Investors will undoubtedly be clamoring for shares of Facebook (FB) when its IPO hits the market in May. But since we still have a few weeks to wait, let's take a moment to look at the tech IPOs of the past 2 years in order to get a realistic view of possible performance.
Most IPOs, especially tech IPOs, do not have a stable earnings stream, and their incredible growth stories are sold to the unsuspecting public.
The surest way to see if the IPO might be a dud is to find out how the initial investors will do with their new riches. Many tech firms are funded by venture capitalists, and you better believe that VCs will hold on to their share of the company if it actually believes that the company is worth more than what the general market is paying for it.
This does happen sometimes, but most of the times it does not. IPOs go through the roof on the first day, and then everyone bails out. It is just the nature of the business - which is why some people are arguing that social media companies are the new tech bubble.
Everyone likes fads
An all-out IPO strategy for an investor is rarely a wise wealth building strategy. Ironically, many investors seem to know this, but it all seems to get forgotten. LIke the new fluorescent-colored athletic shoes, everyone seems to like a new fad. And everyone loves a fast-moving stock.
I looked through a few previous tech IPOs and their performances. The results were surprising to even to me. The IPOs did even more poorly than I anticipated. Only 4 of the 10 IPOs have yielded absolute positive returns since their debut. A full 9 out of 10 of them have underperformed the Nasdaq with only Zynga (ZNGA) - and Zynga is still highly dependent on Facebook - outperforming by a tiny 0.3%, as shown below.
We can also see that the IPO performance is loosely impacted by the price level, which I have shown as a Price to Sales/Revenues ratio in the year of the IPO. (The purpose of using P/S is simply because most of these companies did not generate any earnings in the year of they had an IPO, which renders P/E meaningless.) It is also important to note that the performance of the S&P and the Nasdaq were positive during all the different periods that we calculated, which shows that the general market investor sentiment was not negative, which could have affected the perception towards risky tech IPOs
We do not see a pure relationship between valuation (P/S) and post-IPO returns, but we can see that companies like HomeAway (AWAY), Renren (RENN) and Pandora (P) Media with extremely high valuations have performed terribly with losses of 59%, 79%, and 73%, respectively, since their initial IPOs. Groupon (GRPN) did a bit better, but the problems with Groupon's business strategy are well-known.
The best performer has been Zynga, with a relatively low valuation of P/S of 2.2. Facebook is expected to be valued around $100 bn at its IPO, (although Facebook may not be worth as much as some people think.) Given that Facebook's revenues were $3.7 bn in 2011, this would value the company at around a P/S of 27 and P/E of 100, pretty expensive, and on the upper scale of the companies noted above.
But like LinkedIn (LNKD) - and LinkedIn may already may be too expensive - Facebook might be able to maintain its extremely high valuation as long as it can grow its user base simply because of the Network Effect, which means that the value of a product, like a network or community, increases with the number of users. This will at least maintain the high valuations, at least for a while.
So a final word on tech IPOs, they tend to very expensive and unproven business models. Facebook has a more solid business model, as it generated solid growing earnings of $1 bn in 2011. Question is, is its potential growth worth the $100 bn sticker price? Probably not, and even though most people will know this, many will depend on the greater fool theory to make money, as long as they are not the greatest fool.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Wednesday, April 18, 2012
Facebook's Ad Business Booms Before IPO
While Google’s (GOOG) advertising cost per click fell 6% since Q4 2011, Facebook (FB) keeps commanding higher prices from advertisers with CPC up 23% in key markets during same period according to a study of the last full quarter before the social network is expected to go public. It seems the shift to mobile where users are harder to monetize hasn’t phased Facebook’s ad rates yet, which could make its stock very appealing come IPO day. Ads tool developer TBG Digital saw the average cost per thousand impressions (CPM) of the ads it runs on Facebook increase 15% over Q4 2011 and a whopping 41% over Q1 2011 in key markets.
The contrast between the performance of Facebook and Google’s rates could lead analysts to see Mark Zuckerberg’s company and its highly targeted, friend-infused ads as critical to the future of online marketing. And while Facebook only began showing ads on mobile at the start of March, its Sponsored Stories format could fit better on small screens than the traditional display and search ads Google relies on.
Looking year over year, some of Facebook’s numbers are even stronger. CPM climbed from $0.21 to $0.296 on average across the U.S., UK, Canada, France, and Germany over Q1 2011. Since Q4 2011, CPM rose 11% in the U.S. and 13% in the UK, indicating its most important markets are still strong. Meanwhile, Facebook has managed to boost CPC 35% in France and 20% in the U.S., with average U.S. CPC up 34% since Q1 2011.
While Google’s numbers are across all markets and Facebook’s are just from one ad platform, TBG Digital, and are just for its five biggest markets, year over year Facebook’s CPC went up 28% while Google’s went down 12%. Now since Facebook has only begun to monetize mobile, lower prices there aren’t reducing its overall CPC as harshly as Google’s more established mobile ads business is being hit.
One negative finding of TBG’s study was that ad click through rates on Facebook are down an average of 8% in the U.S. and 6% across its five top territories. It’s not as bad as it sounds, though, as a year ago there were only four ads per page but now as many as seven can appear. This means attention from clickers is spread more thinly. Facebook needs to balance making ads prominent enough to secure clicks without trampling its user experience.
Other findings include that the click through rate of ads for Facebook news reader apps like The Guardian and Yahoo News increased 194% since Q4 2011.This shows that Facebook’s open graph reader apps that auto-publish news feed stories about what their users read are driving so much referral traffic and are enjoyed enough that news outlets are willing to pay to attain installs much the way social games have for years. Finally, competition for brand Page fans is getting tougher, allowing Facebook to increase the cost per fan through ads for Pages by 43% over Q1 2011.
TBG Digital conducted the study on 372 million ad impressions in 190 countries for 235 of its clients across verticals since Q1 2011. The findings have been verified by the University of Cambridge Psychometrics Centre. Facebook has the power to manipulate its ad rates, so as it prepares to IPO it could be increasing them beyond what’s dictated by supply and demand to make more money and appear more attractive. Also, TBG’s data does not indicate Facebook’s ad performance across the long-tail of international markets, which aren’t necessarily faring as well.
Still, the fact that it can sustain higher rates with more users and more ads per page is a sign of health for Facebook’s primary revenue stream. We’re hearing that most brands are now dedicating significant spend to Facebook marketing, while they’re still hesitant about Twitter, Google+, and other social networks. If Facebook can convince investors of this, $100 billion could look like a low-ball valuation the day after it hits the NASDAQ.
The contrast between the performance of Facebook and Google’s rates could lead analysts to see Mark Zuckerberg’s company and its highly targeted, friend-infused ads as critical to the future of online marketing. And while Facebook only began showing ads on mobile at the start of March, its Sponsored Stories format could fit better on small screens than the traditional display and search ads Google relies on.
Looking year over year, some of Facebook’s numbers are even stronger. CPM climbed from $0.21 to $0.296 on average across the U.S., UK, Canada, France, and Germany over Q1 2011. Since Q4 2011, CPM rose 11% in the U.S. and 13% in the UK, indicating its most important markets are still strong. Meanwhile, Facebook has managed to boost CPC 35% in France and 20% in the U.S., with average U.S. CPC up 34% since Q1 2011.
While Google’s numbers are across all markets and Facebook’s are just from one ad platform, TBG Digital, and are just for its five biggest markets, year over year Facebook’s CPC went up 28% while Google’s went down 12%. Now since Facebook has only begun to monetize mobile, lower prices there aren’t reducing its overall CPC as harshly as Google’s more established mobile ads business is being hit.
One negative finding of TBG’s study was that ad click through rates on Facebook are down an average of 8% in the U.S. and 6% across its five top territories. It’s not as bad as it sounds, though, as a year ago there were only four ads per page but now as many as seven can appear. This means attention from clickers is spread more thinly. Facebook needs to balance making ads prominent enough to secure clicks without trampling its user experience.
Other findings include that the click through rate of ads for Facebook news reader apps like The Guardian and Yahoo News increased 194% since Q4 2011.This shows that Facebook’s open graph reader apps that auto-publish news feed stories about what their users read are driving so much referral traffic and are enjoyed enough that news outlets are willing to pay to attain installs much the way social games have for years. Finally, competition for brand Page fans is getting tougher, allowing Facebook to increase the cost per fan through ads for Pages by 43% over Q1 2011.
TBG Digital conducted the study on 372 million ad impressions in 190 countries for 235 of its clients across verticals since Q1 2011. The findings have been verified by the University of Cambridge Psychometrics Centre. Facebook has the power to manipulate its ad rates, so as it prepares to IPO it could be increasing them beyond what’s dictated by supply and demand to make more money and appear more attractive. Also, TBG’s data does not indicate Facebook’s ad performance across the long-tail of international markets, which aren’t necessarily faring as well.
Still, the fact that it can sustain higher rates with more users and more ads per page is a sign of health for Facebook’s primary revenue stream. We’re hearing that most brands are now dedicating significant spend to Facebook marketing, while they’re still hesitant about Twitter, Google+, and other social networks. If Facebook can convince investors of this, $100 billion could look like a low-ball valuation the day after it hits the NASDAQ.
Facebook Will Eventually Crush LinkedIn: Why This Is Just The Beginning
By now the headlines ending in "Instagram" are starting to finally dwindle down. Facebook (FB) had finally given the bloggers and media something to get excited about when they scooped up the mobile photo-sharing app, Instagram, only weeks before they head out on an IPO roadshow in what looks to be the most anticipated IPO … well, ever. No company has ever had a more extensive reach at the time of their public offering than Facebook. The crown jewel of Web2.0 is marching down Wall Street with nearly a billion users in its shadow. It's implied market cap when it goes public? (Insert Doctor Evil Voice) One Hundred Billion Dollars.
