Chatty Zuckerberg Tells All About Facebook Finances
Want to know about how privately held Facebook is doing from a financial point of view?
Well, just ask Mark Zuckerberg!
This afternoon, at an all-hands meeting held in a Palo Alto, Calif., theater near the social-networking site’s headquarters, the 23-year-old founder was quite voluble on that topic, outlining numbers that a more experienced CEO might think twice about unveiling to a large audience.
With an open dial-in number! Many employees, in fact, were horrified that Zuckerberg would be so blabby about such important financial information. Others loved it.
Most were simply surprised (although, to be fair, Google Co-Founders Larry Page and Sergey Brin used to give a lot of detailed company info to their employees before going public, but in coordination with other execs).
“I can’t believe he was doing it,” said one. “It was really unbelievable.”
Believe it! Some highlights?
Revenue for Facebook for 2007 will be $150 million, as has been widely reported. But for 2008, Zuckerberg projected revenue to be increased to $300 million to $350 million.
More interesting was the news that Facebook would spend $200 million next year on capital expenditures, which is a whole lot of servers.
By the way, more expenses, noted chatty Mark, those employee levels would rise to more than 1,000 in 2008 from 450 now.
And Zuckerberg also said the company’s EBITDA–earnings before interest, taxes, depreciation and amortization and a number widely used by Wall Street as an indication of operating performance–would be $50 million in 2008.
That means the company would have a negative cash flow of about $150 million (EBITDA minus CapEx), rather than break even, as it does now.
But who’s counting? Zuckerberg apparently said he did not care about maintaining EBITDA anyway.
That’s because Facebook collected $300 million in investments recently from Microsoft and other investors, which pegged the valuation of the company at $15 billion.
Comments
hey kara, i’m not an accountant, but does negative cashflow matter that much if you’ve got that much cash around? that’s just balance sheet structuring, isn’t it? (they could certainly borrow to finance the negative cashflow, if EBITDA is $50M).
and isn’t EBITDA is a much better measure of financial health for a company than cashflow anyway?
$50M positive EBITDA is pretty damn good for a 4-year old company with a toddler CEO at the helm, don’t you think?
Posted by dave mcclure at January 31st, 2008 at 8:28 pmSame thoughts David!..at the end of day, they have enough cash to tide through their -ve cashflow
Posted by Suraj Luke at January 31st, 2008 at 11:03 pmThe numbers reflect a more-realistic financial outlook by Mark.
Projected revenue growth seems to be based on the expected natural growth and optimization without taking into account any foreseen breakthrough in social networks monetization, which is the current case.
If Facebook wants to do a successful IPO sometime in 2009, they have to put more money and work into monetization research, trying their best to come up with their own version of the Google-Ads business model.
Posted by Baher Al Hakim at February 1st, 2008 at 12:14 amSo Kara, can we call it, IPO this year?
http://searchengineland.com/071026-140303.php
From the lessons of Google, more than 500 shareholders (Facebook is going to break 1,000 employees we can assume have options this year) and $10 million in assets (despite the loss, they’ve got this), and you go public or report as if you were public.
Posted by Danny Sullivan at February 1st, 2008 at 2:39 amSo let me see…$50M EBITDA, $15 billion valuation. That is a 300X EBITDA multiple. They are forecasting that their revenue will increase by less than 100% next year. Their uniques have been flat for 6 months and their pageviews are declining.
Sounds like a fantastic investment opportunity. Where can I sign up?
Posted by mack davis at February 1st, 2008 at 4:04 amI wonder what quality (or naivete’) of employees they will be able to attract in 2008?
They took an investment at a $15 Billion valuation, which is 100x trailing revenues and 50x forward by Zuckerberg’s own reckoning.
At what price/valuations currently being issued? I can’t imagine them attracting high caliber employees (except for the extremely young and/or naive) with common stock options priced anywhere near a $15BB valuation.
Posted by Scott Miller at February 1st, 2008 at 7:46 am@josh: i wasn’t making any comment on whether i would be an INVESTOR in the company, however if they’ve got a $50B positive EBITDA i’d be MORE than happy as a banker to be a DEBTOR for the company, and help them finance a loan to handle their cashflow.
i understand cash flow quite well my friend, but obviously you don’t understand finance if you don’t think they can restructure that negative cashflow away in a heartbeat.
