
Forget $3B In Revenue: Things "Don't Look Good" For Facebook - YetAnotherAlias
http://www.readwriteweb.com/archives/forget_3b_in_revenue_things_dont_look_good_for_fac.php
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pg
If the worst news you can find about Facebook is a few rumors that they might
miss a revenue projection, a prediction that their ad revenue growth rate will
decrease from its current 60% (note: ads are not the only way FB can make
money), and a random class action lawsuit, then Facebook's prospects look
about as good as any company's ever get.

This amount of badness is background radiation. You could scrape together at
least this much about any public company.

~~~
mmaunder
It does raise the question "What is Facebook's Killer business model?". They
have defaulted into ads because that's what Google did and that's what works
for many other businesses. But I've never clicked on a Facebook ad and I don't
know anyone who has unless it was research. I'm seeing highly targeted ads
based on my interests and demographic and I just don't click because I'm too
busy social networking. Whereas with Google my intent is "search" and so I
occasionally click.

After recently starting to use them again I'm blown away at how useful and
engaging the app is. But the revenue just seems to be hobbling along
considering their scale.

They've tried so many models and none really stuck like AdWords for Google.
Long term I just don't see the same kind of revenue growth that companies like
Google and Amazon have had and continue to have. For any investor in public
companies that's kind of terrifying when it's not clear how revenue will grow.

~~~
chintan
>But I've never clicked on a Facebook ad and I don't know anyone who has
unless it was research.

I often hear this on HN and from other techies. I bet you've never ran a
serious Facebook or any other Ad campaign and measured effectiveness (in terms
of business ROI).

I used to think like you, but they do work (even 0.05% click thru rate is
considered effective!) and hence these companies make billions of dollars.
Please stop making such ignorant statements. $3 billion revenue is not a small
number.

~~~
RobPfeifer
In my experience, click-through rates aren't that great and conversion is
really pretty bad. I've worked at 2 decent size ecommerce companies and the
CPO hasn't ever really been profitable for social media ads especially
compared to Google and Bing ads. Their advertising is really more comparable
to traditional display or remarketing ads at this point which are generally
less efficient for marketing spend and hence less profitable for FB's
customers.

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kposehn
I'm kind of smelling some negative press push here about the IPO. A lot of the
stuff doesn't seem to add up - despite supposedly solid leaks about documents,
etc.

What this might be an indicator of is a dedicated effort to push the stock
price post-IPO lower so that various traders/funds can make a nice chunk of
change off a rebound post-earnings.

I'm fairly skeptical of this sort of conclusion - especially about supposed ad
revenue or other issues - due to my personal experience using the platform. I
have spent a small fortune (of my own money) on online advertising as an
affiliate for several years. Out of all the various ad networks and venues,
the most consistently profitable has been Facebook, bar none.

On a typical campaign, I'll net a 200-300% profit on my ad spend. Compare this
with 60-100% on Google AdWords and 50-65% on Bing. Don't even get me started
on buying display ads. I'll spend any free ad budget on FB before any other
network, simply because I _know_ I'll profit from it - the risk is far lower
and the margin far higher.

I guess my point is, like when Google started, people just don't get the power
that FB holds when it comes to advertising. Storefronts in FB were never the
point - what is far more important is engagement and interest.

Facebook is king when it comes to that.

~~~
ary
Since your evidence is anecdotal I'll point out that there have been a number
of "unhappy ending" stories regarding Facebook advertising on the front page
of HN over the last year and a half. Perhaps your niche works well with their
offerings, but it seems like you're the exception and not the rule.

~~~
kposehn
Well, most of the unhappy endings have suffered from one or more of these
problems:

1\. The advertiser does not put enough money in to fully test the
product/niche/demographic

2\. The product targeting mix is not well thought through, targets too many
people or doesn't take in to account other factors.

3\. The advertiser is not testing enough ads to find what gets people to
respond.

There are many more reasons as well, and I won't try and cover them all here.
Suffice to say, most of the time people don't really put enough on the line to
find where they can succeed with FB ads. This has kept the market fairly clear
for people like me - I'll happily drop $1k to test something, because if even
1-2 ad/target combos is reliably profitable, I know I've hit something.

A very broad range of products work quite easily, you just have to break out
of the old mold of thinking in terms of direct interest -> product
correlation. For example, you aren't really going to sell jeans to people that
like "clothes".

Think broader - target people that like home improvement and give them ads
that say "Toughest Jeans Ever / (pic of dirty as hell jeans) / Work in the
garden or change a sink, it doesn't matter. Save $20 with coupon FB20OFF today
only!"

These are the ways to succeed on FB, but you really have to be willing to put
it on the line.

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cs702
Some advertisers are getting _much better_ results with Facebook ads than with
Google AdWords -- for instance, see
[http://jeffmatthewsisnotmakingthisup.blogspot.com/2012/01/is...](http://jeffmatthewsisnotmakingthisup.blogspot.com/2012/01/is-
facebook-killing-google-no-but.html)

(Money quote from that link: "...according to a friend in retailing, the
average Facebook woman updates her relationship status to 'Engaged' within two
hours of the guy actually proposing…so Facebook sells that relationship status
information to retailers who have bridal registries. As my pal told me, 'We’ve
been looking for this for fifty years.'")

