The MSM is echoing BoomBustBlog analysis today, as per Bloomberg: Facebook First-Quarter Profit Drops; Costs Almost Double [7]
Facebook Inc. (FB) [8], the social network planning an initial public offering, said first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled.
This is exactly as I warned in my initial Facebook analysis to subscribers - The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly [9]...
Sales had risen 55 percent to $1.13 billion in the fourth quarter, and net income had climbed 20 percent.
Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!
[10]
Now, back to the Bloomberg article...
Net income dropped to $205 million in the three months through March, Menlo Park [11], California-based Facebook said yesterday in a regulatory filing [12]. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.
Expenses surged to $677 million, reflecting higher costs of helping marketers reach Facebook’s growing user base, which swelled by one-third to 901 million last quarter. The company may struggle to reach EMarketer Inc.’s projection for 2012 sales of $6.1 billion as it awaits the full impact of new tools aimed at wringing more money from advertisers, said Debra Aho Williamson, who helped construct the researcher’s estimate.
“Facebook has a pretty steep hill to climb to meet the expectations that we set out,” Williamson said.
Facebook may seek an IPO valuation of $75 billion to $100 billion, people with knowledge of the matter have said. The upper end of that range would value the company at about 25 times trailing 12-month sales, more than double Google (GOOG) [13] Inc.’s valuation when the search-engine operator went public in 2004.
Before last quarter, Facebook’s sales were already projected to gain at a slower rate this year than Google’s at the time of its IPO, according to data [13] compiled by Bloomberg. At $6.1 billion, 2012 revenue would be 64 percent higher than the $3.71 billion reported in 2011. Google’s revenue more than doubled to $3.19 billion the year it went public.
Zynga Revenue
Facebook said 82 percent of its revenue came from advertising last quarter, down from 83 percent in the preceding period. The company also derived less revenue from gaming companyZynga Inc. (ZNGA) [14], which contributed 11 percent of the total in the quarter, down from 13 percent a year earlier.
The number of daily active users rose to 526 million, an increase of 41 percent from a year earlier. Facebook’s employee base rose 46 percent to 3,539 from a year earlier.
“Our costs are growing quickly, which could harm our business and profitability,” the company said in the filing. “Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the number of connections and amount of data they share with us, as we develop and implement new product features that require more computing infrastructure, and as we hire additional employees.”
The paragraph above, decoded: These expenditures are true expenses, and not actual investments for they are needed to keep the company above water in the competition with Google, et. al., and are the stuff that actually fosters long term growth.
From C|Net: [15]
Its first-quarter revenue rose 45 percent to $1.06 billion compared with a year ago, but it was down 6 percent compared with the last quarter of 2011.
At the same time, the company's net income for the first quarter fell 12 percent, to $205 million from $233 million a year ago. And it was down from $302 million in the fourth quarter of 2011.
That drop in quarterly revenue and profit comes even as Facebook continues to see big user growth, meaning that it's making less on each user. Facebook said that it now has 500 million daily active users, compared with 372 million a year ago, and that its monthly active user number -- people who use Facebook at least once a month -- has climbed to 901 million from 845 million in December.
Its average revenue per use, called ARPU, fell 12 percent from the fourth quarter of 2011, and Facebook said that was mainly due to "seasonal trends." The company points out that it saw the same seasonal weakness during the fourth quarter of 2010.
Even more telling are the comments from that article...
- 15% of revenues came from Zynga...and that stock's not looking too hot these days. For those on the fence about whether this is a worthwhile investment, consider the last time you actually clicked on an ad in FB.
- Posted by techgeekdude [16]
- I am a once-a-month FB user at most. If FB is making any money off of me they are ripping off the one paying them that money. I may be counted as a visitor, but I am worthless to FB and anything connected to them as I cause no $s to pass their way.
- Posted by UnderStress [17]
I discussed Facebook on the Peter Schiff radio show [18] yesterday. The entire show can be heard via pod [19]cast from his site [19], and the Facebook excerpt is below...
From my previous Facebook analysis public excerpt:
Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...
Here is an excerpt for those who do subscribe to our research and services, YET!
[20]
Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...
[21]
You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".
Additional Facebook analysis, valuation and commentary.
On Max Keiser, go to the 13:55 marker for more on Facebook...
Facebook CEO Running From Investors 'Cause He IS The Only Investor Whose Opinion Actually Counts? [22]
Last month I released an update to our Facebook IPO analysis (subscribers may download it here FaceBook IPO & Valuation Note Update [23]). In its caveats section, I made pains to make very clear that one of the biggest threats to Facebook investors actually emanates from within, to wit:
[24]
[25]
Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...
Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012 [26]. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. [23] It is recommended that subscribers (click here to subscribe [27]) also review the original analyses (
[28]FB note final [29] 01/11/2011) as well as the following free blog posts on the topic:
- Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week! [30]
- Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! [31]
- Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure [32]
- The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models [33]
- Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned! [34]
- The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1 [35]
- The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly [9]