In the first six months of 2011 Facebook had $1.6 billion in revenue and about $800 million in operating income, says a source I trust a lot. That revenue number has been reported before. And the 50% profit margin is in line with last year’s $2 billion in revenue and $1 billion in operating income.
With Facebook growing revenue and profit by more than 50% every six months, it won’t be surprising if they hit something close to $2 billion in operating income for the year.
To put that in perspective, realize this – Facebook will likely be more profitable than Amazon this year. On a quarterly basis they’re already there. Amazon had $191 million operating income in Q2 and $322 million in Q1 (financials here). That’s $513 million v. Facebook’s $800 million for the first half of the year.
Amazon’s Q3 financials are coming out this week, and Citi analyst Mark Mahaney says to look for around $298 million in operating income from Amazon for the quarter. Q4 is obviously Amazon’s big sales period – operating income for Q4 is usually almost double what Q3 is.
Mahaney also notes that Amazon’s Q4 may not look as rosy as usual due to the launch of the Kindle Fire. Says Mahaney, “There is the distinct possibility that an aggressive/successful Fire launch could materially negatively impact AMZN’s margins and EPS near-term.”
The Kindle Fire is irrelevant though – Facebook will likely be more profitable than Amazon for the year even if the Kindle Fire doesn’t negatively impact Amazon’s Q4.
Does that mean Facebook is still undervalued at $70ish billion, despite the fact that recent secondary market sales are stalling? Amazon’s market cap is currently around $107 billion.
Of course Amazon has far more revenue than Facebook, nearly $10 billion per quarter, and Q4 will be much higher than $10 billion. Last year they had $34 billion in revenue.
They just have terrible margins compared to Facebook because they sell (and deliver) actual stuff. Facebook delivers ad impressions and Facebook credits to buy stuff on Zynga.
And about Zynga. The company is still completely dependent on Facebook – “We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future,” says the Zynga S-1 For the first six month of this year Zynga reports $522 million in revenue.
That doesn’t include Facebook’s cut, which is taken before Zynga recognizes the revenue – “Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. We record bookings and recognize revenue net of amounts retained by Facebook.”
That means Zynga sent Facebook some $250 million in the first half of the year, or about 16% of the total Facebook revenue for that period. So Zynga is a very important source of revenue for Facebook, and probably will be for quite some time.
So is Facebook undervalued? Based on a comparison to Amazon today, and taking into account that the big growth years for Facebook are just getting started, that answer is yes.
Sounds like we should be buying Facebook stock and adding it to our list of portfolio companies, stat.