~~~
koalaman
<http://www.facebook.com/legal/terms>

"We do not give your content or information to advertisers without your
consent."

~~~
cs702
...which consent most consumers will blindly give by clicking on whatever
button they must click to get to their Facebook page... without ever reading
such legal terms.

~~~
cs702
...which in turns reminds me of this classic incident of regular people trying
but unable to login to Facebook: [http://ryankuder.posterous.com/facebook-
users-think-readwrit...](http://ryankuder.posterous.com/facebook-users-think-
readwrite-web-blog-is-fa)

[Update: I'll submit this as a link. It's a classic.]

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mlinsey
Doesn't sound too bad at all, frankly. Someone is just trying to add a little
drama to what is otherwise a big success story.

It is certainly true that usage of Facebook is rapidly shifting towards
mobile, and that currently Facebook doesn't have any ads on mobile. That has
got to impact revenue growth somewhat. But ads coming to Facebook mobile
sometime soon is about as obvious as can be - and I'd bet on them doing it in
a way that takes advantage of that platform's strengths and makes their
company even stronger.

~~~
tatsuke95
> _"Someone is just trying to add a little drama to what is otherwise a big
> success story"_

It's a fallacy to conflate "success" with "hype".

Facebook is going to make money and be successful, barring some unforeseen
craziness. They made a billion in net income last year! However, where it
seems that the tech world and the investment world diverge is in the
expectations. $1BB (or 2,3,4,5) isn't enough to buy in at the anticipated
price.

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mckilljoy
Facebook's PE ratio is around 100 last time I checked. If a 'good' valuation
is in the 10-15 range (e.g. Microsoft, Apple, Google), then either Facebook's
profits earned needs to increase by 10x, or it's share price needs to fall by
10x.

If Facebook's percentage revenue increase is 'only' double-digits, and
shrinking, it will take years and years of earnings growth before it becomes a
'good value'. It will take 5 years at a sustained 60% yearly earnings growth
rate to reach the same PE ratio Apple has today.

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adaml_623
Anybody who puts a column graph showing billions and overlays a downwards
trend in red showing slowing growth is essentially lying.

It's irrelevant that they have a point with regards to high P/E ratiom slowing
growth and missing targets. Anyone who makes a graph shaped and coloured like
that is belittling their readers.

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brudgers
> _"Expect more ads as Facebook tries to meet revenue projections."_

As I've commented here before, I access Facebook in its own VM. The past
couple of days, I have noticed a significant uptick in the number of ads
displayed. However, the odds of my clicking one is no higher - just because I
accepted a friend request this week from a politically conservative person who
I went to high school with decades ago; it doesn't mean I want to buy a USS
Ronald Regan hat.

------
2pasc
I agree with PG that this is "fake news" What few people realize is that
Facebook does $3B in revenues while not monetizing two "real estates" that
could add $3B each (or more) in the future: \- Mobile is still not monetized
at all and we are talking about 400M MAU!!!! \- Facebook does not leverage the
huge breadth of data it has garnered about users through their "like" actions
on other publisher's website to create a much need competitor to AdSense.
These two opportunities are $B opportunities easily...

My only concern for Facebook would be that they focus too much on their short
term earnings to justify their very bullish P/E multiple... and lost sight on
consumer satisfaction. On the other hand, by doing so (like Google has in the
past 4-5 years) would open the door to new startups that could start gaining
some great momentum!

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AznHisoka
FB will always be able to monetize their users. It's just a question of what
premium. Since most people on FB have no intent on buying anything, the amount
they can net per user is very very small compared to Google. In a sense, it's
just like a glorified TribalFusion, where eyeballs are worth .01 each.

