Facebook More Profitable Than Most Expected

According to documents that Facebook showed Goldman Sachs GS as part of its $450 million investment, Facebook is more profitable than anyone thought. In 2009, Facebook reported $777 million in revenues, with net income coming in at $222 million, for 28.5% margin. In the first 9 months of 2010, Facebook reported revenues of $1.2 billion, with net income of $355 million, for a 30% margin. Goldman invested $450 million into the company, for a 0.9% stake. It gave the social networking site a $50 billion valuation. That valuation is high, but not that high given the growth prospects, according to Ryan Jacob, of the Jacob Internet Fund. "It just shows you that these businesses can generate 30 percent to 40 percent, potentially, operating margins," Jacob said. "They probably did at least $500 million in net income in 2010." "This year you could make the case that they're probably going to be north of $800 million and probably close to a billion," said Jacob. Wedbush Securities analyst Lou Kerner, who owns Facebook shares, said, "The revenue kind of are in line with our expectations." Yet, Kerner, like everyone else, was surprised at how profitable Facebook is. "The surprise was on the profitability. I think it highlights that Facebook is likely to have margins that are going to exceed Google's margins," he said.