Facebook: $1 Billion in Profit This Year?

As Goldman Sachs (GS) lines up private investors for its Facebook fund, which appears to have closed already due to high demand, numbers are beginning to leak out about the social network's financial picture, including—for the first time—credible reports of how much the company is making in profits. Based on the growth in revenue and in the bottom line, Facebook could stand to pull in close to $1 billion in profit this year. While that may not justify the $50 billion market value that Goldman's investment ascribes to the network, it is another sign of just how huge the company has become, and how much further it could grow as it gobbles up an even larger share of online advertising.

Both The Wall Street Journal (NWS) and The New York Times (NYT) appear to have gotten their hands on some of Facebook's internal financial results as part of the offering documents that Goldman has been giving to high-net-worth investors in its new fund. The Journal says Facebook had net income (i.e. profit) of $200 million in 2009 and revenue of $777 million. While figures for last year weren't disclosed, the Journal adds, "analysts have said the company's revenue last year could be as much as $2 billion, fueled by advertising growth."

The New York Times, meanwhile, has similar figures in its report for 2009, based on sources close to the Goldman offering, but it says those same sources confirmed the $2 billion revenue figure for 2010, and the financial documents provided also showed a profit for the year of $400 million. That puts the company's profit margin at about 20 percent for last year, down somewhat from 25 percent the year before, but still sharply higher than many analysts have been projecting for the social network.

But Will Margins Erode?

Estimating financial results for a fast-growing company like Facebook is always difficult, since so much is unknown, but if figures provided by the WSJ and the NYT are correct, the network's revenue climbed about 160 percent in 2010, and its profit doubled. Continuing that kind of growth would result in revenue of more than $5 billion this year, and assuming the profit margins stay at 20 percent, profit may be close to $1 billion. Could Facebook continue growing at that rate and maintain its margins? Some believe it could—and clearly Goldman Sachs is betting that it will, if it has decided to pump $1.5 billion into the company and possibly take it public.

Piper Jaffray (PJC) analyst Gene Munster says Facebook is continuing to take advertising revenue away from Google (GOOG), as advertisers look to the social network as a way to reach the demographic they are after by using the "social graph." And Scott Galloway—a professor of marketing at New York University's Stern School of Business, who appeared with Munster in a Bloomberg TV special report on Facebook Wednesday night—said he foresees interest in the social network accelerating. Galloway said he "can't think of a single major advertiser" he has met with that isn't increasing spending on Facebook, and some are boosting it by five or even 10 times, he said.

That could fuel some substantial growth for the company, not to mention making things stickier for Google, which has been the online advertising leader for much of the past decade.

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