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Facebook's Financial Burlesque: Tucking Groupon's Dollars In Its Garter?

If Facebook's revenues doubled to $1.6 billion in 2011's first half, as Reuters reported yesterday, then Facebook is currently a much smaller business than experts have estimated: Anywhere between 27 and 50 percent smaller than the lowest estimates publicly available, in fact.

Facebook saw net income of $500 million in the first half of 2011, according to Reuters, and earned earned $355 million in net income in the first nine months of 2010 on revenue of $1.2 billion, according to Reuters single-source story. Some (very rough) back-of-the-envelope math shows that the social network has a 100 percent revenue growth rate, which would put Facebook's 2011 revenues at around $3.2 billion.

That's 27 percent less than eMarketer's estimate of Facebook's 2011 advertising revenues, at $4 billion; and 50 percent less than its extrapolated $6.6 billion in 2011 revenues if you assume that ads make up only 60 percent of Facebook's business, with online game revenues from the likes of Zynga forming the other 30 percent. Those estimates were based on the most conservative guesses available.

Wall Street's sexiest strip show
We won't know the truth about Facebook's finances until 2012, when the company is expected to be forced to hold an IPO. Until then, Facebook is Wall Street's sexiest burlesque show, in the sense that its financial "privates" are being unveiled only in the most teasing way possible.

It's all very, very compelling given that Facebook's current "valuation" -- meaning its fictional price sticker -- on private markets is around $80-$100 billion, or about 25 times revenues. That's a ridiculous multiple in a world where ordinary companies can expect to be sold at four to six times revenue.

Investors have hyped the price because, as Reuters noted:

Facebook accounted for nearly one third of all Internet display advertisement impressions in the United States in June, more than the combined total of Yahoo, Microsoft Corp, Google and AOL Inc, according to analytics firm comScore.
Those ads are generated from the 1 trillion monthly pageviews that Facebook allegedly serves to its 750 million users, according to VentureBeat.

I logged on to Facebook to see some of these ads and, as usual, was disappointed at the inventory. A small placement for an AT&T HTC phone was followed by a display for an Oprah publication. (Who on Earth does Facebook think I am?) But after that I couldn't get the site to generate any more ads no matter where I clicked within my account pages. VentureBeat theorizes that Facebook's revenue is boosted by:

... the massive amount of ad spending done by daily deals startups like Groupon and LivingSocial, which heavily rely on Facebook ads to drive their business models.
If true, it's even more interesting that Facebook just ended Facebook Deals, its entrant in the daily deals business. Groupon is increasingly proving that daily deals are horribly unprofitable. Could it be that Facebook exited the category specifically to increase the amount of stupid money it collects from Groupon (GRPN) et al.?


Image by eschipul, CC.
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