The pundits say it's a sure sign of a market top. The market cap is unjustified by both their revenue and earnings. The multiples are simply too rich. Their growth is unsustainable. No one is clicking those damn advertisements! The bears make many compelling points, and very well they may end up being right. However, I believe many of these analyses are being made under the assumption that Facebook is a social network, and in the future it will make all of its money solely on advertising and collecting some of Zynga's scraps. I would like to take a different approach. An investment is a stake in a company's future cash flows, and in order to fully understand the potential of Facebook's future value, we must assess and identify future value drivers that the company can capitalize on. When you look at the "Big 3" tech titans: Apple (AAPL), Microsoft (MSFT), and Google (GOOG) they all shared the ability to innovate and expand on the business models they had when they went public. Thanks to the emergence of venture capital and the popularity of second market exchanges, Facebook has been able to wait much longer than the others before it went public. Thus, at the time it goes public, Facebook will have been a much larger company and under far more scrutiny than any of it's innovative ancestors. For it's implied market cap based on the current financials, it's hard for some to justify the valuation. If from here on out, Facebook's only source of revenue and income will be derived from those little advertisements on the side of the page, I would agree with this sentiment. However, I believe there exists a high probability this will not be the case and this article is the first of a series of many, on what value drivers Facebook will look to exploit as it moves past the advertising revenue model and into the next level of the web.
I must admit, I was only a wee lad when the Dot Com bubble had struck Wall Street back in 1999 and 2000. Thus, my approach in this analysis may seem just as hopeful and naïve as the speculators back then. The horror stories are well documented. However, my take on situation is that back then, the Internet was the Wild West, retail investors were the gold speculators, and the banks and brokers were the guys selling the picks and pans. Things got a little out of control. Can you blame them? The giddiness and excitement over these new companies was still spilling over from back when only a few years prior, Americans were just finding out that the Internet even existed. (Hint: It's not a computer billboard) On behalf of many of those dot com companies, the good intentions were there; they wanted to be successful, but their business models were undeveloped and the firms had yet to really figure out how to make money using this new technology. Even today, web and technology companies are still learning how to extract value out of their business models. Coupons have been around for ages, the Internet has been around for decades, and it was only until recent that a company (GRPN) figured out how to put the two together. (The same cannot be said for their income statement, however.) Yet, we have made great strides in the last ten years and the future is bright. There are a slew of macro trends that support the belief that over the next ten years, the amount of money to be made online will be a great deal higher than the last ten. The question is who will monetize these trends and benefit most from the future growth within the industry? Looking at Facebook today, we see a company that in less than one decade, has grown from a social network for college students into a company that is approaching 800 million users and trying to build the foundation for the next level of the web. Can they fail? Of course they can. Do I expect them to? But not before they go for the throats, and by that I mean market share, of nearly all their competitors.
The first on this list, and perhaps the easiest for Facebook to pick off, would be LinkedIn (LNKD). It makes sense for Facebook, as it would be a valuable first step towards what I think is one of their major long-term goals, which is to make a major move into the enterprise market. If you are looking at the potential to unlock value, corporations and businesses have much deeper pockets than individual consumers do, even if that consumer base is a very large one. By making a noted effort to go after LinkedIn's market share, Zuckerburg and company will begin the first of many steps towards building long-term relationships with businesses as well as their future employees. In addition to opening the door to the enterprise, the online jobs classified market has a great deal of earnings potential on its own. LinkedIn grossed roughly $500 million last year. Monster World Wide (MWW) pulled in a billion. Mark Mahaney of Citigroup has estimated the online jobs recruitment market to be a $3 billion a year industry. This is peanuts in Facebook terms, but I believe it is a market they could conquer with some level of ease and would be another step towards their long-term goal, which I believe is to establish the next level of interaction and experience within the Internet. Taking LNKD out to the woodshed is not some crazy, lucid thesis. They have been slowly sneaking into the jobs market for some time now. This little blurb of news went under the radar last fall, maybe because the European sovereign debt crisis was full blown at the time and news outlets had better things to talk about, but partnering with the US Department of Labor to "create a central location for employment services for Facebook users" is a pretty major event! I guess being Obama's right hand man has some perks. My favorite part of the Department of Labor article was that LinkedIn "doesn't see it as a competitive threat". I believe that outlook, in addition to being outright pompous, will be one that ultimately leads to LinkedIn's untimely demise. The numbers seem to agree with this sentiment and tell a story far more compelling than my opinion ever could.
The infographic below, posted on late last year by MBAOnline.com, shows some surprising results when looking at who is currently winning the social media "jobs" race:
From this brief overview, it seems that thus far, Facebook is beating LinkedIn at its very own game. The partnership with the DoL came at the end of last year, so these numbers are most likely unaffected by that catalyst. This suggests an even stronger year for FB in this segment as that relationship begins to play itself out. This once again shows Facebook's ability to leverage its economies of scale, and just how many connections there are to be made when your network population is comprised of nearly a billion people. Nearly twice as many people claim they found a job on Facebook versus LinkedIn. Is that number (18.4m) a smaller percentage of their user base in relation to those (10.2m) who claim they found a job on LinkedIn? Yes, but that should be expected! Jobs are supposed to be LNKD's bread and butter!
Up until now this has been nothing more than a side project for Facebook, who will undoubtedly look to explore new potential revenue streams now that they are a public company looking to please an investor base with already sky-high expectations. Its not just the number of successful job pairings that make such a strong case for Facebook here, they are superior in nearly every other metric: When it came to using the site to look for a job, 50% of "job hunters" headed to Facebook as opposed to 26% for LinkedIn and 25% for Twitter. Of that same demographic, 20% had professional information in their profile as opposed to 15% for LinkedIn. They even boasted a higher success rate in those who received a job referral: 16% for Facebook and only 9% for LinkedIn. The study also sheds some light onto the potential that still exists for a social network to steal market from other traditional methods of employment search. In 2011, 16% of employees claimed they found their job through a social network. This is up from 11% in 2010, and there is no reason to believe that Facebook could not steal another large chunk away from 'Newspaper' (30%) and 'Internet Job Board' (30%) once they begin to make a concerted effort to penetrate this market and go directly head to head with LinkedIn. The collaboration with the US Department of Labor is a positive step in the right direction. I am guessing we will see similar partnerships and collective synergies in the near future.
I see Glassdoor.com as a potential target that Facebook might be able to bring aboard (for the right price) and immediately bolster their ammunition. Glassdoor already uses the Facebook Plug-In, which allows users to log in with their Facebook accounts and grants users access to reviews of companies, salary ranges, and various pros and cons of employment at each company, strait from the mouth of the (anonymous) employees. It makes sense on a number of levels and would fit in perfectly with Facebook's love of "big data". Even if they did not make any notable acquisitions within this space, they are already in the position to send LinkedIn to the wayside just as they did with Myspace. (Ohhhh, social media burn!) At this point it's only a matter of how, not when, Facebook will make their move. If Jeff Weiner and the rest of his team at LNKD continue look at Facebook as a "non-threat", I have a hard time seeing his company survive the next wave of "cuts" set to hit the industry. Zuckerburg is setting himself up to join the likes of Jobs, Gates, and Page on the varsity team, while LinkedIn looks like its ready to ride the pine.
As noted earlier, this analysis is the first in a series of articles in which I explore Facebook's potential to move into various industries and build upon their current business model. This includes, but is not limited to: their march into the enterprise space, e-commerce, and their ability to combine search with content discovery.
The pundits say it's a sure sign of a market top. The market cap is unjustified by both their revenue and earnings. The multiples are simply too rich. Their growth is unsustainable. No one is clicking those damn advertisements! The bears make many compelling points, and very well they may end up being right. However, I believe many of these analyses are being made under the assumption that Facebook is a social network, and in the future it will make all of its money solely on advertising and collecting some of Zynga's scraps. I would like to take a different approach. An investment is a stake in a company's future cash flows, and in order to fully understand the potential of Facebook's future value, we must assess and identify future value drivers that the company can capitalize on. When you look at the "Big 3" tech titans: Apple (AAPL), Microsoft (MSFT), and Google (GOOG) they all shared the ability to innovate and expand on the business models they had when they went public. Thanks to the emergence of venture capital and the popularity of second market exchanges, Facebook has been able to wait much longer than the others before it went public. Thus, at the time it goes public, Facebook will have been a much larger company and under far more scrutiny than any of it's innovative ancestors. For it's implied market cap based on the current financials, it's hard for some to justify the valuation. If from here on out, Facebook's only source of revenue and income will be derived from those little advertisements on the side of the page, I would agree with this sentiment. However, I believe there exists a high probability this will not be the case and this article is the first of a series of many, on what value drivers Facebook will look to exploit as it moves past the advertising revenue model and into the next level of the web.
I must admit, I was only a wee lad when the Dot Com bubble had struck Wall Street back in 1999 and 2000. Thus, my approach in this analysis may seem just as hopeful and naïve as the speculators back then. The horror stories are well documented. However, my take on situation is that back then, the Internet was the Wild West, retail investors were the gold speculators, and the banks and brokers were the guys selling the picks and pans. Things got a little out of control. Can you blame them? The giddiness and excitement over these new companies was still spilling over from back when only a few years prior, Americans were just finding out that the Internet even existed. (Hint: It's not a computer billboard) On behalf of many of those dot com companies, the good intentions were there; they wanted to be successful, but their business models were undeveloped and the firms had yet to really figure out how to make money using this new technology. Even today, web and technology companies are still learning how to extract value out of their business models. Coupons have been around for ages, the Internet has been around for decades, and it was only until recent that a company (GRPN) figured out how to put the two together. (The same cannot be said for their income statement, however.) Yet, we have made great strides in the last ten years and the future is bright. There are a slew of macro trends that support the belief that over the next ten years, the amount of money to be made online will be a great deal higher than the last ten. The question is who will monetize these trends and benefit most from the future growth within the industry? Looking at Facebook today, we see a company that in less than one decade, has grown from a social network for college students into a company that is approaching 800 million users and trying to build the foundation for the next level of the web. Can they fail? Of course they can. Do I expect them to? But not before they go for the throats, and by that I mean market share, of nearly all their competitors.
