Thursday, January 6, 2011

Bigger After 7 Years, Google or Facebook?

A comparison of Google's (GOOG) market valuation and financial performance in its seventh year of operation [2005] to Facebook's in its seventh year of operation [2010].

In 2005 (roughly its seventh full year of operation), Google generated revenues of $ 6.14 billion and net income of $ 1.46 billion.

Google went public with an initial market valuation just under $ 30 billion in 2004 but within a year had a market value north of $ 100 billion. A valuation that seemed extreme but Google had no trouble quickly justifying.

That initial ~$ 30 billion valuation looks like a bargain today.

How does this compare to Facebook?

In 2010, according to this article, Facebook (also in its seventh year of operation) generated revenues of $ 2 billion and had net income of $ 400 million. Impressive. The growth rate is spectacular as Facebook's 2009 revenue was $ 777 million with $ 200 million of net income.

According to this, Goldman recently invested  in Facebook at a $ 50 billion valuation. At that valuation, Facebook is being valued at 25x revenue and 125x earnings.

It's very hard to know what Facebook is/will be worth. We do know that, comparing both companies seventh year of operation apples to apples, Facebook is being given a valuation that is almost 2x that of Google while generating less than 1/3 as much revenue and net income.

Obviously, with Google now earning in two weeks what Facebook earns in a year there's a bit of a gap to close before you can consider these two in the same league financially.

Still, I wouldn't want to bet against Facebook.

...or Google.

I'll be surprised if both don't win big in very different ways.

Adam

Long position in GOOG

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