After news broke that Goldman Sachs had invested $450 million in Facebook, valuing it at $50 billion, many wondered how the social networking site could be worth so much. (37Signals scoffed that it wasn't even worth anything close to $33 billion in September.) But now details about Goldman's pitch to investors are trickling out, and they reveal part of the reason Facebook is such an enticing investment: It was making a whole lot more money than many analysts believed, as Henry Blodget observes at Business Insider.It turns out that in 2009, Facebook took in $770 million in revenue made $200 million in net income. "This approximate revenue figure was known, but the net income figure was not. The 25% net profit margin implied by these figures is much higher than most people thought," Blodgett writes. "This is a VERY high net margin for such a young company. It's not quite in Google's league, but it's close ... "
In 2010, Facebook raked in $2 billion, but made $400 million. A lower profit margin, but still--not too shabby.
- Meh, We Need More Info, Kara Swisher writes at All Things Digital. "Whether that smallish net income and revenue deserves a $50 billion valuation or not will be up to investors to decide. But, as the Journal also pointed out, the Facebook offering is oversubscribed already, even without any significant information about the company;s finances. Which Facebook can keep from us all for a while--although I urge CEO Mark Zuckerberg, Google-style, to FREE THE DATA!."
- Everyone Wants a Piece, Forbes' Halah Touryalai says. "A 25% net profit margin is nothing to balk at for a company as young as Facebook. Plus, some analysts claim the company’s 2010 revenues may have reached $2 billion thanks to a surge in advertising money. It’s no wonder Goldman Sachs couldn’t keep Facebook shares on its shelves."
- Let's Compare Facebook to Early Google "Facebook’' financial results [are] more impressive than most projections," The Wall Street Journal's Scott Austin writes. "[T]o put it in some perspective, Google's revenue and profits in 2003, the year before it held an IPO, were $962 million and $106 million, respectively. Facebook is the same age as Google when it went public. Analysts speculate Facebook's revenue could be as high as $2 billion this year."
- But Some Are Still Skeptical, The New York Times' Andrew Ross Sorkin and Susanne Craig report. An important investment group within Goldman turned down a chance to invest in Facebook. Goldman Sachs Capital Partners head Richard A. Friedman thought the deal wasn't good for his clients--mostly pensions, sovereign wealth funds and big-name investors.
One reason Mr. Friedman may have shied away from the Facebook offer was that his fund was hurt a decade ago after loading up on technology and telecommunications darlings during the dot-com bubble. The unit’s third fund, a $2.8 billion vehicle raised in 1998, invested roughly 70 percent of its portfolio in such companies, according to the fund’s documents. Early on, the fund's performance was helped by the initial offerings of portfolio companies like Storage Networks. But then the bubble burst. One of the most notable investments, Webvan, enthusiastically backed by Goldman’s chief executive at the time, Henry M. Paulson Jr., collapsed.