The first on this list, and perhaps the easiest for Facebook to pick off, would be LinkedIn (LNKD). It makes sense for Facebook, as it would be a valuable first step towards what I think is one of their major long-term goals, which is to make a major move into the enterprise market. If you are looking at the potential to unlock value, corporations and businesses have much deeper pockets than individual consumers do, even if that consumer base is a very large one. By making a noted effort to go after LinkedIn's market share, Zuckerburg and company will begin the first of many steps towards building long-term relationships with businesses as well as their future employees. In addition to opening the door to the enterprise, the online jobs classified market has a great deal of earnings potential on its own. LinkedIn grossed roughly $500 million last year. Monster World Wide (MWW) pulled in a billion. Mark Mahaney of Citigroup has estimated the online jobs recruitment market to be a $3 billion a year industry. This is peanuts in Facebook terms, but I believe it is a market they could conquer with some level of ease and would be another step towards their long-term goal, which I believe is to establish the next level of interaction and experience within the Internet. Taking LNKD out to the woodshed is not some crazy, lucid thesis. They have been slowly sneaking into the jobs market for some time now. This little blurb of news went under the radar last fall, maybe because the European sovereign debt crisis was full blown at the time and news outlets had better things to talk about, but partnering with the US Department of Labor to "create a central location for employment services for Facebook users" is a pretty major event! I guess being Obama's right hand man has some perks. My favorite part of the Department of Labor article was that LinkedIn "doesn't see it as a competitive threat". I believe that outlook, in addition to being outright pompous, will be one that ultimately leads to LinkedIn's untimely demise. The numbers seem to agree with this sentiment and tell a story far more compelling than my opinion ever could.
The infographic below, posted on late last year by MBAOnline.com, shows some surprising results when looking at who is currently winning the social media "jobs" race:
From this brief overview, it seems that thus far, Facebook is beating LinkedIn at its very own game. The partnership with the DoL came at the end of last year, so these numbers are most likely unaffected by that catalyst. This suggests an even stronger year for FB in this segment as that relationship begins to play itself out. This once again shows Facebook's ability to leverage its economies of scale, and just how many connections there are to be made when your network population is comprised of nearly a billion people. Nearly twice as many people claim they found a job on Facebook versus LinkedIn. Is that number (18.4m) a smaller percentage of their user base in relation to those (10.2m) who claim they found a job on LinkedIn? Yes, but that should be expected! Jobs are supposed to be LNKD's bread and butter!
Up until now this has been nothing more than a side project for Facebook, who will undoubtedly look to explore new potential revenue streams now that they are a public company looking to please an investor base with already sky-high expectations. Its not just the number of successful job pairings that make such a strong case for Facebook here, they are superior in nearly every other metric: When it came to using the site to look for a job, 50% of "job hunters" headed to Facebook as opposed to 26% for LinkedIn and 25% for Twitter. Of that same demographic, 20% had professional information in their profile as opposed to 15% for LinkedIn. They even boasted a higher success rate in those who received a job referral: 16% for Facebook and only 9% for LinkedIn. The study also sheds some light onto the potential that still exists for a social network to steal market from other traditional methods of employment search. In 2011, 16% of employees claimed they found their job through a social network. This is up from 11% in 2010, and there is no reason to believe that Facebook could not steal another large chunk away from 'Newspaper' (30%) and 'Internet Job Board' (30%) once they begin to make a concerted effort to penetrate this market and go directly head to head with LinkedIn. The collaboration with the US Department of Labor is a positive step in the right direction. I am guessing we will see similar partnerships and collective synergies in the near future.
I see Glassdoor.com as a potential target that Facebook might be able to bring aboard (for the right price) and immediately bolster their ammunition. Glassdoor already uses the Facebook Plug-In, which allows users to log in with their Facebook accounts and grants users access to reviews of companies, salary ranges, and various pros and cons of employment at each company, strait from the mouth of the (anonymous) employees. It makes sense on a number of levels and would fit in perfectly with Facebook's love of "big data". Even if they did not make any notable acquisitions within this space, they are already in the position to send LinkedIn to the wayside just as they did with Myspace. (Ohhhh, social media burn!) At this point it's only a matter of how, not when, Facebook will make their move. If Jeff Weiner and the rest of his team at LNKD continue look at Facebook as a "non-threat", I have a hard time seeing his company survive the next wave of "cuts" set to hit the industry. Zuckerburg is setting himself up to join the likes of Jobs, Gates, and Page on the varsity team, while LinkedIn looks like its ready to ride the pine.
As noted earlier, this analysis is the first in a series of articles in which I explore Facebook's potential to move into various industries and build upon their current business model. This includes, but is not limited to: their march into the enterprise space, e-commerce, and their ability to combine search with content discovery.
Funds That Own Facebook Stock
It is now much harder for the wealthy to buy shares of Facebook (FB) in private transactions. SharesPost, one of the leading marketplaces for non-publicly traded companies, just announced that the company "will cease facilitating transactions in Facebook stock as of Friday end of day to help ensure the company's orderly transition into the public markets." This was done at the request of Facebook.
Yet, investors both big and small still have an opportunity to acquire shares indirectly, by buying stock in funds that own shares of Facebook. The options are mutual funds, which are priced once a day based on the net asset value, or closed end funds, which trade on exchanges all day long just like a regular stock.
WallStreetNewsNetwork.com has turned up two closed-end funds that own shares of Facebook, on its free list of Facebook Stocks. One of the CEFs is GSV Capital (GSVC), which specializes in investing in venture capital backed private companies. The company name comes from Global Silicon Valley Capital. It owns a fairly diverse portfolio of innovative businesses, such as Bloom Energy, Dropbox, TrueCar, Twitter, and even SharesPost. It also owns a couple companies that have recently gone public, including Zynga (ZNGA) and Groupon (GRPN).
But most important, according to the company's fourth quarter Schedule of Investments as of December 31, 2011, there are 350,000 Class B common shares on the books at a cost of $10,465,981. The holdings represent 14.63% of the company's portfolio.
In the last three months, the GSV share price has risen from around 14 per share to 20 currently, an increase of 42%. Yes GSV has yet moved as much as another CEF that owns Facebook, the Firsthand Technology Value Fund (SVVC - previously), which has increased in price from less than 15 per share to almost 37, a boost of 60%. It actually traded above 40 a few days ago, but had a pullback.
In terms of mutual funds that own Facebook stock, the T. Rowe Price Media & Telecommunications Fund (PRMTX) has approximately 1.2% of its portfolio in Facebook shares, a fairly small percentage compared to the closed-end funds.
To see a list of over 25 of the companies that own Facebook stock, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and updated.
Yet, investors both big and small still have an opportunity to acquire shares indirectly, by buying stock in funds that own shares of Facebook. The options are mutual funds, which are priced once a day based on the net asset value, or closed end funds, which trade on exchanges all day long just like a regular stock.
WallStreetNewsNetwork.com has turned up two closed-end funds that own shares of Facebook, on its free list of Facebook Stocks. One of the CEFs is GSV Capital (GSVC), which specializes in investing in venture capital backed private companies. The company name comes from Global Silicon Valley Capital. It owns a fairly diverse portfolio of innovative businesses, such as Bloom Energy, Dropbox, TrueCar, Twitter, and even SharesPost. It also owns a couple companies that have recently gone public, including Zynga (ZNGA) and Groupon (GRPN).
But most important, according to the company's fourth quarter Schedule of Investments as of December 31, 2011, there are 350,000 Class B common shares on the books at a cost of $10,465,981. The holdings represent 14.63% of the company's portfolio.
In the last three months, the GSV share price has risen from around 14 per share to 20 currently, an increase of 42%. Yes GSV has yet moved as much as another CEF that owns Facebook, the Firsthand Technology Value Fund (SVVC - previously), which has increased in price from less than 15 per share to almost 37, a boost of 60%. It actually traded above 40 a few days ago, but had a pullback.
In terms of mutual funds that own Facebook stock, the T. Rowe Price Media & Telecommunications Fund (PRMTX) has approximately 1.2% of its portfolio in Facebook shares, a fairly small percentage compared to the closed-end funds.
To see a list of over 25 of the companies that own Facebook stock, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and updated.
Facebook's $100 Billion Valuation Could Be Cheap If This Change Happens
In order to assess how social media platforms can make money, I highlight advertising, gaming, commerce and apps. With advertising likely to be the biggest contributor to the revenues of social media platforms, I illustrate the nature of hypertargeted advertising, and argue that this means social media -- particularly Facebook (FB) -- could take a much bigger share of total adspend over the next five years. I forecast that social media advertising could reach $38bn by 2017, commanding a 6% share of total advertising spend.
The reality is that social media remains very much in the early stages from a monetisation standpoint. I believe that most social media platforms are, for now, primarily focused on building a large, engaged use-i.e., they are in land grab mode. In fact, Facebook in its S-1 file described that "most advertisers are still learning with the best ways to leverage Facebook to create more valuable ads".
Why? Although barriers to entry are low and switching costs moderate, I believe there are benefits from scale and positive network effects. First, as Metcalfe's law states, the value of a network grows in proportion to the number of connected users. The classic example is the telephone system: if there was only one user of a telephone system, the network is largely useless. However, as the number of users rise, the value of the network similarly grows and becomes self-reinforcing.
Second, for social networks specifically, a larger user base drives other benefits including more user data, which can be utilized to increase engagement. Additionally, in the case of social networks with APIs, a larger user base attracts more third-party developers to create applications, which can also grow engagement and generate more user data. Lots of users and high engagement create opportunities to produce revenues.
Greater revenues, in turn, allow the platform to invest more in new features which can enhance the number of users, the utility of the network, and engagement. All of this creates a virtuous cycle.
The change of print ads to online ads is a major shift that should bring huge investment opportunities and potential winners that currently appear "overvalued." According to FBstocksecrets, one recommended guide for investors interested in this trend, there are 6 Companies that could be the winners and one of them is Facebook. As this website explains, Facebook could see its value doubled if online advertising gets 8% of the whole advertising spent.
