After so many years of economic gloom, it’s nice to have some good news. On Thursday, such tidings came in the form of a surge in the valuation of Facebook, which climbed to more than $192bn in the wake of good first-quarter earnings. This means that, as of Friday morning, the social network is now worth more, at least on paper, than Toyota ($189bn), AT&T ($184bn), Coca-Cola ($180bn), Disney ($150bn) and even Bank of America ($164bn).
Last year, Facebook generated net profit of just under $1.5bn, meaning its current valuation is equal to about 128 times the profit it generated last year. There are lots of reasons to think Facebook’s profits in the future will be higher than they were in 2013: it hadn’t really sorted mobile advertising at all last year, and a sharp rise in its mobile revenue suggests it now has. It can still do more to monetize its mobile app. It has huge reach, to 1.3 billion consumers. It’s clearly a company worth a lot of money.
Toyota generated $17.7bn net profits last year (value: 10.5 years). AT&T made $18.2bn (10.1 years), while Coca-Cola reaped $8.5bn (21 years), Disney brought in $6.1bn (24.5 years) and Bank of America collected $11.4bn (14.4 years). So there are lots of risks ahead for Facebook: it’s not a given that profits will always go up. Once Facebook’s mobile apps have adverts in place, where does next year’s double-digit growth come from? The site’s user base isn’t growing. A new generation of social networking apps, which allow users to take their contacts lists (sometimes called a social graph) with them to other services, is coming. Regulators might decide that Facebook’s market share has grown too large. Well only time shall tell.
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