Posts for Tag: earnings

Apple blows away earnings numbers ... but let's all take a chill pill

As expected, Apple destroyed it's Q3 2011 earnings forecasts. It seems like nothing can bring down this juggernaut. But 15 years ago a little company called Microsoft was doing the exact same thing. Year after year, nothing could stop Microsoft's dominance of the computer industry. Bill Gates and Steve Ballmer would high-five at analyst meetings where they reported billions upon billions in profits every quarter. Today, Microsoft is still reporting billions of dollars each quarter in profits but they're no longer the king of jungle. But remember, everything is a cycle. It is with absolute certainty that I say Apple will one day falter and another company will step up to claim the crown. Whether it's Microsoft, Google, Facebook or some new entry, somebody will take them down. Such is life in tech.

Google, the one trick pony?

Om Malik writes in a post that Google is great at search but bad at investments (in reference to today's earnings release within which was mentioned a $1+ billion write down for bad investments). I wholeheartedly agree with this sentiment and might even take it one step further. In regards to making money, does Google really do well in any field other than search? For the record, I use a lot of Google services like Search, GMail, Google Maps, and YouTube to name the big ones. I think these are all awesome services but they don't come near to making the huge profits that are synonymous with the Google cash machine (do any of these products even generate some profits?). It's not a knock on Google by any means. They have afforded themselves the right to roll out any product they want regardless of its profit generating capabilities. It just makes me wonder whether they'll be in the same boat as Microsoft someday - a company that never really figured out a way to generate huge profits from anything but desktop software. But hey, if I generated the profits that Google does from search and Microsoft does from desktop software, who really cares?

UPDATE:  To further prove that no one cares, Google is trading almost 8% higher as of 11am the next day.

Revisiting Facebook's valuation

I wrote a post a while back where I did a back of the envelope calculation of Facebook's valuation - somewhere between $1.5 to $1.75 billion. I based it on revenue numbers of about $300M to $350M (5 times revenue was my rationalization) and if Facebook revenues are higher, I'll revise that estimate up.
I was watching Tech Ticker today where Sarah Lacy was interviewing Paul Kedrosky about Facebook's outlook for 2009. The question of valuation came up and Paul stated his estimate was about $500M to $600M. Though I don't agree with that valuation, I can see how he came up with this number. The online advertising market has contracted since last year so even though Facebook may be growing in revenue, I don't see how it can grow in the most important number of revenue per user. Sarah's response showed she was well on the other side of the fence in her defense of Facebook, which I don't agree with, as well. Her argument that Facebook was still an early stage private company in product development mode and not focusing on revenue is a bit off. Facebook has been around since 2004 and has made a few attempts at monetizing its traffic with no real success. Her other assertion that Facebook was similar to Google and that eventually they'll pull it off is also a stretch. Google did not raise $516M (it raised about $25M) and in its 5th year of operation made almost $1.5B in sales and over $100M in net income. I don't know what Facebook's revenues are like but I doubt it's more than $400M-$500M and they're most certainly not profitable (break-even at best). The fallacy in comparing Facebook with Google is that it costs Google far less to support each user on its system than Facebook AND it generates far more revenue per user than Facebook does. Until Facebook can find the magic bullet, I can't justify giving it a higher valuation.

My thoughts on Facebook's pulled employee stock sale

As reported by the Wall Street Journal, Facebook has pulled its planned employee stock sale. This would have allowed the 800+ employees of Facebook to sell a portion of their stock to private investors - supposedly $900,000 worth or 10% of vested shares, whichever is less. Reasons that some outlets are stating was that Facebook couldn't find any private investors who wanted to buy the stock at a company valuation of $4 billion - a far cry from the $15 billion valuation Microsoft got for its $240 million investment.
I'm not really shocked that there were no takers at $4 billion. At the time of the original Microsoft investment, I thought Facebook's value was somewhere around $7 - $8 billion. Then when Techcrunch got a hold of some internal financials, I did a back of the envelope recalculation and stated that they should be valued at $4.5 - $5.25 billion which is 15 times projected 2008 revenues. Contrast that with Yahoo or Google which are valued at 2.19 and 4.13, respectively. These have gone down some recently but even if you calculate at January 2008 share prices, Yahoo and Google would still only trade at 4.44 and 10.91 times revenue, respectively. You can make the argument that these are more mature, slower growing companies but these are also PROFITABLE companies - in the case of Google, VERY PROFITABLE. Facebook, on the other hand has huge capital expenditures for servers/bandwidth ($200 million according to Techcrunch) and a hard to monetize audience. They may be GAAP profitable or break-even but most definitely not cash flow positive. Given the eventual slowdown in the online advertising market, I don't think it will get easier for them to squeeze more revenue from their users. However, the cost to support their growing legion of users is going to grow as they'll need more servers and bandwidth.
With that said, my new calculation of Facebook's value would only be at best 5 times revenue or $1.5 - $1.75 billion. Of course if they had allowed the employee sale to reset the value of their company, I doubt they'd raise enough through an eventual IPO to cover their growing capital expenditures. The more important question is, how much of the $516 million that they've raised is still there? My guess is that if they can't raise another $100+ million round soon, Facebook could be in for some tough times.