To better understand and assess the business opportunity I can draw an analogy with Microsoft's (MSFT) Windows business model. In the traditional PC environment, Microsoft's Windows operating system was the underlying, foundational platform. This platform allowed Microsoft to develop first party applications (such as Office), while other software providers created third party applications. In this case, Microsoft generates revenues from the sale of the OS and first party apps, but not from third party apps.
In contrast, social networks are free to users as are most first party applications, such as the photo, messaging, and groups applications on Facebook, which are core to the platform. But social networks can generate revenues from ancillary streams like advertising. In addition, some platforms such as Facebook can share in revenues with certain third-party application providers
Ultimately, I believe that social media platforms with scale will have multiple opportunities for monetization in a number of categories:
1. Social Gaming one of the first successful categories on social media platforms. Casual gaming is ideal for social media platforms because they can enhance virality and drive user engagement. Social media platforms will monetise this by taking a fee for distribution.
In addition, it can be an opportunity to enable payments and virtual goods. Over 53% of Facebook users play games on the platform. Zynga (ZNGA) is a big winner from this trend, with revenue up 59% YoY to $311.2M. A big part of this comes from Facebook.
2. Commerce on social media platforms will emerge as companies begin to leverage the social graph, i.e., the network of individual relationships between users of the platform. Product recommendations and the opportunity to create a one-to-one dialogue with users who have expressed a 'like' for a brand could help drive conversions. Over time, companies will increasingly sell their products and services directly through the platform. For example, Warner Bros., earlier in 2011, made Batman: The Dark Knight available for streaming on an electronic rental basis via Facebook. Amazon (AMZN) could profit from this shift because it could better understand how different consumer trends emerge and help the site better predict which products to sell. Jeff Bezos explained in a recent conference that social is a big part of Amazon future because it will be essential to maximize user experience. FBstocksecrets explains this trend very well in the chapter 'social ecommerce'.
3. Payments will become a core element of the revenue generation of social media platforms as social commerce and gaming expand on the platform. Facebook has already built a "Credits" system where 10 Facebook credits equate to $1 and these credits can be used to purchase digital goods. For each transaction with Facebook Credits, the platform receives 30%. I note that PayPal and most major credit cards are accepted funding sources for Facebook Credits.
4. Advertising is already a major source of revenue for most social media companies. A large member base combined with user data provides the opportunity for sophisticated targeting. Advertisers can target based on specific interests (explicit graph), inferred interests (implicit graph), and by geography, gender, age and other demographic information. Facebook, as one example, offers "Sponsored Stories," a form of advertising that highlights the activity of a user's friends who interacted with a brand. Twitter also offers Promoted Accounts and Promoted Tweets offerings.
5. Location services could facilitate local offers from social media players. Platforms like Foursquare are paving the way for fully integrated social platforms delivering offers, discounts, and recommendations from the social graph. This plays to one of social media's strengths, which is its strong link to mobile/smart phone usage.
6. Specialized applications and services will also likely emerge that are unique to the characteristics of a platform. A primary example of this revenue opportunity is LinkedIn (LNKD), which is targeting a subscription model for users but also an Enterprise opportunity for job postings, resume submission, and acquiring talent for enterprises.
The reality is that social media remains very much in the early stages from a monetisation standpoint. I believe that most social media platforms are, for now, primarily focused on building a large, engaged use-i.e., they are in land grab mode. In fact, Facebook in its S-1 file described that "most advertisers are still learning with the best ways to leverage Facebook to create more valuable ads".
Why? Although barriers to entry are low and switching costs moderate, I believe there are benefits from scale and positive network effects. First, as Metcalfe's law states, the value of a network grows in proportion to the number of connected users. The classic example is the telephone system: if there was only one user of a telephone system, the network is largely useless. However, as the number of users rise, the value of the network similarly grows and becomes self-reinforcing.
Second, for social networks specifically, a larger user base drives other benefits including more user data, which can be utilized to increase engagement. Additionally, in the case of social networks with APIs, a larger user base attracts more third-party developers to create applications, which can also grow engagement and generate more user data. Lots of users and high engagement create opportunities to produce revenues.
Greater revenues, in turn, allow the platform to invest more in new features which can enhance the number of users, the utility of the network, and engagement. All of this creates a virtuous cycle.
The change of print ads to online ads is a major shift that should bring huge investment opportunities and potential winners that currently appear "overvalued." According to FBstocksecrets, one recommended guide for investors interested in this trend, there are 6 Companies that could be the winners and one of them is Facebook. As this website explains, Facebook could see its value doubled if online advertising gets 8% of the whole advertising spent.
To better understand and assess the business opportunity I can draw an analogy with Microsoft's (MSFT) Windows business model. In the traditional PC environment, Microsoft's Windows operating system was the underlying, foundational platform. This platform allowed Microsoft to develop first party applications (such as Office), while other software providers created third party applications. In this case, Microsoft generates revenues from the sale of the OS and first party apps, but not from third party apps.
In contrast, social networks are free to users as are most first party applications, such as the photo, messaging, and groups applications on Facebook, which are core to the platform. But social networks can generate revenues from ancillary streams like advertising. In addition, some platforms such as Facebook can share in revenues with certain third-party application providers
Ultimately, I believe that social media platforms with scale will have multiple opportunities for monetization in a number of categories:
1. Social Gaming one of the first successful categories on social media platforms. Casual gaming is ideal for social media platforms because they can enhance virality and drive user engagement. Social media platforms will monetise this by taking a fee for distribution.
In addition, it can be an opportunity to enable payments and virtual goods. Over 53% of Facebook users play games on the platform. Zynga (ZNGA) is a big winner from this trend, with revenue up 59% YoY to $311.2M. A big part of this comes from Facebook.
2. Commerce on social media platforms will emerge as companies begin to leverage the social graph, i.e., the network of individual relationships between users of the platform. Product recommendations and the opportunity to create a one-to-one dialogue with users who have expressed a 'like' for a brand could help drive conversions. Over time, companies will increasingly sell their products and services directly through the platform. For example, Warner Bros., earlier in 2011, made Batman: The Dark Knight available for streaming on an electronic rental basis via Facebook. Amazon (AMZN) could profit from this shift because it could better understand how different consumer trends emerge and help the site better predict which products to sell. Jeff Bezos explained in a recent conference that social is a big part of Amazon future because it will be essential to maximize user experience. FBstocksecrets explains this trend very well in the chapter 'social ecommerce'.
3. Payments will become a core element of the revenue generation of social media platforms as social commerce and gaming expand on the platform. Facebook has already built a "Credits" system where 10 Facebook credits equate to $1 and these credits can be used to purchase digital goods. For each transaction with Facebook Credits, the platform receives 30%. I note that PayPal and most major credit cards are accepted funding sources for Facebook Credits.
4. Advertising is already a major source of revenue for most social media companies. A large member base combined with user data provides the opportunity for sophisticated targeting. Advertisers can target based on specific interests (explicit graph), inferred interests (implicit graph), and by geography, gender, age and other demographic information. Facebook, as one example, offers "Sponsored Stories," a form of advertising that highlights the activity of a user's friends who interacted with a brand. Twitter also offers Promoted Accounts and Promoted Tweets offerings.
5. Location services could facilitate local offers from social media players. Platforms like Foursquare are paving the way for fully integrated social platforms delivering offers, discounts, and recommendations from the social graph. This plays to one of social media's strengths, which is its strong link to mobile/smart phone usage.
6. Specialized applications and services will also likely emerge that are unique to the characteristics of a platform. A primary example of this revenue opportunity is LinkedIn (LNKD), which is targeting a subscription model for users but also an Enterprise opportunity for job postings, resume submission, and acquiring talent for enterprises.
Sunday, April 15, 2012
Facebook IPO Could Stand in the Way of Sell-in-May
Facebook's blockbuster initial public offering could be coming at just the right time for markets — when investors are preparing for the seemingly annual ritual to sell in May and go away.
Stocks have been volatile but ultimately have gone nowhere in the past month, following a strong rally off the October lows.
With investor complacency setting in and the time seemingly perfect to book gains and get ready for vacation, the Facebook IPO is considered a primary hope to keep the market from slipping into summer slumber.
"Clearly, it's going to be the biggest IPO in a while, and one of the knocks on this market has been the lack of IPOs," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "It all comes down to a lack of trust and lack of confidence in the market, even though we've had a pretty good rally."
Since the Dow industrials broke through the 13,000 barrier in early March, the market has posted a modest loss as investors have looked for a new catalyst to spur buying.
At the same time, the climate for new offerings has been tepid.
There have been 60 IPOs offered in the US, totaling just shy of $10 billion so far in 2012. That's 12 fewer total deals and a staggering 67 percent drop in total value from the $30.4 billion posted for the same period in 2011, according to Dealogic. Globally, the decline has been comparable.
One bright spot, though, is that technology deals are on par with 2011, giving hope that the sector can provide a rising tide.
"The Facebook IPO potentially could open the door to other IPOs and some more confidence toward the stock market," Detrick says. "In the bigger picture it would be nice to talk about some positives after all the negatives."
The offering is expected to launch in May, generate up to $10 billion and reflect a valuation for the 8-year-old company in the $100 billion range.
Should Facebook meet those gaudy metrics it would be hard to imagine it not boosting the market, particularly the Nasdaq [COMP 3011.33 -44.22 (-1.45%) ] tech gauge where it will be listed. Tech stocks have led the market this year, with the sector up nearly 21 percent on the Standard & Poor's 500 [.SPX 1370.26 -17.31 (-1.25%) ] heading into Friday trading.
"This offers hope that we're going to see more IPOs, especially in social networking. Obviously, investors will be looking beyond Facebook," says Peter Cardillo, chief economic strategist at Rockwell Global Capital in New York. "An increase in IPOs suggests that corporate America is confident in the economic expansion."
To be sure, some worry that the Facebook move may not signal merely a pinnacle in the space's progress but also a top in a potential social networking bubble that ultimately could weigh on the market.
"In hindsight people might look back and say once Facebook became public it was more of an identification of all the social media companies that have come out and are trading at incredible multiples," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "There's a frothiness to the social media side that is going to have its comeuppance soon."
