April 25, 2012 – Facebook’s upcoming IPO is looking to raise over $5 billion dollars in the largest internet initial public offering to date. However, it was not long ago that Google’s 2004 IPO raised $1.9 billion in the largest internet offering ever at that time.
Facebook amended its S-1 on Monday to reveal largely disappointing Q1 2012 numbers – the final earnings release that investors will see before Facebook trades publicly. By contrast, Google was high-flying during its final pre-IPO quarter.
With both companies earning revenues predominantly via advertising dollars, their comparison raises critical questions. Investors should note the telling difference between Google and Facebook’s pre-IPO growth and that in Q1 2012, Facebook has stopped growing revenues entirely, instead showing its first ever sequential (quarter to quarter) revenue decline:
- During Q1 2012, Facebook had its first ever quarterly revenue decline of -6.4% to $1.06 billion.
- During Q1 2012, Facebook declined in both Ad Revenues (-7.5%) and Payments/Facebook Credits (-1%).
- Q1 is “seasonally weak” for Facebook, but seasonality does not explain the decline. Facebook managed a flat Q4 2010 to Q1 2011
- With same ad-revenue based seasonality at this same stage pre-IPO, Google managed sequential revenue growth of 27.2%, dispelling Facebook’s explanation of its weak results and 1st quarter revenue declines as due largely to “seasonality.” If Google could still grow 27% from Q4 to Q1 before its IPO – at a similar size and age as Facebook – why was Facebook unable to do so?
A look at Facebook and Google’s year-over-year quarterly revenue growth rates tells a similarly underwhelming Facebook story:
- Facebook’s year-over-year quarterly revenue growth rates have fallen sharply and Q1 2012 was Facebook’s lowest ever at +44%.
- At the same stage pre-IPO, Google had nearly 3-times Facebook’s year over year quarterly revenue growth rate, with its final pre-IPO quarterly results showing a 112% year-over-year revenue increase vs. Facebook’s mere 44% increase.
Google's sequential quarterly revenue growth even outperformed Facebook's during the same 2011-2012 period:
- Google managed a slight increase (0.6%) despite the seasonality of the ad spend calendar, while Facebook fell 6.5%.
- Irrefutable Conclusion: The seasonality excuse Facebook tries to use in its latest S-1 simply does NOT stand up to the data. Facebook's declining growth is specific to Facebook and reflect clear organic slowdowns in its business.
It is also worth noting that Facebook’s disappointing Q1 2012 results come on the heels of several revenue boosting tactics set in play for this final pre-IPO quarter. This is overall concerning because despite these “window-dressing” measures, Facebook’s revenue growth has slowed dramatically.
Ultimately, Google’s quarterly revenue growth leading into its IPO was stronger than Facebook’s both sequentially and year-over-year. Google’s strong Q1 performance also undermines Facebook’s excuse that seasonality affected its most recent earnings. Furthermore, Google’s growth came without the desperation revenue boosters that Facebook recently employed.
The numbers do not lie, and PrivCo’s ultimate conclusion is that at the same size and stage pre-IPO, Google beats Facebook by a landslide. “When you compare financial results and revenue growth rates immediately preceding their IPOs, Facebook is no Google,” said PrivCo Founder & CEO Sam Hamadeh in a statement.
