Monday, November 3, 2008

Is FaceBook headed for a financial ruin?!

TechCrunch today has no treats—and no joy, no, not even Almond Joy — for Facebook in reporting about its projected financial woes. For a company once valued at $15 billion, things are looking grim as the cash supplies may dwindle long before Facebook is ready or willing to go to IPO. Does that mean that the popularity of free online dating sites such as will actually increase?

There’s no denying that Facebook continues to enjoy incredible popularity worldwide—but that could be part of the problem. Facebook’s worldwide growth has been strong over the last year, with 118% growth in monthly unique visitors and 74% growth in page views. But its US growth hasn’t been as impressive, up only 32% from 31 million to 41 million. Don't get me wrong, this isn't bad at all, but still, where are the rest of the users? Are they now seeking dating websites and not social networks?

As most of Facebook’s growth is outside the US, you’d expect that most of their revenue comes from advertisers targeting international audiences, as well. But that’s not the case. As TechCrunch pointed out months ago, many, many countries generate little to no advertising revenue per user. And that’s just the beginning of growth woes:

to make things worse, bandwidth costs in those countries is generally much higher than the U.S. So the users cost more, and they don’t bring in any revenue.

That international growth might be ok if U.S. growth remained strong. But the U.S. market just seems to be tapped at this point, and gaining market share from MySpace is a battle.

And not only is bandwidth a problem, but storage is a major issue (and major cash drain) for Facebook as well.

Despite raising probably over half a billion in cash over the last two years, cash reserves are quickly depleting the future may be even more grim for Facebook as the economy slows. Advertising dollars may be one of the first things to be cut. However, as TC points out, Facebook CFO Gideon Yu is in Dubai, looking for more funding for the company.

What do you think—will Facebook survive?

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