Facebook's Ipo Will Value Company At Half Of Google With A Tenth Of Its Revenue

The LA Times reported that the world’s largest social network Facebook filed papers for its IPO today. Here are some stats from the article: “845 million users; 483 million daily users; annual revenue of $3.7 billion; $1.8 billion in operating income and $1 billion net income.”

It didn’t mention the number of users in the U.S. though, which is more important. Oversea traffic is cheaper and harder to monetize, even though that’s where most of Facebook’s growth is coming from.

In terms of U.S. users, it has about 140M-160M depending on which source you look at. These figures are from June of 2011. It might be a bit higher now, but not much more. Growth in the U.S. has slowed down quite a bit, which is understandable. The U.S. has a total of 240M internet users and about 60% of them are already using Facebook.

In 2011, Google is still the most used web property in the U.S., beating Facebook by about 15M users.

The social network is looking to raise $5B from the initial public offering in May of this year, which would value the company at around $100B. That’s almost 25 times its annual revenue. Zynga, a social gaming internet company that had its IPO last year, raised about $1B on a valuation of $10B. That’s just 10 times its annual revenue.

At 25 times its annual revenue, people are expecting Facebook to continue growing at a fast pace. It’s growth in the U.S. has already slowed to a screeching halt, and the U.S. is where it’s making the majority of its revenue. Most of its current growth are in foreign countries who were late to adopt social networks, and China’s not one of them so there goes one of the largest internet population. Sure, they’re still growing overseas, but that’s fool’s gold because it’s hard to monetize that traffic.

$3.7B in annual revenue is pretty good until you realize that Google is doing ten times that with the same amount of users in the U.S., and the search engine’s valuation is only 4-5 times its revenue.

You might think that since Google can pull in $37B in annual revenue with the same number of users that the Facebook has a lot of room to grow on the revenue side. However, social networks have always been poor at monetizing their traffic, and that hasn’t changed since they gain popularity. Click-thru rates for ads on social networks have always been really low, so they can’t charge nearly as much as Google per pageview. That hasn’t changed since social networks entered the internet landscape and won’t change in the future.

Facebook will continue to grow, but most of that growth will be overseas where ad impressions are worth a lot less. People buying into the hype will expect more and end up being disappointed.

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