Indeed, LinkedIn — a kind of Facebook for professionals — has seen its shares soar 75 percent just since December, and the company is trading at nearly 900 times earnings. Zynga and Groupon have turned in performances far less stellar.
"One would expect that (the IPO) would be done smartly, efficiently and the IPO itself will go OK," says Rick Bensignor, chief market strategist at Merlin Securities in New York. "Whether that becomes the catalyst for a significantly higher market move, I would tend to think less so — that it becomes the catalyst for where the market would peak."
The IPO's timing, CNBC reported earlier this week, likely will be dependent on the Securities and Exchange Commission's review of the company's $1 billion bid for Instagram, an upstart company with virtually no revenue that developed a photo-sharing application for users.
Once that hurdle is cleared, the market can get ready for what likely will be the largest offering Wall Street has ever seen.
"Hopefully this will get people excited about the market," says Detrick, of Schaeffer's Investment Research. "There's a lot of concern about a selloff in May. That could be the time frame that saves us."
Stocks have been volatile but ultimately have gone nowhere in the past month, following a strong rally off the October lows.
With investor complacency setting in and the time seemingly perfect to book gains and get ready for vacation, the Facebook IPO is considered a primary hope to keep the market from slipping into summer slumber.
"Clearly, it's going to be the biggest IPO in a while, and one of the knocks on this market has been the lack of IPOs," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "It all comes down to a lack of trust and lack of confidence in the market, even though we've had a pretty good rally."
Since the Dow industrials broke through the 13,000 barrier in early March, the market has posted a modest loss as investors have looked for a new catalyst to spur buying.
At the same time, the climate for new offerings has been tepid.
There have been 60 IPOs offered in the US, totaling just shy of $10 billion so far in 2012. That's 12 fewer total deals and a staggering 67 percent drop in total value from the $30.4 billion posted for the same period in 2011, according to Dealogic. Globally, the decline has been comparable.
One bright spot, though, is that technology deals are on par with 2011, giving hope that the sector can provide a rising tide.
"The Facebook IPO potentially could open the door to other IPOs and some more confidence toward the stock market," Detrick says. "In the bigger picture it would be nice to talk about some positives after all the negatives."
The offering is expected to launch in May, generate up to $10 billion and reflect a valuation for the 8-year-old company in the $100 billion range.
Should Facebook meet those gaudy metrics it would be hard to imagine it not boosting the market, particularly the Nasdaq [COMP 3011.33 -44.22 (-1.45%) ] tech gauge where it will be listed. Tech stocks have led the market this year, with the sector up nearly 21 percent on the Standard & Poor's 500 [.SPX 1370.26 -17.31 (-1.25%) ] heading into Friday trading.
"This offers hope that we're going to see more IPOs, especially in social networking. Obviously, investors will be looking beyond Facebook," says Peter Cardillo, chief economic strategist at Rockwell Global Capital in New York. "An increase in IPOs suggests that corporate America is confident in the economic expansion."
To be sure, some worry that the Facebook move may not signal merely a pinnacle in the space's progress but also a top in a potential social networking bubble that ultimately could weigh on the market.
"In hindsight people might look back and say once Facebook became public it was more of an identification of all the social media companies that have come out and are trading at incredible multiples," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "There's a frothiness to the social media side that is going to have its comeuppance soon."
Indeed, LinkedIn — a kind of Facebook for professionals — has seen its shares soar 75 percent just since December, and the company is trading at nearly 900 times earnings. Zynga and Groupon have turned in performances far less stellar.
"One would expect that (the IPO) would be done smartly, efficiently and the IPO itself will go OK," says Rick Bensignor, chief market strategist at Merlin Securities in New York. "Whether that becomes the catalyst for a significantly higher market move, I would tend to think less so — that it becomes the catalyst for where the market would peak."
The IPO's timing, CNBC reported earlier this week, likely will be dependent on the Securities and Exchange Commission's review of the company's $1 billion bid for Instagram, an upstart company with virtually no revenue that developed a photo-sharing application for users.
Once that hurdle is cleared, the market can get ready for what likely will be the largest offering Wall Street has ever seen.
"Hopefully this will get people excited about the market," says Detrick, of Schaeffer's Investment Research. "There's a lot of concern about a selloff in May. That could be the time frame that saves us."
Facebook IPO: Bubble or Bargain? Success Hinges on Mobile, TV
Job growth and social change are at the core of Facebook’s impending IPO. It’s a heart-warming thought coming from Sheryl Sandberg, Facebook’s COO, over the weekend. In today’s market, IPOs in any industry are questioned as sound investments, and the mere mention of Facebook’s IPO will set off a flurry of discussions and comparisons. While Facebook has set the bar for IPO expectations in the social tech scene, others like Groupon have had a tough time maintaining clout after launching an IPO for fund-raising. For Facebook, a focus on their business model, namely their verticals for future growth, will determine the success of their highly anticipated public offering.
With rumors of an IPO coming as early as this week, Facebook is, for once, making headlines for something other than mandatory profile updates and privacy concerns. While there’s fear an IPO could ruin Facebook’s “startup” appeal and slow down innovation, an initial public offering could raise enough capital for Facebook to more aggressively grow its verticals. Two areas of importance for Facebook moving forward include mobile and social television. It’s part of a larger “connected device” trend that’s delivering content through more channels, and as this space expands, Facebook will need to monetize the social aspects of these channels as well.
Facebook Mobile
Facebook’s mobile strategy has been pretty limited to apps so far, favoring iOS in terms of launch schedules and feature updates. And Facebook’s actual apps center around social interaction and accessing account information, doing little to extend their platform’s ecosystem for Facebook apps, particularly games. This is where Facebook will really need to build out its ecosystem if it hopes to gain ground in the mobile sector, where Google, Apple and even Microsoft are already ahead.
Looking at the latest rumors, Facebook’s plans for mobile include a handset of its own. This isn’t likely the way to win in the mobile arena–there’s enough devices on the market, and plenty of competing operating systems. Even Android is diversifying across niche devices like the Kindle Fire, which has a stripped down version of Google’s mobile OS, adding to the fragmentation woes that plague developers, retailers, carriers and consumers alike.
What Facebook needs is a solid mobile extension of its own platform, that will enable better points of integration for the companies building apps for Facebook’s site and/or mobile marketplaces. Sure, you can tap Facebook contacts for a round of Words with Friends, but this is still a segmented initiative on the part of the game publisher. Unifying a web and mobile presence will be a key software development for Facebook moving forward.
We’re already seeing the necessity of this with Zynga, which is making its appeal to mobile gamers and forced to leave Facebook behind in the process. Increasing gamers on tablets and smartphones in today’s market means diversifying away from the very platform that brought Zynga to the point of success to launch its own IPO, especially with Facebook imposing a 30 percent tax on revenue made on its website. In order to retain the value of its ecosystem, Facebook will have to support the mobile transition for its developer community, and possibly better incorporate its offerings with the mobile market mainstays, like Android and iOS.
Facebook already has a budding relationship with Microsoft, one of its high profile investors, which has already integrated Facbook’s social graph into its search results and facilitated deals like Skype’s video calls on the network. As Microsoft continues to layer up its own platform, tying efforts with Windows 8, Windows Phone and Xbox, Facebook could make room for an easier transition on this front.
Facebook on TV
Facebook is a term associated with nearly all things social, whether online or off. The worldwide network has set national revolutions in motion, held firm as a platform for religious and political debate and enabled a new sense of globalization as far as culture and access are concerned. So when we think of TV’s future as being a social one, it’s hard to avert a discussion about Facebook as well. But even more than mobile, Facebook’s absent from the social TV trend in many regards, though it presents a grand opportunity for extended channel distribution as well.
You don’t have to look further than the first month of 2012 to realize the growing importance of socializing the tube. The Super Bowl is rank with advertisers seeking ways beyond Facebook Pages and tweets to engage viewers, reeling in participation from General Motors, Coca Cola and Shazam. These brands in particular are leveraging mobile devices to send viewers directly to a website where they can gain more information about a product, unlock free content and qualify for prizes. With approximately 60 percent of all Super Bowl viewers expected to be within arm’s reach of a smartphone or tablet, mobility is becoming an important avenue for television to become more interactive and social.
The first week of 2012 also brought a slew of connected device expectations from TV set makers like Sony and LG. Not only are they building out their own integrated system, but many are looking to Google TV as a platform to extend the newest social TV trends. At CES this year we saw the future of TV, and it’s a highly social one, with in-screen chats, recommendations, sharing functions and rewards systems. And Google’s much further ahead on this initiative than Facebook, given its Android platform and default social interactions that are cataloged every time you use a Google-powered app or service. Apple, too, has demonstrated initiative in this space, though its personal media cloud approach is lacking social capabilities.
Leave it to apps, and even cable providers to fill in the missing gaps here. Even Comcast’s jumping on this bandwagon, testing a social TV experience dubbed Xcalibur in Georgia. It involves a recommendation engine and “friend trends” powered by Facebook. Companies like GetGlue have also run with the social TV trend, building insight around marketing trends while rewarding viewers all the while.
Facebook’s ads = social monetization
Beyond merely powering existing gaming and TV efforts, Facebook will namely benefit from these extended channels by finding a way to loop things back into its own ecosystem. Facebook’s true value lies in its ability to access users and their preferences, creating hoards of useful marketing data alongside an audience that can be monetized in a series of socially oriented ways. It’s true that marketing has become very social, but above all, accessibility matters. Facebook’s building a presence in the mobile and TV space, but it hasn’t reached a major point of influence for its own monetization or ad distribution.
There’s a new age dawning for socially driven marketing, and TV is a great way to attract the biggest budgets in media to the socially situated. Social content management provider thismoment recognizes the convergence of connected devices and the future of marketing, a challenge that their new CMO John Bara will take head on. Thismoment is building the technology for big ad shops, simplifying the transition for brands like Coca Cola, and bridging gaps for the likes of Google. This all effectively leverages thismoment’s Digital Engagement Channel, a platform where brands and agencies can create, distribute and optimize branded and UGC content across Facebook, YouTube and beyond.
