Facebook is An Expensive Business, Perhaps Too Expensive

By Nick O'Neill Comment

As I frequently write, Facebook has been growing at an insanely fast pace. The company has grown to become the largest social network worldwide and it doesn’t appear to be slowing. As such, even with over $250 million in the bank as of less than 12 months ago, the company may be searching for funding yet again according to Mike Arrington. How does he know this? Well he points to Gideo Yu, the company’s CEO, traveling to Dubai this week.

Perhaps Gideon just wanted to do a little indoor skiing! Probably not (although hopefully he had time for at least one run). The reality is that Arrington’s math definitely makes sense. The company put aside $100 million for servers earlier this year and is spending $10 million per month on employees. So how about all the money they are making from advertising?

While the company continues to grow and may surpass internal estimates provided by Zuckerberg earlier this year of close to $300 million, all the numbers don’t add up. How much are they burning through? With all the numbers that Arrington posted, it could be around $26 million per year and with close to 10 times that in the bank previously that may not be such a bad position.

The company is growing though and as their expenditures rise and Zuckerberg decides to hold off on focusing on monetization, raising another round of funding definitely begins to look like a good idea. Is the situation as dire as Arrington poses? I doubt it. Who can resist a little sensationalism once in a while? Arrington claims that revenues could fall $100 million short of estimates from a year ago.

These are all hypotheticals though and while I’d love to paint a drastic picture as well, there is other supporting evidence: a bad economy. Regardless of whether or not the company is strapped for cash, it’s never a bad idea to take more money at a $15 billion valuation. For now, we’ll wait and see what happens. Do you have a few million to invest in Facebook?