Rocketing growth at self-effacing Facebook

Facebook’s financial performance is stronger than previously thought.

SO COY: Facebook is reportedly playing down its  performance Picture: GETTY IMAGES

SO COY: Facebook is reportedly playing down its performance Picture: GETTY IMAGES

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The Internet social network’s explosive growth in users and advertisers boosted revenue to as much as $800-million last year, according to two insiders.

The group also earned a solid net profit, in the tens of millions of dollars, one of the sources said.

That growth in profit and revenue underscores how Facebook is increasingly making money off its six-year-old service. It’s the world’s largest web social network with nearly half a billion users.

This performance is likely to whet the appetites of investors keen on a public share issue, despite the group’s insistence that an IPO is not a near-term priority.

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 snippets of financial information.

Its results last year were significantly higher than figures Facebook suggested earlier and analysts’ estimates. Last July, Facebook director Marc Andreessen said the group was on track to top $500-million for the year. And in September, Facebook said it was generating enough cash to cover its operating expenses and capital-spending needs.

Estimates in the media pegged revenue last year at $550-million to $700-million, but the two sources said it was $700-million to $800-million.

“They are downplaying their performance,” one source said. Revenue was more than double the previous year’s.

Facebook is now one of the Internet’s most popular destinations. The social network is increasingly challenging longer-established Internet players such as Yahoo and Google for online time and ad dollars, even as it tries to strike a delicate balance between protecting privacy and promoting social sharing by users.

After criticism by privacy advocates of new Facebook features, the group said last month it would introduce tools to give users more control to limit how much of their profile information is publicly accessible.

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 specialised exchanges like Sharespost and SecondMarket.

Combining a large audience of web surfers with innovative online advertising has become a recipe for supercharged revenue growth in the Internet business.

In 2002, after Google overhauled its AdWords search advertising system and introduced cost-per-click pricing, yearly revenue quadrupled to $347.8-million. The following year revenue surged to about $962-million. Google ended last year with nearly $24-billion in annual revenue.

Facebook revenue grew as the number of its website users exploded. In January last year it said it had 11million users. By December, that had risen to 350million.

At the All Things Digital conference this month, Facebook chief executive Zuckerberg cited statements by other Facebook executives that the number of advertisers on Facebook had risen fourfold in the past 18 months.

Big brands such as AT&T, Ford and Blackberry-maker Research in Motion all advertised on Facebook in the first four months of this year, according to Internet analytics firm comScore.

In addition to courting household names, Facebook also allows smaller firms to craft their targeted pitches on its site, using a web-based self-service advertising system.

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