Will Facebook be more profitable than Amazon this year? TechCrunch founder Michael Arrington thinks so.
Arrington, writing on his new blog, Uncrunched, cited a source who said that Facebook generated $1.6 billion in revenue during the first half of 2011 and an operating income of $800 million. Assuming that same profit margin carries through the year, Arrington says, Facebook could tally an operating income of $2 billion this year.
It gets better, Arrington says. During the first half of the year, Arrington points out that Amazon posted an operating income figure of $523 million, which Facebook easily overshadowed. And through the rest of the year, Arrington believes Facebook will generate more income than Amazon.
However, operating income is not necessarily the best measure to use when evaluating a company. After a firm tallies its operating income, it then needs to account for taxes, discontinued operations, and a host of other costs to arrive at a net income--the cash that the company eventually takes in.
In September, Reuters, citing its own sources, revealed Facebook's net income. Like Arrington's source, the news service said that Facebook generated $1.6 billion in revenue and net income of nearly $500 million during the first six months of 2011.
Amazon, on the other hand, was able to generate nearly $20 billion in the first half of 2011, and posted net income of $392 million. So, while Facebook is still leading Amazon, assuming Reuters' source is correct, the gap is not nearly as big as it would be if operating income was compared.
It's also worth noting that Amazon is running a seasonal business that typically sees fourth-quarter revenue jump considerably, due to holiday shopping. In the fourth quarter of 2010, for example, Amazon posted a profit of $416 million, which nearly doubled the $231 million in net income it posted in the third quarter of 2010. Depending on Amazon's profit in the fourth quarter, the e-commerce giant could trump Facebook at the very end of the year.
Regardless, just about any company would rather be in Facebook's position than Amazon's. Facebook has been able to best, or at least match, Amazon in profit by generating far less revenue, which means its profit margins are much higher. Even better, as Facebook's business continues to grow and the combination of advertising and its virtual currency Credits continues to gain popularity, the social network should only see its financial performance improve.
Research firm eMarketer certainly thinks so. Earlier this year, the company said that it expects Facebook to make $4.05 billion in advertising revenue this year and $5.74 billion next year. Even better for Facebook, it didn't include the revenue the social network is generating from Credits.
However, amid all this talk of revenue and profits, it's important to keep in mind that Facebook's data is guesswork at this point, since it's still a private company. As a public company, Amazon must divulge its financial information.
But it might not be long before Facebook goes public. In fact, the latest reports suggest the social network will hold its IPO late next year. If it does so, it should be a blockbuster event that will bring shareholders running. The only question is, what will Facebook be worth? That, of course, relies upon the number of shares Facebook will offer and its stock price. But if Amazon is to be our guide, it should be valued quite highly.
Currently, Amazon which might not be performing as well as Facebook on a financial level, is trading at $235.63, pushing its market capitalization--a measure of the value of a company--to $107 billion. Speculation abounds that Facebook could go public on a $100 billion valuation. However, given another year and with even stronger financial performance, the company might be worth even more when it finally goes public.