Facebook Is Making More Money Than Everyone Thought

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After it was announced earlier this week that Goldman Sachs had invested $450 million in Facebook at a valuation of $50 billion, dozens (hundreds?) of stories were written about why the social network couldn't possibly be worth that much. (See William Cohan's New York Times op-ed, Duff McDonald's "Five Reasons Why I'm Not Buying Facebook" -- not that he was ever asked to get in on the deal -- and "50 Billion Reasons Why Facebook Is Not Worth $50 Billion"
for starters.)

I argued that a $50 billion valuation might not be such a crazy idea. And, now that new reports are starting to come out because of the Goldman deal, others are beginning to agree with me. Like all of the wealthy people on Goldman's to-call list. The investment bank has heard back from enough of the potential investors it sent a preliminary email to on Sunday night that it will probably have to stop offering shares of Facebook as early as Thursday and cut all of the orders already placed down to fewer shares. That, according to a new story in tomorrow's Wall Street Journal, "Goldman Flooded With Facebook Orders." The story also reveals new details that are shifting the opinions of journalists and bloggers.

Henry Blodget's latest story on Business Insider? "FACEBOOK DETAILS LEAKED: Company Is Much More Profitable Than Everyone Thought." It has long been known that Facebook generated revenues of somewhere between $600 and $800 million in 2009. Part of the offering document released by Goldman and Facebook confirms that the official number was $777 million. What's shocking is that the company had a net income of $200 million that year, a nearly 26 percent net profit margin. That margin is close to Google's and is "VERY high ... for such a young company," Blodget wrote. (Emphasis -- and the enthusiasm it implies -- is original.) If Facebook maintained that high profit margin going into 2010, it probably took home close to $500 million on nearly $2 billion in revenue.

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Nicholas Jackson is a former associate editor at The Atlantic.

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