

Why Arrington is wrong about Facebook’s finances - arjunb
http://www.facebook.com/note.php?note_id=34262653253

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run4yourlives
That's a piss poor analysis, to be frank.

First, let's be honest: Facebook's problem is that it spends more on each user
than it receives. In other words, its current operating P&L sheet is negative.
That cannot possibly be disputed, unless there is some magical fairy dust that
generates ad-revenue many magnitudes greater than the norm.

It's really irrelevant whether you believe that it costs Facebook $100M a
month to operate, as Arrington seems to, or whether you figure FB can get by
on a $1M a month shoestring budget. The fact remains that, regardless the
numbers of users, per capita there is negative revenue generated.

Arrington argues that increasing the number of users, while not solving the
per capita loss, hastens the use of those capital reserves of $500M. On this
point, he is exactly correct. It's basic math. The rest is just semantics.

They need to solve the problem that revenue on a per user basis is a negative
number. Not only do they need to make that number positive, they need to bring
it into the black far enough that they can pay back their $500M in borrowed
money, and give some sort of return. They need to do this before any of their
current (or future) sources of funding collapse. This is a very tough problem
to solve. (BTW, google was in this position once)

My humble opinion is that they won't be able to do this anytime soon, and will
most likely fail in the future. As much as they laugh at the ad-driven
screenshot in the article, that's probably what FB will look like in due time.

I'm just going with the odds. Outside of Google, I don't know of any company
that's been able to come up with the last minute Hail Mary business plan.

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brk
Wow, this is just a horrible explanation of why Arrington is (supposedly)
wrong.

He does not refute or offer clarification on the money burn. Instead, he cites
the user growth rate, but at what cost do those users come? Should we somehow
assume that every new user has an immediate positive value?

The 15bn valuation number is also an often mentioned fallacy. For their money,
Microsoft got some Facebook stock and some advertising impressions. No one has
ever really clarified how much of Microsofts $275m went to stock and how much
went to advertising.

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mikeryan
Nutshell:

He's wrong about a lack growth potential in the US because a bunch of my
friends have joined.

Another round wouldn't be dilutive because our last round was so overvalued.

And yeah internet advertising hasn't really worked internationally - but we'll
be okay because we're beefing up our sales staff over there.

And he is wrong because we're not going to make revenue because it would be
bad for the user experience. Revenues be damned! We can make it as long as we
have a great user experience!

