This amount of badness is background radiation. You could scrape together at least this much about any public company.
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.
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.
I bet within the next 24 months, Facebook launches their content network ad platform and it will be the first true competitor Google will need to deal with simply because of Facebook's massive scale.
The reason it works for Facebook is because of the amazing (scary) imformatiom they have on their users. But it can be put to good use.
The only "theory" I can think of that would explain Facebook ad revenue as a temporary phenomenon is businesses trying it out or trying to get in early in anticipation of the ad platform improving. I don't buy that though, not at this point. I wish I understand the economics of it better.
Point to another public company that has a P/E ratio as high Facebook that is missing earnings estimates. Nobody is claiming the company is going to fall apart tomorrow, but if growth is slowing already then they certainly aren't worth $100BB, or anywhere close.
I don't know how bad this really is, and we are still in a shaky economic climate. But if we assume that the information being reported is true, this is pretty bad. As the article suggests, they're applying some "quick fixes" to crank up the ad spends. Is that the best they can do?
The reason they don't miss earnings is that the expectation is so low. It doesn't matter, they're the 'cloud'.
I've said it here before, but I think many of the tech and app companies are grossly overvalued simply because the market can be so easily upset. If newcomers can get such positive projections, then surely they must be perceived as a viable risk to the big companies.
Facebook specifically is grossly overvalued because as long as they are making all their money from ads, their revenue comes from the amount of time people spend staring at a Facebook page, and this might be at its peak. True, there are more ways to make money, but there are more risks as well. Please, let's spare ourselves another bubble.
That's not to say a competitor won't emerge, and users won't switch to that competitor if Facebook really mucks up its UX in some unforgivable way. But we should bear in mind that Facebook users aren't just going to jump overboard into the ocean. If they're going to jump ship, it'll be because a better ship has pulled up alongside it.
Revenue challenges? Facebook's got plenty of time to figure those out, and meanwhile, Facebook Connect seems like a pretty powerful weapon of mass monetization in the making.
A lot of the anti-Facebook sentiment out there right now reads like wishful thinking.
Looking at worst case numbers it looks like Facebook will be close to 'accumulating cash' mode at the outset. That is a pretty good thing.
Now it would be nice to get some more visibility into their execution against advertising system changes but this reads more like a 'place' piece where the author hopes that if things go good people will forget they ever read it, and if they go really bad he'll be on record early 'predicting' it and will be able to demand huge consulting fees :-)
Of course I have no idea behind the motivations of the author, I just wondered how he can look at $5B in revenue and not be "well ok, their model is working at least."
> "note: ads are not the only way FB can make money"
Facebook still has at least one massive hand to play, and they tipped it in the documents outlining their agreements with Zynga. Those documents stated that if Zynga created a first party site to host their games, Facebook would be the ones to provide ads for the pages. If they were to roll out an AdSense competitor which uses personal data rather than contextual to place ads on publisher sites it could be a huge win.
I don't disagree that Facebook's prospects look extremely strong, but I do think that their decision to IPO now was wrong and potentially sets up a poisonous precedent for how they run and manage their business.
Facebook is still figuring out how to properly grow their revenue model, and now they'll be faced with the very public distractions of being a public company. Not only that, it opens up all kinds of intelligence for competitors.
I think that Mark and his team are in for one heck of a ride this year. And it isn't going to be fun.
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.
After reading that, I went to your HN profile, where you write, "Entrepreneur and rabble-rouser with an eye for monetization and innovative business concepts. Tempered by the reality of being an affiliate marketer for 3+ years. Forged in the fire of having to compete tooth and nail to succeed in that industry. Prone to writing silly and/or odd descriptions of himself. Named his company after his cat."
I still don't know what industry you are in, but I suppose different businesses in different industries get different results from Facebook ads. I don't know either how Facebook compares to the great majority of places to sell advertisements online, but isn't it possible that your experience is exceptional, and that there aren't enough businesses like yours to sustain a business with the expenses Facebook has?
Originally, low CPC's were quite commonplace. I could advertise something and get a pretty good rate - $0.10 or so - and make some really good money. Over time, the base CPC has risen across the world. Right now, you're looking at $1.20 or so just to hit the US untargeted (this isn't the suggested bid, this is actually running all-US ads).
What is really telling however is CPC's on very tight interest groups. Let's say I target a set of interests in a city that gets me about ~2k people in the profile. It used to be, even a year ago, that I'd pay about $0.80 per click. Today, you'll be lucky to find $1.30 on the low end. As niches get narrower and people get better at mining interest, the CPC climbs. Long term, sustained CPC trends are clear indicators of increasing demand and the ROI to sustain them.
Why this isn't talked about so much has to do with barriers to entry. I'm telling everyone here a lot about what I do without revealing the finer details. Also, I would say that as with any venue, some products do better than others. You can sell big-ticket stuff on FB, you just have to go about it much differently. You can lose a lot of money on Facebook quite easily, so how you approach the market is a big factor.
That said, the secrecy surrounding the success FB advertisers like myself are having is a much stronger indicator than anything that is said publicly. Will it keep FB from missing earnings targets? Probably not, but I remain very bullish on where they are going and what they have to offer.
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.
You may find a group that likes the product a whole bunch, but they can't or won't spare the cash to buy it. You may also be reaching them at the wrong time and they aren't close enough to the buy cycle.
Not that I'm a facebook investor or anything... On the contrary... :)
Both the stock and the P/E ratio has been growing for years.
"Slow, sustainable growth? SELL!"
(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.'")
"We do not give your content or information to advertisers without your consent."
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
There's no guarantee that they will continue to make money if they tone down their spend (for example, reducing ad spend), which is why the revenue / profit quality matters.
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.
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.
EDIT: Looks like the Google News Alert has reached Carlyle Headquarters. Expect silent downvotes.
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.... 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.
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.
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.
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.
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!
They are talking about second derivation here, right?
I'm afraid that this IPO is going to be a mess.
This might be where we see Zuckerburg get in over his head.
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.