Facebook’s IPO will create jobs for the company, no doubt. And those jobs will likely further Facebook’s goals around mobile and TV verticals as part of a larger scale approach to new media marketing. Social is one of many considerations encompassed in new media marketing, and Facebook will have to find away to continuously ad value to its social platform amidst the growing network of associated platforms currently overlapping its space.
With rumors of an IPO coming as early as this week, Facebook is, for once, making headlines for something other than mandatory profile updates and privacy concerns. While there’s fear an IPO could ruin Facebook’s “startup” appeal and slow down innovation, an initial public offering could raise enough capital for Facebook to more aggressively grow its verticals. Two areas of importance for Facebook moving forward include mobile and social television. It’s part of a larger “connected device” trend that’s delivering content through more channels, and as this space expands, Facebook will need to monetize the social aspects of these channels as well.
Facebook Mobile
Facebook’s mobile strategy has been pretty limited to apps so far, favoring iOS in terms of launch schedules and feature updates. And Facebook’s actual apps center around social interaction and accessing account information, doing little to extend their platform’s ecosystem for Facebook apps, particularly games. This is where Facebook will really need to build out its ecosystem if it hopes to gain ground in the mobile sector, where Google, Apple and even Microsoft are already ahead.
Looking at the latest rumors, Facebook’s plans for mobile include a handset of its own. This isn’t likely the way to win in the mobile arena–there’s enough devices on the market, and plenty of competing operating systems. Even Android is diversifying across niche devices like the Kindle Fire, which has a stripped down version of Google’s mobile OS, adding to the fragmentation woes that plague developers, retailers, carriers and consumers alike.
What Facebook needs is a solid mobile extension of its own platform, that will enable better points of integration for the companies building apps for Facebook’s site and/or mobile marketplaces. Sure, you can tap Facebook contacts for a round of Words with Friends, but this is still a segmented initiative on the part of the game publisher. Unifying a web and mobile presence will be a key software development for Facebook moving forward.
We’re already seeing the necessity of this with Zynga, which is making its appeal to mobile gamers and forced to leave Facebook behind in the process. Increasing gamers on tablets and smartphones in today’s market means diversifying away from the very platform that brought Zynga to the point of success to launch its own IPO, especially with Facebook imposing a 30 percent tax on revenue made on its website. In order to retain the value of its ecosystem, Facebook will have to support the mobile transition for its developer community, and possibly better incorporate its offerings with the mobile market mainstays, like Android and iOS.
Facebook already has a budding relationship with Microsoft, one of its high profile investors, which has already integrated Facbook’s social graph into its search results and facilitated deals like Skype’s video calls on the network. As Microsoft continues to layer up its own platform, tying efforts with Windows 8, Windows Phone and Xbox, Facebook could make room for an easier transition on this front.
Facebook on TV
Facebook is a term associated with nearly all things social, whether online or off. The worldwide network has set national revolutions in motion, held firm as a platform for religious and political debate and enabled a new sense of globalization as far as culture and access are concerned. So when we think of TV’s future as being a social one, it’s hard to avert a discussion about Facebook as well. But even more than mobile, Facebook’s absent from the social TV trend in many regards, though it presents a grand opportunity for extended channel distribution as well.
You don’t have to look further than the first month of 2012 to realize the growing importance of socializing the tube. The Super Bowl is rank with advertisers seeking ways beyond Facebook Pages and tweets to engage viewers, reeling in participation from General Motors, Coca Cola and Shazam. These brands in particular are leveraging mobile devices to send viewers directly to a website where they can gain more information about a product, unlock free content and qualify for prizes. With approximately 60 percent of all Super Bowl viewers expected to be within arm’s reach of a smartphone or tablet, mobility is becoming an important avenue for television to become more interactive and social.
The first week of 2012 also brought a slew of connected device expectations from TV set makers like Sony and LG. Not only are they building out their own integrated system, but many are looking to Google TV as a platform to extend the newest social TV trends. At CES this year we saw the future of TV, and it’s a highly social one, with in-screen chats, recommendations, sharing functions and rewards systems. And Google’s much further ahead on this initiative than Facebook, given its Android platform and default social interactions that are cataloged every time you use a Google-powered app or service. Apple, too, has demonstrated initiative in this space, though its personal media cloud approach is lacking social capabilities.
Leave it to apps, and even cable providers to fill in the missing gaps here. Even Comcast’s jumping on this bandwagon, testing a social TV experience dubbed Xcalibur in Georgia. It involves a recommendation engine and “friend trends” powered by Facebook. Companies like GetGlue have also run with the social TV trend, building insight around marketing trends while rewarding viewers all the while.
Facebook’s ads = social monetization
Beyond merely powering existing gaming and TV efforts, Facebook will namely benefit from these extended channels by finding a way to loop things back into its own ecosystem. Facebook’s true value lies in its ability to access users and their preferences, creating hoards of useful marketing data alongside an audience that can be monetized in a series of socially oriented ways. It’s true that marketing has become very social, but above all, accessibility matters. Facebook’s building a presence in the mobile and TV space, but it hasn’t reached a major point of influence for its own monetization or ad distribution.
There’s a new age dawning for socially driven marketing, and TV is a great way to attract the biggest budgets in media to the socially situated. Social content management provider thismoment recognizes the convergence of connected devices and the future of marketing, a challenge that their new CMO John Bara will take head on. Thismoment is building the technology for big ad shops, simplifying the transition for brands like Coca Cola, and bridging gaps for the likes of Google. This all effectively leverages thismoment’s Digital Engagement Channel, a platform where brands and agencies can create, distribute and optimize branded and UGC content across Facebook, YouTube and beyond.
Facebook’s IPO will create jobs for the company, no doubt. And those jobs will likely further Facebook’s goals around mobile and TV verticals as part of a larger scale approach to new media marketing. Social is one of many considerations encompassed in new media marketing, and Facebook will have to find away to continuously ad value to its social platform amidst the growing network of associated platforms currently overlapping its space.
Status update: I'm rich! Facebook flotation to create 1,000 millionaires among company's rank and file
Traveling to space or embarking on an expedition to excavate lost Mayan ruins are normally the stuff of adventure novels.
But for employees of Facebook, these and other lavish dreams are moving closer to reality as the world's No.1 online social network prepares for a blockbuster initial public offering that could create at least a thousand millionaires.
The most anticipated stock market debut of 2012 is expected to value Facebook at as much as $100 billion, which would top just about any of Silicon Valley's most celebrated coming-out parties, from Netscape to Google Inc.
While weak financial markets could postpone or downsize any IPO, even the most conservative market-watchers say Facebook seems destined to set a new benchmark in a region famous for minting fortunes, with even the rank-and-file employees reaping millions of dollars.
Facebook employees past and present are already hatching plans on how to spend their anticipated new wealth, even as securities regulations typically prevent employee stock options from being cashed in until after a six-month lock-up period.
'There's been discussions of sort of bucket list ideas that people are putting together of things they always wanted to do and now we'll be able to do it,' said one former employee who had joined Facebook in 2005, shortly after it was founded.
He is looking into booking a trip to space that would cost $200,000 or more with Virgin Galactic or one of the other companies working on future space tourism. That's chump change when he expects his shares in Facebook to be worth some $50 million.
'If that IPO bell happens, then I will definitely put money down,' said the person, who declined to be identified because he did not want to draw attention to his financial status, given the antiglitz ethos of many people in Silicon Valley. 'It's been a childhood dream,' he said of space travel.
Others are thinking less science fiction and more 'Indiana Jones.' A group of current and former Facebook workers has begun laying the groundwork for an expedition to Mexico that sounds more suited to characters from the Steven Spielberg film 'Raiders of the Lost Ark' than to the computer geeks famously portrayed in the movie about Facebook, 'The Social Network.'
Initially, the group wanted to organize its own jungle expedition to excavate a relatively untouched site of Mayan ruins, according to people familiar with the matter who also did not want to court notoriety by being identified in this story. After some debate earlier this year, they are now looking at partnering with an existing archeological program.
Founded in a Harvard dorm room in 2004 by Mark Zuckerberg and his friends, Facebook has grown into the world's biggest social network with over 800 million members and revenue of $1.6 billion in the first half of 2011.
Information about its ownership structure or employee compensation packages is hard to come by, since the still-private company discloses very little. Facebook declined to comment for this story.
It is clear that Facebook's earliest employees, who were given ownership stakes, and early venture capital investors -- such as Accel Partners, Greylock Partners and Paypal co-founder Peter Thiel -- will see the biggest paydays. Zuckerberg, 27, is estimated to own a little over a fifth of the company, according to 'The Facebook Effect' author David Kirkpatrick.
But the wealth will trickle down to engineers, salespeople and other staffers who later joined the company, since most employees receive salary plus some kind of equity-based compensation, such as restricted stock units or stock options.
Facebook's headcount has swelled from 700 employees in late 2008 to more than 3,000 today. Given its generous use of equity-based compensation in past years, people familiar with Facebook say that even by conservative estimates there are likely to be well over a thousand people looking at million-dollar-plus paydays after the company goes public.
'There will be thousands of millionaires,' said a former in-house recruiter at Facebook, who did not want to be identified because of confidentiality agreements.
Lou Kerner, the head of private trading at Liquidnet, estimates that Facebook now has roughly 2.5 billion shares outstanding, which would translate to a per-share price of $40 at a $100 billion valuation.
Domination: Facebook has grown into the world's biggest social network with over 800 million members and revenue of $1.6 billion in the first half of 2011
Engineers are the most richly rewarded among the rank and file. The former Facebook recruiter said as recently as 2009, the company gave an engineer with 15 years experience options to buy about 65,000 shares at around $6 per share.
After a 5-for-1 stock split in October 2010, the engineer would now have the right to buy around 325,000 shares. Assuming a $40 share price, that would yield a profit of more than $12 million.
According to another former Facebook employee, it was not unusual for the company to offer some executive-level hires up to 100,000 restricted shares as recently as three years ago.
