Facebook is “testing the capital markets,” says TechCrunch’s Michael Arrington, seeking more cash to stem its enormous burn rate. CFO Gideon Yu is reportedly in Dubai, where money used to be plentiful before oil prices crashed.
If Facebook does do another deal, it will likely be a down round. (As we suspected at the time, it is now clear that Mr. Zuckerberg took Mr. Ballmer to the cleaners.) If it doesn’t, we expect the company will probably go through its own round of layoffs.
So costs are skyrocketing, and revenues can’t keep up. Ok, But Facebook still has plenty of money, right?
The economy isn’t looking so hot, and it may get worse. If revenues don’t grow substantially, the company’s runway of cash gets much shorter. 2008 revenues are likely $100 million less than the company anticipated a year ago. If the economic train really derails, Facebook could be in big trouble.
A big chunk, probably a majority, of the roughly $500 million the company has raised is already gone. Even more will be spent next year, particularly if international growth rates remain constant (and there is lots and lots of room to grow internationally). Facebook could be down to just a year’s worth of cash at this point, with no IPO horizon in sight.
And even if they have cash into 2010 (its nearly impossible to figure out exactly how much they’re burning), the economic downturn is likely to be much, much worse than they anticipated. If they don’t grab the money now, it may not be available later on.
Which Explains Why CFO Gideon Yu Is In Dubai
Sources have told us that Facebook CFO Gideon Yu was in Dubai this week, possibly meeting with
, exploring fundraising options.
Why go to Dubai? Because US investors, apparently, aren’t ponying up.
If Mike’s sources are correct, Facebook should know in a couple of weeks whether it can get some more money to work with. If not, firings could be on the horizon.
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