When Tech Writers Talk Business
Like a lot of people in the VC/tech world I spend a good amount of time each day scanning the various online tech rags for the latest industry news. While these sites are generally great sources of information and, more importantly, instigators of conversation, they are also frequently the source of frustration when the focus turns from technology to attempting to describe business prospects or financial information of the companies they cover.
I was reminded of this point yesterday when I saw the ReadWriteWeb story about the 2010 Facebook revenue projections. Let me preface by saying I’m a huge fan of RWW and think they typically do a top notch job of reporting on the web. But in this particular case, the writer (Jolie O’Dell) made a mess of reporting the story when it came to describing Facebook’s projected financials (projections which happen to be murky at best given the private nature of the company’s commentary on the matter).
My concern may be considered minor semantics by some, but I think there’s meaningful value what is admittedly a pet peeve - the confusion between revenues and profit in description of a company’s performance.
In the first sentence of the article, O’Dell references the fact that Facebook “made” upwards of $700 million in 2009 before stating that the company expects 2010 revenues of $1billion. It’s an ominous way to begin the write-up, as it has the potential to confuse revenues (which is what O’Dell is really talking about) with profit, which is what is typically talked about when a company is said to have “made” money in a given period.
O’Dell clarifies a bit later in the article by fleshing out the revenue projections. She then makes the point that the $10 million in projected Facebook credits revenue is puny compared to the almost $600 million in “cash flow” from performance and brand advertising.
In and of itself, the description of the advertising revenue as “cash flow” is not necessarily wrong – the revenues from this type of advertising are indeed driving the company’s cash flow. But by trying to avoid using the word revenue over and over and instead using “cash flow” O’Dell continues to complicate the discussion at hand – which is Facebook’s revenues. In order to talk about cash flow, we’d have to understand the underlying expenses as well, including both operating expenses and fixed asset/capital expenses necessary to scale the business. This notion of “free cash flow” is a different, and very important one, compared to the discussion about Facebook’s revenues. And by tossing around the terms interchangeably, the message is clouded and the discussion cheapened.
Based on comments from Facebook last year, it seems the company will be cash flow positive (i.e. generating a profit) this year – though there’s no indication of the magnitude of this profit. It’s safe to say that the number is relatively small at this point in time. Which makes the last statement from O’Dell the most perplexing and disconcerting:
Facebook has stated it will not comment on these figures or speculation about future revenues. However, it is completely clear that this company has found a way to make the Web dramatically profitable.
There’s nothing clear (yet) about how profitable Facebook is and/or will be. And it’s certainly premature to say whether or not the company will find a way to make the Web “dramatically” profitable. What is clear is that the company continues to grow both its top line and presence in the lives of web users. I’m hopeful that as Facebook (and Twitter, foursquare, etc) continue to mature, the financial savvy of the reporters who cover them will increase as well. Otherwise, we’re in for a confusing ride.
Note: I completely understand and respect the potential irony of calling out tech reporters writing about financial stuff given the fact that I may, from time to time, comment on technology on this blog without having a background as an engineer or technologist. I’m hopeful that when the day comes that I confuse the technology issues at hand, someone from the tech side of the equation will help clear things up for me!
