Goldman Sachs Says "**** You America!"

[Dauphin]

US must be far more private in its accounting practices.

[KrazyHorse]

Fair enough. I just don't want to give the impression that I believe that facebook isn't able to report reliable numbers for past performance. I'm sure that those who got the offer received concrete numbers verified up to whatever standard is applicable for a private offering.

As somebody whose only source is speculative media reports, however,the numbers I've been posting are obviously much more variable.

[KrazyHorse]

Let's hypothesize the following: 750 mill revenue in 2009, 1.2 bill revenue in 2010 (I'm just taking something like the median number coming off the media reports I found in 5 minutes of research). The bulk of it generated by various forms of advertising.

What would your view be then?

[Dauphin]

I wouldn't use revenue as a valuation method.

[KrazyHorse]

Why not? We know that facebook has been claiming recently that it will get into a positive cashflow situation real soon now. Taking them at their word, revenue growth gives you a reasonable path for future earnings growth.

According to wikipedia they have 1700 employees, who are relatively well-paid by programmer standards, but who can't possibly be taking up more than 250k per (including bennies and place to house them). What other big costs does the company have? Obviously server and bandwidth costs. Let's peg these at a bill a year or so, and staying proportional to users in the future.

[KrazyHorse]

This really is just a question of how much they can grow online ad revenue at. Will they turn into myspace in 5 years, or will they turn into somebody like google, who create and hold onto a whole new niche for online ads?

[Dauphin]

What other big costs does the company have?

What's the relevant tax rate?

[KrazyHorse]

US corp tax is 35%, but by being a tech company they get a lot of breaks. They also have a lot of int'l revenue so they can probably avoid repatriating a large fraction of their profits. Let's guess an effective tax rate of 20-25% on profits.

[N35t0r]

They also have a lot of int'l revenue so they can probably avoid repatriating a large fraction of their profits.

Can they do this (legally)?

I'm working in tourism, and most of our clients are outside the country, but we're required to report (and bill) every payment we get. We've got a declared account in Switzerland to gather all the clients' transfers and then send monthly transfers over here, which is cheaper than having everyone pay us here directly.

[KrazyHorse]

What do you mean "can they do this legally"? Subsidiaries don't have to repatriate profits to the parent entity if they don't want to, AFAIK.

[Dauphin]

You probably can't operate a business/make sales out of country A, and then nominally assign the income to be treated as that of a subsidiary business in country B, just because that is were you are selling to and you wanted to avoid tax.

Facebook wouldn't be doing it nominally of course.

[KrazyHorse]

I agree. I'm saying "avoid repatriating to US parent entity", not "take US profits and assign them to the Cayman Islands".

[Dauphin]

Transfer pricing.

[KrazyHorse]

In all honesty, a lot of that stuff sounds like accounting hijinks to me (I have no experience with this aspect of anybody's business practices, but looking from the outside in). It's hard for me to get worked up about, however, as the economically reasonable rte of corporate taxation is 0.

[Dinner]

I want to see Goldman Sachs brought down simply because they make more money then me so the schadenfreude will be orgasmic.