Facebook could be worth $100bn by spring next year, after 2011 profits ‘exceed expectations’, according to people close to the fastest growing social network.
The company is understood to be on track to make more than $2bn in 2011, pre-tax and interest, after exceeding all expectations of advertising revenues set last year.
Several figures close to Facebook’s finances told The Wall Street Journal that they thought its profit was growing at a fast-enough rate to justify a valuation of $100bn or more when it goes public – a move which is expected next year.
The valuation would make Facebook one of the largest technology companies in the world, overtaking giants like online retailer Amazon.
However, the people close to Facebook who revealed the company’s current financial position cautioned that “assessing Facebook’s value is difficult because, besides objective matters such as earnings potential, much depends on market sentiment and the overall economic mood at the time of a public offering”.
Facebook declined to comment.
At the start of this year Goldman Sachs invested $450m in Facebook in a deal which valued the US social network site at $50bn. Russian group, Digital Sky Technologies also invested $50m at the same time, taking its total holding to more than $500m.
Despite persistent attempts by Facebook’s chief executive Mark Zuckerberg to scotch rumours of a flotation, Goldman Sachs is now widely accepted to be the frontrunner to lead a listing, which is expected at some point during the first half of next year.
The January $50bn valuation put Mr Zuckerberg’s personal fortune at around $14bn.
The major round of investment was seen by many analysts as being more about creating a serious business image rather than serving a financial need.
Jeffrey Mann, vice president of the research company Gartner, told The Telegraph: “The deal was all about Facebook really positioning itself to compete with the big boys – the likes of Google and Microsoft. The $50bn valuation was necessary as the company needed to be seen as a player and no longer a garage start-up. This move is all about transforming the image of Facebook.”
While others believed the Goldman Sachs’s investment was a way for Facebook to delay floating.
Nate Elliott, principal analyst for Forrester Research, said: “I don't think the Goldman Sach's investment happened because Facebook needed the money operationally," he said "It has enough money to build the business in the way it needs to be developed from this point on.
The investment happened, in our opinion, so that Facebook had a way of letting early investors and employees take money out of the company without it needing to IPO.
We have tried to find operational costs it might need to cover while building the business, but its advertising revenues more than cover their costs."
Facebook generates the majority of its revenues from advertising, a figure which is rapidly increasing as the site improves the effectiveness of its targeting.
It also makes money from its ‘Credits’ payments system which allows users to purchase virtual and real goods on Facebook. The site takes a 30pc cut on each purchase made using the system.