guess what I was trying to say is that there's room for revenue growth, not that there's no chance they'll tank.
      - elvirs 16y ago
        I agree with you, targeting on facebook is very poor right now. I can target those who has liked a certain page, while I would like to be able to target anyone who is a member of any group with my keyword in title, etc. new facebook redesign encourages people to add more information that matters (like employers, languages you speak, etc. not what music you like and movies you watch) about them which will enable even better targeting. advertisers will love this for higher conversion rate and users will love it(and less ignore ads) because they will see more relevant ads that are interesting to them.

alexyim 16y ago

So it seems that Facebook is generating significant profits, unless something funky went on in the last few months, so why take such a large investment?

nrb 16y ago
It's a win-win for Goldman and Facebook. Facebook gets a sky-high $50 billion valuation, and Goldman gets dibs on underwriting a potential Facebook IPO.

nl 16y ago

Let's do Math! Let's see if the $50B valuation is as outrageous as many seem to think. :) Projecting earnings to $500m for 2010 gives them a P/E of 100. I agree that a P/E of ~100 is high for a mature company: GOOG is ~24, YHOO is ~22, AMZN is ~75, EBAY is ~14. Obviously Facebook isn't a mature company at the moment, though, but what their earnings would have to be to keep the $50B valuation with a P/E of 30? $1.66B Earnings of $1.6B is a lot of money, but Yahoo had earnings of $1.4B last year, and I don't think it's unreasonable to expect that Facebook will be earning more than Yahoo within a couple of years.

deleted 16y ago
[deleted]
chailatte 16y ago
"Obviously Facebook isn't a mature company at the moment" Mature in terms of what? They are a 7 year old company with 500 Million users and 3000 top tier workers. "I don't think it's unreasonable to expect that Facebook will be earning more than Yahoo within a couple of years." With that logic, I don't see why Yahoo can't earn more than Google within a couple of years. All they need to do is to 'focus on monetizing', just like Facebook can (if they only put their mind to it). Anecdote: Google converts 15X more than Facebook in my circle of peers that have used both.
- nl 16y ago
  With that logic, I don't see why Yahoo can't earn more than Google within a couple of years. All they need to do is to 'focus on monetizing', just like Facebook can (if they only put their mind to it). Google has a lock on the (incredibly profitable) search advertising market. For Yahoo to match that they would have to increase their search market share (as well as improve their monetization of it). That's a much harder problem than matching Yahoo's revenue. As far as I know, most of Yahoo's advertising revenue is display based, and the money made from that is basically a factor of page views. Anecdote: Google converts 15X more than Facebook in my circle of peers that have used both. Converts what? Sales? If that's the case then it doesn't surprise me (search advertising is incredibly efficient). But what you might find surprising is that I find you can get Facebook advertising for less than 1/15th of the price of the equivalent Google ad (by choosing CPM instead of CPC ads).

joe-mccann 16y ago

So based on $133/million per month in revs is ~ $1.6 billion this year. Current valuation on SecondMarket = $50 billion $50 billion/$1.6 Billion = a 31.25 multiple. 5 to 10 times revenues seems to be a reasonable way to value startups/private companies nowadays (for the most part). But a multiple of 31.25? Wow.

prostoalex 16y ago
I think the logic of a growth investor differs from the logic of a P/E chaser. Dividend yield is probably 0%, too, so if that's what one is after, it would seem like a crappy deal.
- joe-mccann 16y ago
  True but I'm not mentioning earnings at all; simply based on revs seems like a LOFTY valuation.
- hessenwolf 16y ago
  Oooh... are you being ironic?

vaksel 16y ago

personally I think that the 50 billion valuation is just a negotiation tactic. They start off at 50 billion, so that when they actually IPO at 25 billion, everyone will think they are getting an awesome deal that will double their money in no time.

dshjtykyu 16y ago

●---------------------------------------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●------ http://goo.gl/l5v0b http://goo.gl/l5v0b ------● ●---------------------------------------●

herdrick 16y ago

Still undervalued. Goldman got a good deal.

scorpion032 16y ago
Well tried, Goldman!

mkramlich 16y ago

So if you bought the whole company at a $50b valuation, and assume that this $355m/yr profit rate for first 9 months held constant and therefore turned into $473m total by end of year, and then that rate held constant each year on forward, and that all profits were always and evenly distributed to all shareholders, then you'd recoup your investment (merely break even, anyway) after 105 years. Add in an unpredictable future growth rate. Add in the fact that they're probably approaching a hard cap on users in the next year or so. Add in bubble-ishness. Add in a big unknown as to whether they find ways to better monetize their users. And all this adds up to telling me either this is a bad investment, or, maybe just maybe it will at least break even within your lifetime. Can't say. But from this data I think it is not clear that this is a slam dunk buy at all. Either bad or meh.

JonnieCache 16y ago
Goldman have a lot of other ways of profiting from this other than simply taking a share of FB margins. For a start, they get to be in charge of the entire IPO process. That alone will be very profitable for them. There was a bunch of other stuff like this discussed in the threads on the goldman investment itself.
- mkramlich 16y ago
  agreed. plus Goldman can profit on the Greater Fool effect. i was just assuming that, if you weren't Goldman, and weren't going to take advantage of the Greater Fool effect, etc., and you wanted to buy-and-hold rather than buy-and-flip, then, the numbers don't look too compelling at the $50bn valuation. but yeah, anything can happen, and there are lots of factors involve.
bcrawl 16y ago
or maybe, everyone is going to be worth $10 in a long run. 2bn users * $10, they have already made their money. And its a cheap assumption.

Aegean 16y ago

350M income, $50B valuation? So with today's facts you get your investment back in 142 * 3/4yr = 106 years?

jamesaguilar 16y ago
Assuming flat income for that period. You think this is a safe assumption I guess?
- varjag 16y ago
  Good point, but the valuation is supposed to go higher when Facebook IPOs.

hessenwolf 16y ago

Assuming no growth; risk free + equity risk premium = 8% + company lasts infinitely (or for a long time): 3551e6/.75/.08 = 5.9110e9, or 6 billion. Let's assume they grow to five times their current income over the next five years; and, ooh, I am busy - just multiply the previous number by five to get an approximation.

hessenwolf 16y ago

In pitching as much as $1.5 billion in stock in the closely held social-networking company to wealthy investors, Goldman Sachs disclosed that it might sell or hedge its own $375 million investment without warning clients. Source: http://www.bloomberg.com/news/2011-01-07/goldman-efforts-to-burnish-image-may-be-undermined-by-facebook.html http://www.bloomberg.com/news/2011-01-07/goldman-efforts-to-...