The company has since cut back on equity compensation for new hires. Managers hired one year ago received 2,000 to 30,000 restricted shares depending on the job function, according to another recruiter who had also worked for Facebook.
The company has also been stingier in handing out equity to noncore employees -- so there may not be as many of the dazzling rags-to-riches stories that were commonplace at the time of the Google IPO, when in-house chefs and at least one masseuse struck gold with options.
Facebook has its share of chefs -- including head chef Josef Desimone who was lured away from Google -- and other support staff, but it's not clear how many of them were awarded share options.
These days, 'Google and Facebook are notorious for hiring contract employees they don't have to give equity to,' said the second former Facebook recruiter.
Facebook's IPO has been long anticipated, but veterans of other startups that have gone public say the period after could be fraught with new challenges.
Some employees could grow jealous over colleagues with more stock, while others might look down on peers who are too quick to sell, questioning their loyalty to the company.
And there is always the risk that talented staff would leave with their newfound wealth to make their own mark in the technology world by becoming entrepreneurs or investing in other promising startups.
Some Facebook employees have already left the company to do that, selling their shares ahead of the IPO on private exchanges such as those run by SecondMarket or SharesPost.
FACEBOOK CO-FOUNDERS' WORTH
Mark Zuckerberg:
Age: 27
Net worth: $17.5 billion
Owns 24% of Facebook, previously worth $5.3 billion
ROLE: Founder and Chief Executive Officer of Facebook
Currently creating his own monetary system 'Facebook Credits' to facilitate transactions and profits, according to Forbes.
Dustin Moskovitz:
Age: 27
Net worth: $3.5 billion
Holds a 6% stake in Facebook previously worth $1.3 billion
ROLE: A co-founder and the social-networking site's first chief technology officer, Moskovitz left in 2008 and started Asana, a software company that allows individuals and small companies to better collaborate.
Eduardo Saverin:
Age: 29
Net worth: $2 billion
Most recently held a 5% stake in Facebook, previously worth $1.1 billion, which he has since sold more than half of to invest in new start-ups.
ROLE: Co-founder of Facebook
Chris Hughes:
Age: 28
Net worth: estimated at $700 million
ROLE: Co-founder & original Facebook spokesperson.
Most recently served as Barack Obama's Director of online Organizing for his 2008 presidential campaign. Currently the executive director of a new social network called Jumo which connects individuals to global nonprofits.
Sean Parker:
Age: 31
Net worth: $2.1 billion
Owns 4 percent of Facebook, worth over $880 million
ROLE: Former Facebook president, helped capture initial investors for the company
Winklevoss twins:
Age: 30
Net worth: They accepted a $20 million cash settlement and Facebook stock that could now be worth more than $150 million, according to AdWeek.
ROLE: Claimed they invented Facebook which was stolen by Mr Zuckerberg
One such person is engineer Karel Baloun, who joined the social network in 2005 and left just over a year later to start his own online network for commodities-futures traders, funded by a tidy package of stock options. It failed and Baloun laments that he could have made a lot more money if he had stayed at Facebook.
But he is philosophical, saying that the equity windfall gave him the cushion to do new things.
'It's really wonderful being able to choose your work based on the meaning of it, not the size of your salary,' said Baloun, now chief technology officer at mobile-commerce company Leap Commerce. 'I have two kids, and I couldn't do it if I didn't have some savings from this IPO.'
Baloun said he has sold about half his Facebook shares and is holding on to the rest until after the IPO. 'I will buy a house,' he said.
For many of Facebook's staffers, the IPO will provide the means to pay off school loans and buy a house or new car. Home prices in the San Francisco Bay Area have typically been lofty, but many homeowners and real-estate agents are eagerly anticipating a surge of new buyers flush with money from the IPOs of Facebook and other Web companies.
'Watch for Facebook proceeds to buy Palo Alto real estate,' said David Cowan, a venture capitalist at Bessemer Venture Partners who backed social network LinkedIn Corp, among other companies.
Wealth managers and investment advisers are also looking to win new clients from the Facebook crowd.]
'A lot of them are going to be multimillionaires at 30 and live to be 100. That means creating a 70-year plan, which is unheard of,' said John Valentine of Valentine Capital Asset Management in San Ramon, California, noting that his average client plan spans about 35 years.
Valentine, whose firm manages about $600 million in assets, said he plans to break into the Facebook client base through connections with venture capital firms, and he has meetings set the next two weeks to leverage those relationships. 'It's the hot ticket in Silicon Valley,' he said of Facebook.
David Arizini, managing director of Constellation Wealth Advisors, has several current and former Facebook employees as clients and hopes they refer more of their friends.
But he knows that it will take time and work to win them over for his firm, a New York and Menlo Park-based wealth manager with about $4.5 billion in assets under management.
'They are very skeptical of the financial services industry largely because of what has transpired over the last three years,' he said. 'So the bulk of clients interviewed five to 10 advisers before they made their choice.'
The imminent flood of Facebook dollars is sure to provide a welcome boost to local businesses in Silicon Valley, from high-end car dealerships to wine merchants.
Buff Giurlani, founder of car and wine storage service AutoVino in Menlo Park, is looking forward to an acceleration in already-brisk trade. 'If a Facebook guy buys a house and wants to remodel it, maybe the contractor will buy another car,' he said. 'Maybe the realtor will put a car in. There's a trickle-down effect.'
For Facebook's younger staffers, who favor jeans and T-shirts over designer suits, the shopping sprees will almost certainly involve computers and electronics.
'Start packing pepper spray for your next trip to the Apple store,' said Bessemer Venture's Cowan
But for employees of Facebook, these and other lavish dreams are moving closer to reality as the world's No.1 online social network prepares for a blockbuster initial public offering that could create at least a thousand millionaires.
The most anticipated stock market debut of 2012 is expected to value Facebook at as much as $100 billion, which would top just about any of Silicon Valley's most celebrated coming-out parties, from Netscape to Google Inc.
While weak financial markets could postpone or downsize any IPO, even the most conservative market-watchers say Facebook seems destined to set a new benchmark in a region famous for minting fortunes, with even the rank-and-file employees reaping millions of dollars.
Facebook employees past and present are already hatching plans on how to spend their anticipated new wealth, even as securities regulations typically prevent employee stock options from being cashed in until after a six-month lock-up period.
'There's been discussions of sort of bucket list ideas that people are putting together of things they always wanted to do and now we'll be able to do it,' said one former employee who had joined Facebook in 2005, shortly after it was founded.
He is looking into booking a trip to space that would cost $200,000 or more with Virgin Galactic or one of the other companies working on future space tourism. That's chump change when he expects his shares in Facebook to be worth some $50 million.
'If that IPO bell happens, then I will definitely put money down,' said the person, who declined to be identified because he did not want to draw attention to his financial status, given the antiglitz ethos of many people in Silicon Valley. 'It's been a childhood dream,' he said of space travel.
Others are thinking less science fiction and more 'Indiana Jones.' A group of current and former Facebook workers has begun laying the groundwork for an expedition to Mexico that sounds more suited to characters from the Steven Spielberg film 'Raiders of the Lost Ark' than to the computer geeks famously portrayed in the movie about Facebook, 'The Social Network.'
Initially, the group wanted to organize its own jungle expedition to excavate a relatively untouched site of Mayan ruins, according to people familiar with the matter who also did not want to court notoriety by being identified in this story. After some debate earlier this year, they are now looking at partnering with an existing archeological program.
Founded in a Harvard dorm room in 2004 by Mark Zuckerberg and his friends, Facebook has grown into the world's biggest social network with over 800 million members and revenue of $1.6 billion in the first half of 2011.
Information about its ownership structure or employee compensation packages is hard to come by, since the still-private company discloses very little. Facebook declined to comment for this story.
It is clear that Facebook's earliest employees, who were given ownership stakes, and early venture capital investors -- such as Accel Partners, Greylock Partners and Paypal co-founder Peter Thiel -- will see the biggest paydays. Zuckerberg, 27, is estimated to own a little over a fifth of the company, according to 'The Facebook Effect' author David Kirkpatrick.
But the wealth will trickle down to engineers, salespeople and other staffers who later joined the company, since most employees receive salary plus some kind of equity-based compensation, such as restricted stock units or stock options.
Facebook's headcount has swelled from 700 employees in late 2008 to more than 3,000 today. Given its generous use of equity-based compensation in past years, people familiar with Facebook say that even by conservative estimates there are likely to be well over a thousand people looking at million-dollar-plus paydays after the company goes public.
'There will be thousands of millionaires,' said a former in-house recruiter at Facebook, who did not want to be identified because of confidentiality agreements.
Lou Kerner, the head of private trading at Liquidnet, estimates that Facebook now has roughly 2.5 billion shares outstanding, which would translate to a per-share price of $40 at a $100 billion valuation.
Domination: Facebook has grown into the world's biggest social network with over 800 million members and revenue of $1.6 billion in the first half of 2011
Engineers are the most richly rewarded among the rank and file. The former Facebook recruiter said as recently as 2009, the company gave an engineer with 15 years experience options to buy about 65,000 shares at around $6 per share.
After a 5-for-1 stock split in October 2010, the engineer would now have the right to buy around 325,000 shares. Assuming a $40 share price, that would yield a profit of more than $12 million.
According to another former Facebook employee, it was not unusual for the company to offer some executive-level hires up to 100,000 restricted shares as recently as three years ago.
The company has since cut back on equity compensation for new hires. Managers hired one year ago received 2,000 to 30,000 restricted shares depending on the job function, according to another recruiter who had also worked for Facebook.
The company has also been stingier in handing out equity to noncore employees -- so there may not be as many of the dazzling rags-to-riches stories that were commonplace at the time of the Google IPO, when in-house chefs and at least one masseuse struck gold with options.
Facebook has its share of chefs -- including head chef Josef Desimone who was lured away from Google -- and other support staff, but it's not clear how many of them were awarded share options.
These days, 'Google and Facebook are notorious for hiring contract employees they don't have to give equity to,' said the second former Facebook recruiter.
