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Unformatted text preview: Facebo o k and Go o gle at co mparable stages. Table 8.1 Co mparing Facebo o k and Go o gle at Co mparable P erio ds in Time Faceb o o k (5 years) Revenue Pre‐IPO Faceb o o k (8 years) Pre‐IPO Go o gle (5 years) Po st‐IPO Go o gle (8 years) $272 million $3. 7 billion $1. 5 billion $10. 6 billion Net I ncome −$56 million $1 billion $106 million $3. 5 billion Market Cap ‐ $104 billion $23 billion $150 billion+ Facebo o k went public as an 8-year-o ld, while Go o gle went public af ter f ive years. Facebo o k’s revenues at IP O were $ 3.7 billio n—abo ut 2.5 times Go o gle’s $ 1.5 billio n revenues when it went public. Facebo o k’s $ 1 billio n in pro f its the year bef o re it went public equate to abo ut ten times Go o gle’s pre-IP O annual pro f it o f $ 106 millio n. And Facebo o k’s market cap at IP O was abo ut $ 104 billio n, o ver f o ur times Go o gle’s po st-IP O value o f $ 23 billio n. But the co mpariso n isn’t Apples-to Apples (no pun intended). Ro ll the clo ck back and 5-year-o ld Facebo o k (ro ughly the age o f Go o gle at IP O) actually lo st $ 56 millio n o n revenues o f just $ 272 millio n. Go o gle as an 8-year-o ld bro ught in $ 10.6 billio n in revenue and $ 3.5 billio n in pro f its, and it spo rted a market cap o f o ver $ 150 billio n. The 8-year-o ld co mpariso n also isn’t quite a f air o ne since capital ro se during Go o gle’s IP O (and seco ndary o f f ering where it so ld still mo re sto ck), helping to f uel the f irm’s gro wth o ver tho se three years. Still, 8-year-o ld Go o gle made abo ut as much pro fit as 8-year-o ld Facebo o k did in rev enue. As TechCrunch po ints o ut, the f ive-year co mpo und annual gro wth rate f o r each f irm’s revenue during co mparable perio ds (2002–2006 f o r Go o gle and 2007–2011 f o r Facebo o k) was almo st exactly the same: 89 percent a year. Figure 8. 4 Revenue of Google and Facebook in Billions of Dollars Figure 8. 5 Revenue p er Us er (201 1 ) While Facebook has , at t imes , been t he Web’ s mos t vis it ed des t inat ion, it s us er bas e generat es far les s cas h on a p er­p ers on bas is t han many rivals do, including only about one­s ix t h of Google’ s p er­us er figure. J. Yarrow, “H ere’ s H ow Much a Unique Vis it or Is Wort h, ” Bus ines s Ins ider, January 5, 201 1 . When co nsidering a f irm’s value, it’s also impo rtant to realize that just because the market is willing to pay a high price f o r a f irm’s sto ck, it do esn’t mean that the f irm is act...
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