Facebook may have missed revenue projections by $500 million

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.
Written by Emil Protalinski, Contributor

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.

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