Chapter 8

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Unformatted text preview: fits. It has o f ten been said that the f irst phase o f the Internet was abo ut putting inf o rmatio n o nline and giving peo ple a way to f ind it. The seco nd phase o f the Web is abo ut co nnecting peo ple with o ne ano ther. The Web 2.0 mo vement is big and impactf ul, but ho w much mo ney is in it? No w that Facebo o k is a publicly traded co mpany, we can get real numbers o n revenue, pro f itability, and gro wth, and we can use these numbers to co mpare Facebo o k against its rivals. In the quarter prio r to its IP O, Facebo o k’s rate o f revenue gro wth was 45 percent, do wn f ro m 55 percent the prio r quarter, which was do wn again f ro m triple-digit gro wth the quarter bef o re that.H. Blo dget, “Well, No w that Everyo ne Has So bered Up, Let’s Figure Out What Facebo o k is Actually Wo rth…” Business Insider, May 21, 2012. Usually at IP O time, markets like to see accelerating, no t decelerating, gro wth. Facebo o k went public at a no sebleed rate o f 65 times 2013 EP S (earnings per share). Fo r co mpariso n, still-gro wing Go o gle traded at 13 times 2013 EP S at the time o f Facebo o k’s IP O. At IP O, Facebo o k’s market cap was abo ut half o f Go o gle’s, but if we co mpare the business in which Facebo o k and Go o gle mo st clo sely co mpete, display advertising, bo th are ro ughly the same size (Facebo o k at 14 percent o f the US market and Go o gle at 13.8 percent), but Go o gle’s display business is gro wing f aster.C. Bo ulto n, “Go o gle to P ass Facebo o k in Display Ads in 2013,” eWeek, February 26, 2012. Go o gle also had mo re cash than Facebo o k had revenue, and Facebo o k’s f ree cash f lo w is actually negative. This can be blamed o n the co st to build data centers to suppo rt services users get f o r f ree (e.g., sto rage co sts f o r the upwards o f 300 millio n pho to s uplo aded to Facebo o k each day).J. Cassidy, “Facebo o k: The Ultimate Do t-Co m,” New Yo rker, May 16, 2012. Table 8.1 "Co mparing Facebo o k and Go o gle at Co mparable P erio ds in Time" sho ws a co mpariso n o f...
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This document was uploaded on 01/31/2014.

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