Facebook's financial performance is stronger than previously believed, as the Internet social network's explosive growth in users and advertisers boosted 2009 revenue to as much as $800 million, according to two sources familiar with the situation.
The company also earned a solid net profit, in the tens of millions of dollars last year, one of the sources said.
That growth in profit and revenue underscores how Facebook is increasingly making money off its 6-year-old service, which ranks as the world's largest Web social network with nearly half a billion users. That sort of performance is likely to whet the appetites of investors keen for a public share float, despite the company's insistence that an IPO is not a near-term priority.
Palo Alto, California-based Facebook, the booming social networking site dreamed up by Mark Zuckerberg and his buddies in a Harvard dorm room in 2004, is privately held and has released only very limited nuggets of financial information. The 2009 results are significantly higher than some of the figures that Facebook had suggested earlier in 2009, as well as analysts' estimates that have appeared in various media reports.
Last July, Facebook board member Marc Andreessen told Reuters the company was on track to surpass $500 million in annual revenue for 2009. And in September, Facebook said that it had become free cash flow positive, meaning that the company was generating enough cash to cover its operating expenses as well as its capital spending needs.
Estimates in various media reports had previously pegged the company's 2009 revenue at $550 million to $700 million. The two sources said revenue in 2009 was in fact $700 million to $800 million.
"They are downplaying their performance," one source said, adding that 2009 revenue was more than double the previous year's total. "There's no upside in getting people's expectations high, it's always better to go low." If Facebook eventually seeks to go public, unveiling financial figures above expectations could help bolster investor interest. Facebook declined to comment.
Since its inception, Facebook has emerged as one of the Internet's most popular destinations. The social network is increasingly challenging more established Internet players such as Yahoo Inc and Google Inc for consumers' online time and for ad dollars, even as it tries to strike a delicate balance between protecting privacy and promoting social sharing by its users.
In May, Facebook said it would introduce new tools to give users more control to limit how much of their profile information is publicly accessible, following criticism by privacy advocates about certain new Facebook features.
Facebook's backers include Digital Sky Technologies, Microsoft Corp, Hong Kong tycoon Li Ka-shing and venture capital firms Accel Partners, Greylock Partners and Meritech Capital Partners. As investors wait for signs of a Facebook IPO, a vibrant market has developed for private shares of Facebook in specialized exchanges like Sharespost and SecondMarket.
Combining a large audience of Web surfers with innovative online advertising has become a recipe for super-charged revenue growth in the Internet business. In 2002, after Google overhauled its AdWords search advertising system and introduced its cost-per-click pricing model, annual revenue quadrupled to $347.8 million. The following year, revenue surged to roughly $962 million. Google finished 2009 with nearly $24 billion in annual revenue.
Facebook's revenue growth has come as the number of users on its website has exploded. The company started 2009 with the January announcement that it had reached 150 million users. By December, that number had swelled to 350 million.
"We can provide really good, relevant advertising to people because they tell us exactly what they are interested in, and who they know, and those people tell us what they're interested in," Facebook Chief Executive Zuckerberg said at the All Things Digital conference this month. He cited statements by other Facebook executives that the number of advertisers on Facebook had increased by a factor of four during the past year-and-a-half. "Just having all those different ads in the system makes it so there's more to draw from and people get more relevant ads," he said.
Big brands such as AT&T Inc, Ford Motor Co and Blackberry-maker Research in Motion all advertised on Facebook during the first four months of 2010, according to Internet analytics firm comScore. In addition to courting household names, Facebook also allows smaller companies to craft their own targeted pitches on its site, using a Web-based self-service advertising system.