NEW YORK, September 2011 - As a result of the recent loss of business momentum and new competition from Google+, Facebook's IPO will be delayed at least until 2012. (Although Facebook has claimed that the delay is due to wanting to keep its employees "focused", this is not a credible business reason for a company to delay an expected IPO.)
For the first half of 2011, Facebook achieved approximately 90% revenue growth over the first half of 2010. This growth rate fell short of all internal, external, and investors’ projections. In addition, Facebook achieved this growth rate in part due to easier comparisons resulting from the absence of the recent Facebook Credits Usage requirement for most of 2010’s first half. Facebook’s mid-year introduction of Facebook Credits required for all games and virtual goods sold on Facebook contributed at least $300 million in new revenue, or an additional 20% of its revenue growth, most not present in its first half of 2010.
Given that in the second half of 2010, Facebook had already implemented a new requirement that required all game developers on Facebook to process all payments via Facebook Credits—with Facebook’s 30% fee on all games and virtual goods sold—Facebook’s 2011 second half will not benefit from this one-time introduction of a new revenue source beyond its advertising revenue.
“With a relatively flat user base, Facebook's advertising and other activity-based revenue growth are necessarily limited,” says Sam Hamadeh, chief executive officer at PrivCo. “New ad spots on each page have already been added. Ultimately user activity must begin to grow again for revenues and EBITDA to grow. We don’t see how they can squeeze blood out of a stone indefinitely.”
As a result, Facebook's second half growth rate is expected to be even lower than its first half, to as little as 50%, particularly in light of Zynga's recent disclosure that the amount that its users pay for games has declined year over year (Zynga is by far Facebook Credits' largest revenue source). PrivCo therefore expects Facebook's full year revenue growth to slow to 69%. While still impressive, Privco's revenue growth predictions for Facebook place the company at over a $1 billion shortfall, at a minimum, from its original projections.
Although Facebook's second half 2011 revenues should surpass the first's revenue by 15-20% due to seasonal ad market factors, as well as a sequential Facebook user base increase of approximately 5-7%, Facebook's relatively flat user growth will put a ceiling on how much its revenues can grow for the second half of 2011. Unless Facebook's revenues nearly double in the second half of 2011, over its first half, there is virtually no mathematical possibility Facebook, Inc. can achieve the market's revenue expectations of greater than $4.5 billion in total 2011 revenue.
For PrivCo's full Private Company Financial Report on Facebook, Inc., please see: http://www.privco.com/private-company/facebook-inc
PrivCo Media, LLC (www.privco.com) is the premier source for business and financial data on major privately held companies. PrivCo publishes exclusive financial data on over 209,369 private companies, as well as details on over 79,518 private company deals, including private company M&A deals and multiples, venture capital investments, private equity buyouts, pre-IPO activity, restructuring, and more.