Kara’s post makes too much of structural finance issues, and not enough of the positive EBITDA.
if you want to argue the multiple is too large as an investor, that’s a reasonable point to argue… but that wasn’t the issue raised by Kara in the post, nor by me in my comment.
that said, would i be an investor at $15B? mmm… i’m probably neutral to slightly pessimistic at that price. i’m a buyer north of $5B, possibly up to $10B. and if they hit the targets on 2008 revenue, i’d probably be a buyer at $15B in another year.
Posted by dave mcclure at February 1st, 2008 at 9:50 amfollowup: just to be clear, capex spending that has a negative effect on cashflow is amortizable, and ISN’T the same as a loss that affects cashflow negatively.
that was the point i was making.
free cashflow generated from operations IS an interesting item to consider, but the Capex spending shouldn’t be part of that calc.
Posted by dave mcclure at February 1st, 2008 at 9:53 amDave,
Good thing you are not an accountant….or maybe you should be. Cashflow is way more meaningful than EBITDA
EBITDA fails to capture certain meaningful things like, um Payables, Receivables (I bet a lot of their large advertisers arent paying via credit card) and capital investment. In fact, unless your company runs on air, cashflow is the only number that actually matters……….everything else is just fiction….
I have trouble seeing how anyone would buy into a company at a 300xEBITDA valuation - think about the logic for a second. People are confusing strategic investors with financial investors…..
Someone will get caught holding the bag……wonder who it will be. Google just caught flack for not meeting expectations, despite have a 25% net income margin (havent really looked at their cashflow)………..think about that. most investors would be better off forgetting about anything other than cashflow………..how much stays in the till at the end of the day
Posted by josh kerbel at February 1st, 2008 at 10:12 amWhat? “capex spending that has a negative effect on cashflow is amortizable, and ISN’T the same as a loss that affects cashflow negatively.”
Amortization has nothing to do with cashflow. I can amortize what ever I want, but the bottom line is that I need the cash to pay for whatever it is that I’m amortizing in the first place.
The problem is that so many investors get bamboozled by silly things like amortization that they cant see the forest for the trees.
Cashflow is cashflow - if it goes out the door, it goes out the door. Gotta pay for it somehow. I’m sure history is littered with companies that “invested in infrastructure” without consideration as to if the infrastructure is needed (How much did companies spend on herman miller chairs in the internet bubble)
Like I said, cash is the only thing that counts, unless of course, you work on wall street. Then cash only counts when you run out of it and your bank lines run out……
Posted by josh kerbel at February 1st, 2008 at 10:19 am15 billion!! is facebook worth that money? these things that you write show us that is true?
Posted by onder surmeli at February 1st, 2008 at 11:20 amso like i said “i ain’t no accountant”, but…
while i get your point about cashflow going out the door, still don’t you think FB can pretty easily get a rather significant line of credit to deal with the cashflow?
cashflow is meaningful, but EBITDA isn’t bupkus either.
and actually cashflow *from operations* is probably more notable than Capex spend, unless it’s REALLY irrational (which i don’t think so, given that they need the server infrastructure to pull in the $300M+ in 2008)
again, i’m not trying to make an assessment of the investor position, but a $50M EBITDA and revenue @ $150M growing to $300-350M isn’t chopped liver.
they may not be google, but they ain’t geocities.
Posted by dave mcclure at February 1st, 2008 at 7:43 pmRE: “with a toddler CEO at the helm”: Very funny (and true)!
About the cash flow: They can make it whatever they want. They are in growth mode, which means big investments in (growth) capital expenditures. If they wanted to go into runoff mode, all they would need would be maintenance CapEx, which would leave gobs of cash.
To maximize the enterprise value (equity value, especially), they are trying to grow as fast as possible,which is what you would expect them to do. And there is plenty of investment capital to fund that kind of growth.
As much as I think FB has low values and moral standards (abuse member privacy and mislead about it), they are growing and investing as they should be, even with the toddler CEO who is mostly only in the position he is in because he was the first one to name a social network “facebook,” which has been the name of the printed version of the same thing for decades. The name is the reason they got their initial traction. Now they’re riding on the hype and investments that came with that. Nothing wrong with that, in fact it’s awesome! Cheers!
Posted by chris co at February 2nd, 2008 at 2:21 amAs far a as providing useful information, EBITDA is about as useless as Net Income.
That is of course unless they accept EBITDA or Net Income as legal tender in the United States. Things may have changed since my last visit to the US in the fall, but i bet they haven’t.
Making any lending decision based on EBITDA is like making NINJA loans to homeowners, unless of course Banks take EBITDA instead of hard cash.
EBITDA…..accepted by major financial institutions everywhere (until the CDO market collapses that is)
Posted by josh kerbel at February 2nd, 2008 at 5:18 am