In its filing with the Securities and Exchange Commission yesterday, Facebook revealed that it had 845 million monthly users and was rapidly closing in on 1 billion. As many have noted, the key will be leveraging that massive user base to generate more revenue through its display ads and its app platform.
However, some have suggested the historic offering is overblown, characterizing Facebook as a "badly overpriced photo-sharing and gaming site."
Besides making a lot of people rich, Tech Republic's Jason Hiner makes the case that while Facebook's photo sharing is nice, it's not very lucrative. And that while gaming is "very lucrative," it's also "faddish," and Facebook's stake is dependent on third parties such as Farmville creator Zynga. (Twelve percent of its revenue comes from Zynga.)
But Bill Gurley of Benchmark Capital sees promise in the IPO (Benchmark Capital has a minority position in the social network as a result of the acquisition of FriendFeed) and has created a report card of sorts to explain why he believes the company belongs in the "10x forward price/revenue multiple club." Gurley grades Facebook based on 10 metrics that investors consider when deciding whether a company deserves a high valuation.
According to Gurley, the company registers an outstanding score for sustainable competitive advantage and presence of network effects. ("All current non-U.S. Facebook users have immediate connections if they log in," he points out.)
He also gives Facebook high marks for customer lock-in, saying that "leaving Facebook is possible, but finding an alternative with all your friends on it is not really possible." Some fans of Google+ might disagree with him, along with his assertion that the "inclusion of Timeline works to increase this even more by creating a permanent dependence on past content."
Facebook falls short on marginal profitability calculation, noting that its peak profitability was in the fourth quarter of 2010 and that spending has kept pace with revenue growth since then. "Top line" growth is also a sore spot for Facebook; while it had a growth rate of 88 percent for 2011, its fourth-quarter rate was 55 percent.
"If growth rate hurts the company, then it's a direct result of waiting too long to go public--past peak growth," Gurley said.
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