Facebook may have missed revenue projections by $500 million

Facebook may have missed revenue projections by $500 million

Summary: According to new analysis, the report suggesting Facebook's revenue doubled to $1.6 billion for the first half of 2011 is actually bad news.

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Earlier this week, we learned that Facebook reportedly doubled its revenue to $1.6 billion for the first half of 2011. Was this really the good news it was made out to be? PrivCo, an analyst firm for privately-held companies, doesn't think so. In fact, the group says Facebook missed its own forecasts by about 25 percent, or nearly $500 million.

In December 2010, Facebook announced that it had raised $1.5 billion at a valuation of approximately $50 billion, but that it had no immediate plans for the funds and would simply continue to build and expand its operations. The transaction consisted of two parts: in January 2011, Goldman Sachs completed an oversubscribed offering to its non-US clients in a fund that invested $1 billion in Facebook Class A common stock, while in December 2010, Digital Sky Technologies, The Goldman Sachs Group, and funds managed by Goldman Sachs, invested $500 million in Facebook Class A common stock at the same valuation.

PrivCo CEO Sam Hamadeh tells me that the devil is in the details. In the prospectus for the Goldman Sachs placement to its private clients, Facebook had projected first half year sales in 2011 of more than $2 billion and full year revenue of $4 billion. Furthermore, these numbers were based solely on ad revenue.

Hamadeh admits he never saw a copy of the prospectus, but he says he spoke to multiple people who did and could verify the numbers. In fact, he believes that the yearly revenue number was actually estimated to be higher $4.7 billion if you add what the company expected to make from Facebook Credits (sales of virtual goods and other content from Facebook apps and games), for which Facebook takes a 30 percent. Either way, this isn't good news for Facebook.

"When it sold stock via Goldman Sachs to investors in January at a $50 billion valuation, it provided internal 'conservative projections' in investment documents circulated of 'over $4 billion in revenue for 2011,'" Hamadeh told me. "At revenue of under $1.6 billion for the 1st half of 2011 (actually close to $1.5 according to our sources), revenue will barely exceed $3.2 billion for 2011. Facebook has seriously missed its own revenue forecasts of nearly $2 billion for 1st half 2011 by nearly $500 million, or 25 percent. (If this were a public company such as Google just announcing such results, its stock would be dropping dramatically today, perhaps by a third overnight.)"

"Connect the dots and Facebook's undergoing a loss of momentum, possibly even a decline (it's happened before to MySpace, and before that to Friendster), and there's a disconnect between underlying fundamentals and media hype," Hamadeh added. "Facebook's '$100 billion IPO' and 'being bigger than Google' etc. is not a given, to say the least."

Facebook's valuation has been all over the place in the months following the investment at $50 billion. Some look at the growth and see great prospects. Others see a dip in the last few months and think Facebook is doomed. The truth is we can only make predictions on the little data we have. Facebook is going public next year, possibly as soon as Q1 2012. This will open up the financial data floodgates, and then we'll finally be able to figure out how far the social networking giant will be able to go.

See also:

Topic: Social Enterprise

Emil Protalinski

About Emil Protalinski

Emil is a freelance journalist writing for CNET and ZDNet. Over the years,
he has covered the tech industry for multiple publications, including Ars
Technica, Neowin, and TechSpot.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

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16 comments
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  • RE: Facebook may have missed revenue projections by $500 million

    What are the odds that Facebook ends up a MS property?
    x I'm tc
    • RE: Facebook may have missed revenue projections by $500 million

      @jdakula
      Nonexistent.
      Empro
    • RE: Facebook may have missed revenue projections by $500 million

      @jdakula
      DoJ would not allow any major tech company to acquire a dominant position in social networking. It could happen if Google+ really catches on, but otherwise it won't.
      anono
  • RE: Facebook may have missed revenue projections by $500 million

    ROFL. The author is seriously a retard to think that 1.5B in first half means 3B in full year. What happened to Growth??
    dxnebula
    • RE: Facebook may have missed revenue projections by $500 million

      @dxnebula dxnebula, you're wrong. Facebook traffic has been down every month for the last few months in a row. So how exactly is it going to magically grow again? (And it says $3.2 billion for the full year, meaning $1.7B in second half, so that is some growth accounted for). But Facebook's not growing like a weed anymore and has been going in the opposite direction:<br><a href="http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=158224" target="_blank" rel="nofollow">http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=158224</a><br><br>Do your research!
      WebEntrepreneur
  • Wrong

    Ad revenue is ALWAYS higher in the second half of the year. Back to school marketing in Q3 and more importantly advertising for Holiday shopping in Q3 and Q4 creates much higher revenue than in Q1 and Q2. To make annual projections based only on doubling the first half of the year is ridiculous. The author of this article shows absolutely no understanding of the advertising industry. What an idiot.
    cmadone
    • RE: Facebook may have missed revenue projections by $500 million

      @cmadone
      No, clearly you're the idiot.

