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:
  • Most Popular
  • Most Shared

DEFENCE

REUTERS SHOWCASE

Canonisation

Canonisation

Pope declares sainthood of two Indians, four Italians.  Full Article 

Stake Sale Strike

Stake Sale Strike

Coal India trade unions call off strike in victory for Modi.  Full Article 

Markets Weekahead

Markets Weekahead

Ride the bull with a finger on the ejector button.  Full Article 

Arms Purchase

Arms Purchase

India approves $2.6 bln mounted gun purchase - official.  Full Article 

Interview with Bulgari CEO

Interview: Bulgari CEO

Bulgari CEO: we shouldn’t have left India so we’re back  Full Article 

Formula One

Formula One

Hamilton takes second F1 title in style.  Full Article 

Available For Remake

Available For Remake

Bollywood finally wants to pay the price for remakes  Full Article 

Davis Cup

Davis Cup

Vintage Federer seals first Davis Cup for Switzerland.  Full Article 

Movie Review

Movie Review

"Happy Ending" is old wine in an older bottle  Full Article 

Reuters India Mobile

Reuters India Mobile

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