Facebook profit: The latest numbers on Facebook put the social network’s Web 2.0 rivals in appropriate light. This year, initial public offerings for tech companies such as content factory Demand Media and Internet radio service Pandora Media have shown how profitless growth can gain favour. But, Facebook’s fast-growing profit is a stark reminder of exactly what’s missing from Silicon Valley.
Adoration of the top line can be fickle. Just look at the nearly two-thirds drop in the value of Demand Media’s stock following the first-day pop. Or, consider Groupon’s recent decision to delay its share sale. At Facebook, sales nearly doubled in the first half of the year to $1.2 billion. That alone would be enough to get revenue chasers excited. But, the firm also racked up around $500 million in net income. Information about Facebook is patchy because the firm is private, so only so much can be gleaned from the figures. But, revenue growth appears to be slowing slightly. That’s understandable given its size.
Further, even though Facebook keeps adding to its base of over 750 million users, it will become increasingly difficult for it to find folks without an account. But, that doesn’t mean there aren’t still golden years ahead. People are sending more messages. Partners, such as video game company Zynga, are giving Facebook a bigger slice of their revenue. New advertising partners are also being signed up. But, it’s the gallons of black ink writing Facebook’s investment story.
Rivals and underwriters can try and convince investors to focus on various proxies for profit and ignore the real thing. In the meantime, Facebook’s margins are holding steady at around 30 per cent. It’s easy to measure anything from eyeballs to sales — and just as easy to overpay for them. But, as Facebook is showing, nothing can ever replace a healthy bottom line.