      "Facebook had projected first half year sales in 2011 of more than $2 billion and full year revenue of $4 billion."

      Facebook's own projections just so happened to be double.

      But forget that part, it's not important. The fact is that Facebook saw $1.5 billion to $1.6 billion for the first half of 2011. It was expecting $2 billion.
      Empro
      • RE: Facebook may have missed revenue projections by $500 million

        @Empro
        Facebook never stated they were projecting $2 Billion First half $4 Billion for the year. Sam H from PrivCo is the author of this story's source and he is the one claiming that Facebook projected $2 Billion. The worst part is, Sam himself admits he has never actually seen the documents in which Facebook claims to project $2 Billion in the first half. It would make no sense that Facebook would project $2 Billion in the first half and then only $4 Billion for the year. Nobody at Facebook would be stupid enough to think that more revenue would not be generated in the second half of the year due to seasonality as well as the natural growth curve they are on. When wanna be writers like Emil here start using sources that have self admitted that they have never actually seen the documents with these projections there is a problem. If this is the kind of sloppy journalism that is on ZDNet then what a joke this site is. Hey here is a scoop, I have not actually seen this one document but I heard it exists, it says Empro is a total idiot. Hey Emil why don't you write a story about that?
        cmadone
    • RE: Facebook may have missed revenue projections by $500 million

      @cmadone Respectfully cmadone, you sound like an idiot. You might know something about traditional advertising like TV, radio and newspapers, but know nothing about online pay-per-click advertising. Ad revenue doesn't "ALWAYS increase in the second half" no matter what as if it's magic. Facebook only makes money when a user visits and clicks on an ad. They're not NBC or a radio station who can charge double for ads between Thanksgiving and Christmas or back to school. Either a user clicks or they don't. And facebook's users are visiting less and less.<br>(And FYI to educate you, most websites except for shopping sites usually have DECLINING visits from Nov. to Jan. as people are focused on travel on airplanes and cars, being away from work, etc. See nytimes as example:<br><a href="http://siteanalytics.compete.com/nytimes.com/" target="_blank" rel="nofollow"><a href="http://siteanalytics.compete.com/nytimes.com/" target="_blank" rel="nofollow"><a href="http://siteanalytics.compete.com/nytimes.com/" target="_blank" rel="nofollow">http://siteanalytics.compete.com/nytimes.com/</a></a></a><br>Compared to Amazon.com:<br><a href="http://siteanalytics.compete.com/amazon.com/" target="_blank" rel="nofollow"><a href="http://siteanalytics.compete.com/amazon.com/" target="_blank" rel="nofollow"><a href="http://siteanalytics.compete.com/amazon.com/" target="_blank" rel="nofollow">http://siteanalytics.compete.com/amazon.com/</a></a></a><br><br>Only the amazons and ebays see major traffic increases in the 4th quarter from holidays.) Maybe you're an old ad agency person. Get a clue and go update your skills from old media to new media.
      WebEntrepreneur
      • RE: Facebook may have missed revenue projections by $500 million

        @WebEntrepreneur

        Actually I have been in digital advertising for over ten years working at some of the biggest sites on the web, including FACEBOOK. I can tell you that all of Facebook's deals with their major advertisers are based on CPM's along with CPC models. Most of Facebook's CPC revenue comes from either Direct Marketing companies or local mom and pop companies using the self serve ad tool on Facebook. Also, Mr. Know-it-all, I have personally negotiated deals to run major Facebook campaigns throughout the year and they are always CPM and we do charge premiums during holiday, the reason being, the demand for inventory is so high. Also, I am not saying Facebook sees more traffic during the holiday season, I am saying that Facebook's major clients spend the majority of their advertising budgets during this time period. Let me guess, you work for some shitty ad network that only uses CPC and CPA models, you've probably been working there a few years and think your a big shot. Finally, Empro you have no idea what we were projecting in the first half but if you think we projected 2 billion and then thought we would only double that during the second half you are an idiot. Do you think we would not include natural growth as well as increases due to seasonality in the second half of the year? Once again you two are idiots.
        cmadone
  • RE: Facebook may have missed revenue projections by $500 million

    If all the sales forecasts from last year that factored in hope and change were laid end-to-end, they would stretch from here to the pie in the sky.
    Robert Hahn
  • RE: Facebook may have missed revenue projections by $500 million

    amazing stuff
    JamiWitt
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