BREAKINGVIEWS - Facebook puts Web 2.0 rivals in appropriate light

Thu Sep 8, 2011 1:32pm IST

Facebook CEO Mark Zuckerberg speaks during a news conference at Facebook's headquarters in Palo Alto, California July 6, 2011. REUTERS/Norbert von der Groeben/Files

Facebook CEO Mark Zuckerberg speaks during a news conference at Facebook's headquarters in Palo Alto, California July 6, 2011.

Credit: Reuters/Norbert von der Groeben/Files

Related Topics

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK (Reuters Breakingviews) - The latest numbers on Facebook puts the social network's Web 2.0 rivals in the appropriate light. Initial public offerings this year for tech companies like content factory Demand Media and Internet radio service Pandora Media have shown how profitless growth can gain favor. But Facebook's fast-growing profit is a stark reminder of exactly what's missing from Silicon Valley.

Adoration of the top line can be fickle. Just look at the nearly two-thirds drop in the value of Demand Media's stock following the first-day pop. Or consider Groupon's recent decision to delay its share sale. At Facebook, sales nearly doubled in the first half of the year to $1.2 billion. That alone would be enough to get revenue chasers excited. But the firm also racked up around $500 million in net income.

Information about Facebook is patchy because the firm is private, so only so much can be gleaned from the figures. But revenue growth appears to be slowing slightly. That's understandable given its size. Further, even though Facebook keeps adding to its base of over 750 million users, it will become increasingly difficult for it to find folks without an account. But that doesn't mean there aren't still golden years ahead.

People are sending more messages. Partners, such as video game company Zynga, are giving Facebook a bigger slice of their revenue. New advertising partners are also being signed up. But it's the gallons of black ink writing Facebook's investment story.

Rivals and underwriters can try and convince investors to focus on various proxies for profit and ignore the real thing. In the meantime, Facebook's margins are holding steady at around 30 percent. It's easy to measure anything from eyeballs to sales -- and just as easy to overpay for them. But as Facebook is showing, nothing can ever replace a healthy bottom line.

CONTEXT NEWS

-- Facebook's revenue nearly doubled in the first half of 2011 to $1.6 billion, a source familiar with the situation told Reuters, and net income was almost $500 million.

-- The social networking company had sales of $1.2 billion and net income of $355 million in the first nine months of 2010, according to documents provided to clients in connection with a share offering earlier this year.

-- Reuters story: EXCLUSIVE-Facebook doubles first-half revenue-source

(Editing by Jeffrey Goldfarb and Martin Langfield)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Public Health

REUTERS SHOWCASE

Cost Cutting

Cost Cutting

PM Narendra Modi boots officials out of the first class cabin  Full Article 

Airtel Profit Jumps

Airtel Profit Jumps

Bharti Q2 net profit more than doubles   Full Article 

Leisure Riding

Leisure Riding

Harley-Davidson woos affluent young Indians with bike culture  Full Article 

Maruti Earnings

Maruti Earnings

Maruti Suzuki net profit up 29 percent, beats estimates.  Full Article 

ICICI Results

ICICI Results

ICICI Bank Q2 profit up 15 percent, beats estimates.  Full Article 

Moody's on India

Moody's on India

Moody's welcomes India's policy steps, but wants to see more.  Full Article 

End Of QE

End Of QE

U.S. Fed ends bond buying, exhibits confidence in U.S. recovery.  Full Article 

Cook Comes Out

Cook Comes Out

Apple's Cook: "I'm proud to be gay"  Full Article 

Refining Margins

Refining Margins

BPCL aims to double refining margins with refinery expansion.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage