Facebook’s revenue growth over the past several years is almost as
impressive as its user growth. And with money pouring in, thanks in
large part to advertisers eager to reach consumers on the world’s
largest social network, its profits are growing. How much?

According to Michael Arrington, Facebook generated nearly $800m in
operating income in the first six months of this year.

By comparison,
Arrington’s sources said the company produced $1bn in operating income
in all of last year.

If Arrington’s source is correct, Facebook could end 2011 with around $2bn in operating income, which Arrington notes would make Facebook more profitable than one of the internet’s most valuable companies, Amazon:

To put that in perspective, realize this – Facebook will likely be more profitable than Amazon this year. On a quarterly basis they’re already there. Amazon had $191 million operating income in Q2 and $322 million in Q1 (financials here). That’s $513 million v. Facebook’s $800 million for the first half of the year.

Comparing Facebook and Amazon is like comparing apples to broccoli, so why is Arrington doing it? His real point is around valuation:

Does that mean Facebook is still undervalued at $70ish billion, despite the fact that recent secondary market sales are stalling? Amazon’s market cap is currently around $107 billion.

Of course Amazon has far more revenue than Facebook, nearly $10 billion per quarter, and Q4 will be much higher than $10 billion. Last year they had $34 billion in revenue.

They just have terrible margins compared to Facebook because they sell (and deliver) actual stuff. Facebook delivers ad impressions and Facebook credits to buy stuff on Zynga.

Is Arrington right? Not quite.

Amazon’s margins are hardly “terrible“; again, apples and broccoli. But in Arrington’s somewhat nonsensical argument, there’s something more important here that shouldn’t be overlooked: the momentum behind the growth of ecommerce, digital publishing and cloud infrastructure markets is arguably far stronger than social.

Most of Facebook’s revenue comes from advertisers, many of whom advertise on the social network because of its vast reach. But when you look under the hood, it’s still not yet clear whether its advertising platform has what it takes to be an ROI engine for the majority of its advertisers.

Another big chunk of Facebook’s revenue comes from Credits, the virtual currency that is used primarily to purchase virtual goods in social games like Farmville. This is a cash cow, but there’s a catch: a tiny minority of big spenders account for the vast majority of the revenue.

Amazon, on the other hand, sells physical stuff as Arrington notes, and he should also note it does that better than just about any other company on the web. But it’s more than that.

The breadth of Amazon’s offerings is staggering. The company is front and center in the booming e-book and digital content markets, and the Kindle Fire may debut with more pre-sales than the first iPad.

Increasing, Amazon is making big moves as a publisher, and one also shouldn’t forget that Amazon has become a prominent part of the infrastructure for many companies large and small thanks to Amazon Web Services.

The net-net: as sexy as social is, Amazon is far more diverse and much deeper a company than Facebook if you must compare the two. Which explains why investors currently value Amazon at over $100bn.

Make no mistake about it: Facebook isn’t undervalued, as Arrington argues. Investors simply understand that a company which is a leader in ecommerce, digital publishing and infrastructure probably has better future prospects than a company which sells AdWords without AdWords ROI and takes a 30% cut of virtual sprout sales.