Exclusive: A Look Inside Mozilla’s Financials; Planned Growth in 2009
In an email to his staff on October 10, 2008, Mozilla Overlord John Lilly detailed not only Mozilla’s current financial state but also the Corporation’s intention to continue expanding in 2009. The Lizard has reprinted the email in its entirety below the fold (the “Jim” mentioned is Jim Cook, the CFO of the Mozilla Foundation and Corporation).
To summarize, for those Mozillians too lazy to read (practically all of the Mozilla Corporation):
- Mozilla intends to grow by 75 in 2009
- Mozilla is break even
- Mozilla believes Google Chrome could reach 7% market share next year
Consider this a holiday gift to my American friends.
Hi Everyone –
I did this a little bit during Monday’s all hands meeting, but wanted to do it a little more formally to give everyone a sense of where we are financially and what our prospects look like for next year and beyond.
I’ll apologize for the length & complexity of the note — parts of it get very technical — I figured it would be better to share as much as I could in as coherent a way as I could.
Here’s the short version: I think we’re in as good a position to be able to do the work we want to do in 2009 & 2010 as anyone in the industry, really. I’ve been testing & retesting our assumptions, talking with a lot of outside mentors & execs & friends, and working with Jim & Mitchell to get a really good assessment of where we are. And I keep coming to the conclusion that we’re going to be fine, and can continue to grow and keep making the web better.
More specifically, in a very bad case scenario that I’ll describe below, we can still grow as planned (to 275 people, give or take) and be break even in 2009, while maintaining our bank balance of $75M.
A lot of this is because we’ve been conservative historically — I know it feels like we’ve grown incredibly quickly to be around 200 employees (or, rather, full-time-equivalents (FTEs) that include employees and contractors) the last few years, but we’ve been careful not to grow to quickly, to self-limit based on finding exceptional people, and relatively conservative in terms of scaling up new teams (and building them in a very leveraged way when we do, like Labs). Jim’s money management, along with Silicon Valley Bank (SVB), has also been very conservative, which is serving us very well.
Before I get into the detail, I’ll say, also, that I share this in the spirit of everyone knowing what our position is, what our risks are, what our opportunities are. My observation is that many more long-impact institutions are created in bear markets than in bull markets, and I think we’re in a very very unusual position now in our ability to really do great things with our mission.
I’ll put this into a forum thread, but also please feel free to ask me questions, send e-mails, or whatever.
In more detail, some basics, as of August 31:
Total cash equivalents (including receivables): $70.9M
2008 Year-to-date revenues: $53.6M (we’ve been projecting that we’ll get to about $80M by the end of the year)
2008 Year-to-date expenses: $31M (projecting we’ll get to a little less than $50M by the end of the year)
August expenses: $3.7M (that means we’re spending ~$45M annualized, give or take)
August FTE (full time equivalents): 192
Beyond that, we’d been forecasting growing to around 275 FTEs in 2009 (roughly), and seeing revenue grow to be around $90M.
On those basics, we’re in really good shape. More than 18 months of current rate expenses even if we never collected another dime of revenue.
But clearly some things are changing, and so I’ve been trying to figure out anywhere we have risk. There are 3 basic areas of risk for us:
- We start spending way too much money too quickly
- Google’s ability to generate revenue from advertisements disappears
- Our cash equivalent holdings disappear because they’re invested in assets/companies that go bankrupt
Let’s take these in order. The first, spending, is wholly under our control, and the really good news is that we’ve been careful in our growth rates. Roughly speaking, if we grow at around the same rate we’ve been growing and do get to 275 people by the end of 2009, and assuming we don’t all start flying first class and buying incredibly expensive hardware, we’re looking at expenses (once you include tax payments to US & EU, etc) of about $70M for 2009. [side point: the expense numbers above don't include tax payments, but I'm accounting for it in my overall numbers.]
We can dial spending up or down, but easier & happier to grow slowly and deliberately, especially with head count, where we’re talent-limited anyway. We’ll start doing things like looking at contracts with hotels, consultants, etc to reduce expenses, and will want to pay attention to travel costs, but on the whole, life is pretty good and within our power on this front.
2nd: Let’s consider a theoretical scenario where Google’s ability to generate revenue drops precipitously. It is a certainty that advertising spend will decline significantly, and that will affect Google’s ability to keep rates per click high (CPC). How much it will decline is a tough question — the conventional wisdom is that CPC-style advertising will hold up the best (compared to brand advertising or banner ads) because it’s measurable on results — so to be conservative, I’ll make an assumption that rates will be cut in half from today, lasting through all of 2009. [I believe this is significantly more drastic than the declines will be.]
Making some assumptions about Chrome’s market share getting up over 7% in 2009 [more aggressive than I believe], and our own staying completely flat at 20% [more conservative than I believe], but with searches linearly growing, but somewhat cannibalized by Chrome, our revenue model shows we should expect right around $68M from Google next year. Call it another $2M or so from other sources like Amazon & Yahoo, etc (it was $5M this year), and you get to just about $70M in revenue. 2 things to note here:
1) This is a dramatically bad case, where we see no growth, Google’s ad card rates cut in half, and we get significantly cannibalized by Chrome searches. Each of those pieces is ahistorical — not happened during the time since we launched Firefox, certainly. [And if Google's revenue generation gets cut in half, there will be major carnage.]
2) Even with this dramatically bad forecast, we’re still break even in 2009, while growing to 275 people.
That’s worth pausing to think about. In a disaster scenario, with the $75M we’ll have in the bank in December, and growing people by 35% in a bear market, with Google getting killed,
And so the last factor to consider is whether our bank assets are safe. Jim’s been doing a ton of really good work here, and we believe that we’re in the best shape possible. Of the $70.9M in total cash equivalents, about $7.5M is receivables, about $11M is pretty much in cash, and we hold about $52M in corporate and government bonds. The cash is very very safe — Silicon Valley Bank is well-capitalized and doesn’t appear to be in any risk at all.
Of the $52M, we’ve got nearly $28M in US Treasury obligations that function as cash, about $10M in US Govt & Municipal bonds, a million in an asset-backed class (credit card) that we believe is very safe, and about $13M in bonds from Financial Institutions. It’s that last category, the $13M, that’s in any risk at all, and most of the institutions appear to be safe. The one exception is Morgan Stanley, who we have a bond from in the amount of $1.1M. There’s some chance that MS will go under like Lehman Brothers did, which would mean the value of that bond would fall to $0. So we’re tracking it, and considering if/when to sell it for some value if the situation looks dire. (Today we could have sold it for about 85 cents on the dollar, we think, but decided not to do that.)
I’ll forward along a note from our bank that might be interesting to everyone — but the quick summary is that our position for cash equivalents would appear to be as strong as we can possibly make it, with very little exposure.
To pull back together the threads: (1) on expenses we’re fine, but should be more deliberate when looking at 2009 planning, (2) on revenues, we can deal with a very bad scenario from Google and our own market share, and (3) our money is as safe as we can hope for.
Questions, comments, concerns? Just give a holler.
Congratulations! You’ve now proven you can read more than the average Mozilla employee.