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See this follow-up article with additional reporting and comment from Facebook.
Facebook‘s growth to 110 million monthly active users worldwide has been so fast that costs have been increasing more than revenue. Now the company is scrambling to raise money to pay for its gains. That’s what a report from TechCrunch says, at least, citing sources that place the company’s chief financial officer, Gideon Yu, in Dubai this week. Maybe Yu is trying to raise money from the sheiks?
If the largest social network in the world doesn’t raise another round, TechCrunch believes, then “there may be a heavily dilutive down-valuation round for Facebook in the next 12-18 months.”
Maybe. Some of the investors who participated in Facebook’s $15 billion preferred-stock round kicked off by Microsoft last fall have already gotten in at a lower valuation, one source whispered to us recently. We haven’t been able to confirm that with other sources or the company, though, and Facebook has yet to respond to that question or the article.
A look at TechCrunch’s argument is certainly suggestive. Here’s the summary:
– Electricity costs are “likely” more than $1 million a month, according to anonymous experts.
– Bandwidth costs are “likely another $500,000″.
– $100 million has already been “earmarked” to buy 50,000 servers this year and next; and the company may have spent $30 million already.
– “Earmark another $15 million per year in office and datacenter rent payments.”
– Payroll costs add up to more than $10 million per month.
– “Add” another $100 million is needed for capital expenditures per year.
I’m having a hard time parsing speculation from sources here, but everything so far sounds plausible.
Turning to revenue, TechCrunch believes Facebook is making up to $100 million less than originally projected for this year. The company had expected to make up to $350 million. EMarketer estimates $265 million but I’m not sure how the firm can be so certain. What is true is that Facebook has been growing fast outside of the U.S., and advertisers don’t spend nearly as much to reach those users.
Of course, the larger point, that the economy is tanking and will drive down ad buys, is probably right, although I haven’t seen hard data showing that ad budgets focused on social networks are being cut.
Meanwhile, Facebook does have other forms of revenue coming in, like its sponsored virtual gifts. It has not released any information about this or other revenue streams, other than to say that third-party speculation has been very rough (which I take to mean “too low”).
My conclusion at this point: There’s nothing to conclude. TechCrunch’s argument makes sense, but we’re still missing all sorts of necessary information. One can certainly interpret Yu’s trip to mean that Facebook is desperate for money, or — assuming he’s there, and looking for money — maybe the company is keeping costs low, and just trying to shore things up for many years to come. Plenty of other startups have been doing the same thing due to universal uncertainty about where the economy is going.