MySpace and Facebook aren't making more than enough money. That's why FIM doesn't break out MySpace numbers and why Facebook raised a huge round. Business rolling in profit don't need anybody else's money.
If you don't think Myspace and Facebook could be profitable, then I don't know why you are in this business.
They are not profitable now because they are investing in growth (which, like any investment, is a gamble). They could scale down their staff and achieve a very good return on capital.
I think this article's sentiments is just to point out how tech business that are given highly speculative valuations rarely pan out.
Think about Facebook's implied value of $15 Billion. A traditional company is valued at about 2 or 3 times annual revenue, or perhaps 8 to 10 times annual EBITDA. This would require Facebook to mature with revenues around $5 Billion a year, and EBITDA of $1.5 Billion. Their speculated revenue of $50-$60 Million last year is about 1% of that mature target.
This article is saying that these tech companies may have indirect benefits that are hard to quantify, their core value continues to be questionable.
Facebook is rapidly growing abroad. I think the $15 billion dollar valuation is silly, but Facebook is not a textiles company. Optimism is not unreasonable, however it is -- of course -- speculative.
Yes, they will make it up by increasing volume. They are spending the money on employees (to grow traffic) and servers (to accommodate traffic). They aren't spending it on hookers and private jets like Enron.
The servers are one-time expenses. I don't know how Facebook is booking them because the company is private so I can't read its quarterly statement. But, if we could I bet they would be a special expense. They are buying the capacity to support their userbase. You simply don't need to do that every year.
They are also spending a lot on engineers. I think they spent this money wisely. The Facebook application system generates a lot of free attention.
Dude, servers aren't a one-time expense... in accounting it's called a capital expense, and it's depreciated. Most computer technology is depreciated over a course of two years, simply because of the assumption that that expense will re-occur in two years.
Do you think Google's server farms have the same racked units that they put into place in 1998? That's crazy talk.
Thanks for correcting me. My self-education in finance is incomplete. So, is it your opinion that Facebook is only reporting half of the cost of their servers when they talk about last year's annual loss? I still suspect that the numbers they throw around are a simple in-out calculation.
But, in any event, a two year lifespan for a server is a little pessimistic.