~~~
seancoughlin
This seems right. Users are much less valuable for companies on Facebook b/c
of user intent. What Facebook needs to figure out is how to channel higher
value users to ads. One fix might be to create a separate search tool that
focuses on "stuff" since the main search navigation is useless for finding
anything except your friends.

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phuff
The graph in this article shows revenues continuing to go up over the next 3
years... Just at a slower rate. That doesn't sound like "things don't look
good" but more like "things don't look as amazing as they did, but still look
pretty good." Of course, I have no idea about the validity of the underlying
data in that graph... But still, it totally doesn't match up with the analysis
of the numbers presented in the text.

Not that I'm a facebook investor or anything... On the contrary... :)

~~~
tatsuke95
When your P/E is greater than 100, people are expecting _mad_ growth in the
future. Growth slowing already? That's bad news for people looking at
investing.

~~~
scylla
What would you call a P/E ratio over 9500? <http://finance.yahoo.com/q?s=CRM>

Both the stock and the P/E ratio has been growing for years.

~~~
tatsuke95
I'd call it an unsustainable-bust-waiting-to-happen.

The P/E ratio is growing because the share price is going up and they aren't
making money. That's not a good thing.

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mikehuffman
I would not be surprised if the government directly began to subsidize
facebook, just for the incredible amount of personal information they could
mine. Another scary thought is a company like equifax, buying into facebook.

~~~
rhizome
They're called the Carlyle Group and they bought in nearly at FB's beginning.

EDIT: Looks like the Google News Alert has reached Carlyle Headquarters.
Expect silent downvotes.

~~~
ryanwaggoner
I downvoted you, because:

1\. You didn't provide any source for this (and I can't find anything online
to back it up; granted I only searched for a few minutes). Facebook isn't
listed in their portfolio, for example:
[http://www.carlyle.com/Portfolio/Alphabetically/item8774.htm...](http://www.carlyle.com/Portfolio/Alphabetically/item8774.html).
And I couldn't find any mention of the Carlyle Group in the Facebook S-1
filing, either. You could be right, but I'd like to see the evidence.

2\. The Carlyle Group is a huge private equity firm that owns all or part of
hundreds of companies around the world. Suggesting (without any evidence) that
they own these companies as some shadowy method to share private data across
them is ridiculous. Your edit makes it even more clear that you're more
interested in some kind of conspiracy theory than the obvious truth, which is
that the Carlyle Group either didn't invest in Facebook or did so because they
thought they'd make good money. And if they invested early, like you say, then
they were right.

~~~
rhizome
Thanks for the reply. I'll try to look up connections, but for right now it
seems to be impossible with Google SERPs including Facebook mentions of
Carlyles the world over. That is, search for anything "facebook" on Google and
you'll get a million FB pages due to the word "Facebook" in every page title.

Sigh, Google.

~~~
cbr
Why not exclude facebook.com from the results? "facebook carlyle
-facebook.com"

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gph
It's always amazed me that a company's outlook can look bad even though
they're profit/revenue is growing, just because said growth isn't as big as it
was in the past.

I can sort of see why from an economics perspective, the stock price is based
on profit growth projections and if those projections don't hold up the price
will naturally drop.

But it still seems crazy that we continually expect and pressure our public
companies into growing their profit at a rate higher than it was previously
growing, otherwise they aren't hitting performance expectations. I'm sure
someone with more economics knowledge can explain it in a way that makes
sense, but to me that seems like a logical fallacy. We expect what amounts to
continual exponential growth.

Edit: Typos

~~~
pron
The reason for that is simply that expectations are already factored into the
stock price. If expectations aren't met then the stock is overvalued.

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runn1ng
"predicting Facebook's advertising revenue growth will slow"

They are talking about second derivation here, right?

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blantonl
This is exactly why Facebook should not do an IPO. Regardless of whether or
not these rumors are true, hungry public investors will demand _significant_
revenue and profit growth regardless of long term plans and prospects.

I'm afraid that this IPO is going to be a mess.

This might be where we see Zuckerburg get in over his head.

------
programminggeek
Things look amazing for FB. Seriously. So many opportunities for growth.

Imagine FB credits at local merchants... Imagine FB Social Ads for content
publishers... Imagine FB running their own mobile ad network...

Sure, FB is kind of AOL all over again, but this time around FB (unlike AOL)
has no intentions of cashing out to some media conglomerate.

Facebook is more like this decade's Google like Google was last decade's
Microsoft.

