The math: It took Facebook almost 800 minutes of user time, more than 13 hours, to get one dollar in revenue.
Facebook futurists have all sorts of visions of the world buying its movie tickets or purchasing music or whatever else through Facebook, rather than any other online platform. And maybe that will happen.
Or maybe Facebook is now what it always will be: A pleasant diversion for its users, who militantly refuse to pay for the service and are constantly complaining about their privacy and Facebook’s attempts to monetize them using their preferences. (If you’re on Facebook as much as I am, you know that’s true. Or just log in to see yet another friend asking you to change your settings so their data doesn’t get widely shared.)
Right now, Facebook is an amazing story. If it doesn’t figure out how to take the next steps to evolve its business, however, we might look back and see the company has missed one of the greatest opportunities in business history.
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Could Facebook post a loss? It’s a strong possibility
Employee stock compensation is massive at Facebook – roughly 25 per cent of the fully diluted share count.
It’ll show up in a deeply unpleasant way this and next year – in profit-killing charges.
Much as tech companies dislike it, they must follow accounting rules that say stock-based compensation is an expense. It’s a non-cash cost that directly reduces operating margins and net income.
Facebook faces more costs than most. In a note in the IPO filing, Facebook says it has $2.463-billion (U.S.) of compensation expenses that it will recognize over roughly the next two years.
As impressive as Facebook’s profitability is, it managed to produce just $1-billion in net income in 2011. That suggests that the stock-compensation charges will cut deeply into Facebook’s profitability in the next two years — even perhaps swinging the company to a net loss, depending on 2012 results.
Would Facebook stock be expensive? The most expensive, actually.
There are plenty of stocks that have nosebleed valuations, based on one yardstick or another. Facebook is uniquely expensive, however.
We used Standard & Poor’s CapitalIQ to screen U.S. stocks to find out if Facebook has any peers. Assuming a $100-billion (U.S.) valuation for the company, Facebook would have a trailing price-to-earnings ratio of 100 and a price-to-sales ratio of 27. Its enterprise value — market capitalization plus debt — would be 48 times its EBITDA, or earnings before interest, taxes, depreciation and amortization.
There are 5,725 companies listed on major U.S. exchanges, according to CapitalIQ. There are just about 130 stocks with a 100 P/E. There are just under 200 stocks with a price-to-sales of 27. And there are 107 with an enterprise value-to-EBITDA of 48.
There are none that achieve the heights Facebook does in all three metrics, however.
David Milstead
