Facebook still has everything to prove
By Christopher Williams
Everyone knows the Facebook script by now. Humble beginnings in a university dorm room, explosive growth, worldwide domination of social networking, culminating in a wildy successful stock market flotation and big profits all round. Right?
Maybe not. The IPO is now reportedly scheduled for June, and will doubtless ride a wave of investor excitement to wild success. But the big profits ending, already questionable, was further undermined this week by some pretty disappointing pre-flotation financials.
User growth remains strong. More than 900 million people use Facebook every month, which is undeniably very impressive. But the firm’s bottom line actually weakened in the last 12 months.
It told the Securities Exchange Commission, the Wall Street regulator, that in the three months to March 31 it made a profit of $205m. Which is nice, but not as nice as the $233m it earned in the same period last year, and just a little over 20 cents for each of its members.
Yahoo!, widely seen as an online media business in decline, meanwhile grew its profits in the quarter from $223m to $286m.
A speedbump on Mark Zuckerberg’s road toEl Dorado, perhaps, but this isn’t howSilicon Valleysuccess stories are supposed to go. Google’s profits never dipped year-on-year as it prepared to float, back in 2004.
Facebook’s financial standing look even worse compared to Google when you consider that its revenues actually rose year-on-year, from $731m to $1.06bn. That means its margin was battered in the last 12 months.
Facebook blamed its hiring of an extra 1,000 staff and big increase in its sales and marketing, and research and development spending. Google was making similar investments at the same point in its history, yet profits contuinued to soar.
It’s led some skeptical commentators to ask the question this week ‘what if Facebook isn’t so special after all?‘. What if it’s just not that profitable a business? What if its costs keep rising as it acquires new members in developing countries, who have similar storage and bandwidth demands to their Western counterparts but nowhere near the same value to advertisers? What if it never attains Google-style scalabilty and mega-profitability?
It’s unlikely that any of these questions will rain on Facebook’s $100bn IPO parade, given the anticipation among investors. But in the longer term, it still has everything to prove.
Emma Barnett is away.