Facebook, founded in 2004, would reach $2 billion faster than Yahoo and at almost the same pace as Google. Yahoo, founded in 1994, posted revenue of $1.6 billion in 2003 and $3.6 billion in 2004. Google, founded in 1998, reached $1.5 billion in 2003 and then $3.2 billion in 2004. (source)
Google’s IPO was on August 19, 2004. In that year, according to the Bloomberg data, Google posted more than $3 billion revenue. If Facebook’s current growth rate (~167% yoy) continues in a reasonable way, its revenue should hit the $3 billion milestone sometime in 2011. So, why not IPO? Yes, I ask on behalf of shareholders and i-bankers.
To answer this, we need to take a look at their revenue growth history. Below are GOOG’s yoy revenue growth numbers quoted from its IR site:
Below are Facebook’s rumored revenue numbers quoted from Kara Swisher, Bloomberg, and Business Insider:
||300M – 350M
|700M - 800M
|Growth Rate YoY
And let’s put Google’s numbers in a more comparable way.
|Growth Rate YoY
Roughly comparing the yoy numbers, you will find Facebook was actually growing slower than Google during their infant stages.
Now let’s turn to the big guessing game. What will be the likely fate of Facebook once its stock is publicly traded in NASDAQ. As you can see from the charts, one year after GOOG’s IPO, its revenue growth rate decreased from 3 digits to 2 digits (118%->92%); meanwhile, its stock price skyrocketed 229.41% ($85->$280) on the anniversary of IPO (chart below).
(GOOG Stock Price, from 27 Aug. 2004 to 26 Aug. 2005. )
Will it be a wise choice to buy FB’s post-IPO stock? I don’t want to be a pundit, so I won’t say I have the right answer. However, most of time, the history does repeat itself. So if you really buy the FB stock immediately after its offering, and hold it for one year, you may reap a 200%+ return as the early Google stockholders did. Who knows? If Mr. Market feels good, he will tell you , “Of course, the 2-digits revenue growth rates worth a yoy 200%+ market cap rise because it’s the hottest Internet company on earth.”
That’s being said, I’m more conservative about FB’s revenue growth potential, as it has already reached a near peak amount of users. And don’t forget it’s already the No.1 trafficked site. How far can it go? Most importantly, despite its 500 million active users, 250 million daily users, and 700 billion monthly minutes to be monetized, Facebook only harvests $2B as of fiscal year 2010.
(The above is Facebook’s traffic. It looks like a peak has been reached.)
The conclusion: Facebook will be mature enough to file an IPO at the end of 2011 or early 2012. But since its revenue growth rate may not be as stellar as Google’s, I won’t value its post-IPO price as high as Google, unless there are some great breakthrough in gross digital marketing spending or in its virtual credits business. Boy oh boy, social networking is so fun but so hard to monetize.