Facebook's IPO has been long anticipated, but veterans of other startups that have gone public say the period after could be fraught with new challenges.
Some employees could grow jealous over colleagues with more stock, while others might look down on peers who are too quick to sell, questioning their loyalty to the company.
And there is always the risk that talented staff would leave with their newfound wealth to make their own mark in the technology world by becoming entrepreneurs or investing in other promising startups.
Some Facebook employees have already left the company to do that, selling their shares ahead of the IPO on private exchanges such as those run by SecondMarket or SharesPost.
FACEBOOK CO-FOUNDERS' WORTH
Mark Zuckerberg:
Age: 27
Net worth: $17.5 billion
Owns 24% of Facebook, previously worth $5.3 billion
ROLE: Founder and Chief Executive Officer of Facebook
Currently creating his own monetary system 'Facebook Credits' to facilitate transactions and profits, according to Forbes.
Dustin Moskovitz:
Age: 27
Net worth: $3.5 billion
Holds a 6% stake in Facebook previously worth $1.3 billion
ROLE: A co-founder and the social-networking site's first chief technology officer, Moskovitz left in 2008 and started Asana, a software company that allows individuals and small companies to better collaborate.
Eduardo Saverin:
Age: 29
Net worth: $2 billion
Most recently held a 5% stake in Facebook, previously worth $1.1 billion, which he has since sold more than half of to invest in new start-ups.
ROLE: Co-founder of Facebook
Chris Hughes:
Age: 28
Net worth: estimated at $700 million
ROLE: Co-founder & original Facebook spokesperson.
Most recently served as Barack Obama's Director of online Organizing for his 2008 presidential campaign. Currently the executive director of a new social network called Jumo which connects individuals to global nonprofits.
Sean Parker:
Age: 31
Net worth: $2.1 billion
Owns 4 percent of Facebook, worth over $880 million
ROLE: Former Facebook president, helped capture initial investors for the company
Winklevoss twins:
Age: 30
Net worth: They accepted a $20 million cash settlement and Facebook stock that could now be worth more than $150 million, according to AdWeek.
ROLE: Claimed they invented Facebook which was stolen by Mr Zuckerberg
One such person is engineer Karel Baloun, who joined the social network in 2005 and left just over a year later to start his own online network for commodities-futures traders, funded by a tidy package of stock options. It failed and Baloun laments that he could have made a lot more money if he had stayed at Facebook.
But he is philosophical, saying that the equity windfall gave him the cushion to do new things.
'It's really wonderful being able to choose your work based on the meaning of it, not the size of your salary,' said Baloun, now chief technology officer at mobile-commerce company Leap Commerce. 'I have two kids, and I couldn't do it if I didn't have some savings from this IPO.'
Baloun said he has sold about half his Facebook shares and is holding on to the rest until after the IPO. 'I will buy a house,' he said.
For many of Facebook's staffers, the IPO will provide the means to pay off school loans and buy a house or new car. Home prices in the San Francisco Bay Area have typically been lofty, but many homeowners and real-estate agents are eagerly anticipating a surge of new buyers flush with money from the IPOs of Facebook and other Web companies.
'Watch for Facebook proceeds to buy Palo Alto real estate,' said David Cowan, a venture capitalist at Bessemer Venture Partners who backed social network LinkedIn Corp, among other companies.
Wealth managers and investment advisers are also looking to win new clients from the Facebook crowd.]
'A lot of them are going to be multimillionaires at 30 and live to be 100. That means creating a 70-year plan, which is unheard of,' said John Valentine of Valentine Capital Asset Management in San Ramon, California, noting that his average client plan spans about 35 years.
Valentine, whose firm manages about $600 million in assets, said he plans to break into the Facebook client base through connections with venture capital firms, and he has meetings set the next two weeks to leverage those relationships. 'It's the hot ticket in Silicon Valley,' he said of Facebook.
David Arizini, managing director of Constellation Wealth Advisors, has several current and former Facebook employees as clients and hopes they refer more of their friends.
But he knows that it will take time and work to win them over for his firm, a New York and Menlo Park-based wealth manager with about $4.5 billion in assets under management.
'They are very skeptical of the financial services industry largely because of what has transpired over the last three years,' he said. 'So the bulk of clients interviewed five to 10 advisers before they made their choice.'
The imminent flood of Facebook dollars is sure to provide a welcome boost to local businesses in Silicon Valley, from high-end car dealerships to wine merchants.
Buff Giurlani, founder of car and wine storage service AutoVino in Menlo Park, is looking forward to an acceleration in already-brisk trade. 'If a Facebook guy buys a house and wants to remodel it, maybe the contractor will buy another car,' he said. 'Maybe the realtor will put a car in. There's a trickle-down effect.'
For Facebook's younger staffers, who favor jeans and T-shirts over designer suits, the shopping sprees will almost certainly involve computers and electronics.
'Start packing pepper spray for your next trip to the Apple store,' said Bessemer Venture's Cowan
Facebook Announces Historic IPO
February 2, 2012
Facebook made a much-anticipated status update Wednesday: The Internet social network is going public eight years after its computer-hacking CEO Mark Zuckerberg started the service at Harvard University.
That means anyone with the right amount of cash will be able to own part of a Silicon Valley icon that quickly transformed from dorm-room startup to cultural touchstone.
If its initial public offering of stock makes enough friends on Wall Street, Facebook will probably make its stock-market debut in three or four months as one of the world's most valuable companies.
Facebook, which is now based in Menlo Park, Calif., hopes to list its stock under the ticker symbol, "FB," on the New York Stock Exchange or Nasdaq Stock Market.
In its regulatory filing with the Securities and Exchange Commission, Facebook Inc. indicated it hopes to raise $5 billion in its IPO.
That would be the most for an Internet IPO since Google Inc. and its early backers raised $1.9 billion in 2004. The final amount will likely change as Facebook's bankers gauge the investor demand.
Joining corporate America's elite would give Facebook newfound financial clout as it tries to make its service even more pervasive and expand its audience of 845 million users.
It also could help Facebook fend off an intensifying challenge from Google, which is looking to solidify its status as the Internet's most powerful company with a rival social network called Plus.
The intrigue surrounding Facebook's IPO has increased in recent months, not only because the company has become a common conduit —for everyone from doting grandmas to sassy teenagers— to share information about their lives.
Zuckerberg, 27, has emerged as the latest in a lineage of Silicon Valley prodigies who are alternately hailed for pushing the world in new directions and reviled for overstepping their bounds.
In Zuckerberg's case, a lawsuit alleging that he stole the idea for Facebook from some Harvard classmates became the grist for a book and a movie that was nominated for an Academy Award last year.
Following the model of Google co-founders Larry Page and Sergey Brin, Zuckerberg set up two classes of stock that will ensure he retains control as the sometimes conflicting demands of Wall Street exert new pressures on the company. He will have the final say on how nearly 57 percent of Facebook's stock votes, according to the filing.
Even before the IPO was filed, Zuckerberg was shaping up as his generation's Bill Gates — a geek who parlayed his love of computers into fame and fortune.
Forbes magazine estimated Zuckerberg's wealth at $17.5 billion in its most recent survey of the richest people in the U.S. A more precise measurement of Zuckerberg's fortune will be available once the IPO is priced and provides a concrete benchmark for determining the value of his nearly 534 million Facebook shares.
The IPO will also mint hundreds of Facebook employee as millionaires because they have accumulated stock at lower prices than what the shares are liked to be valued at on the open market. Facebook employed 3,200 people at the end of last year.
Depending on how long regulators take to review Facebook's IPO documents, the company could be making its stock market debut around the time that Zuckerberg celebrates his next birthday in May.
The IPO filing casts a spotlight on some of Facebook's inner workings for the first time. Among other things, the documents reveal the amount of Facebook's revenue, its major shareholders, its growth opportunities and its concerns about its biggest competitive threats.
The documents show, as expected, that Facebook is thriving. The company earned $668 million on revenue of $3.7 billion last year, according to the filing. Both figures nearly doubled from 2010.
"The company is a lot more profitable than we thought," said Kathleen Smith, principal of IPO investment advisory firm Renaissance Capital.
Although she considered Facebook's numbers "very impressive," she said Facebook needs to talk more about where it sees its growth coming from.
"What new areas of business is it expecting to pursue beyond display ads?"
What's not in the documents, yet, is Facebook's market value. That figure could hit $100 billion, based on Facebook's rapid growth and the appraisals that steered investors who bought stakes while the company was still private.
Facebook heads a class of Internet startups that have been going public during the past year.
The early crop has included Internet radio service Pandora Media Inc., professional networking service LinkedIn Corp. and daily deals company Groupon Inc.
Most of those Internet IPOs haven't lived up to their lofty expectations. The list of disappointments includes Zynga Inc., which has built a profitable business by creating a variety of games to play on Facebook. Zynga's stock fell 5 percent below its IPO price on the first day of trading.
Facebook stands apart, though. As it rapidly expands, people from Silicon Valley to Brazil to India use it to keep up with news from friends and long-lost acquaintances, play mindless games tending virtual cities and farms and share big news or minute details about their days. Politicians, celebrities and businesses use Facebook to connect with fans and the general public.
It's becoming more difficult to tell whether going to Facebook is a pastime or an addiction. In the U.S., Facebook visitors spend an average of seven hours per month on the website each month, more than doubling from an average of three hours per month in 2008, according to the research firm comScore Inc.
More than half of Facebook users log on to the site on any given day. Using software developed by outside parties — call it the Facebook economy — they share television shows they are watching, songs they are playing and photos of what they are wearing or eating. Facebook says 250 million photos alone are posted on its site each day.
To make money, Facebook sells the promise of highly targeted advertisements based on the information its users share, including interests, hobbies, private thoughts and relationships. Though most of its revenue comes from ads, Facebook also takes a cut from the money that apps make through its site. For every dollar that "FarmVille" maker Zynga gets for the virtual cows and crops it sells, for example, Facebook gets 30 cents.
Facebook made a much-anticipated status update Wednesday: The Internet social network is going public eight years after its computer-hacking CEO Mark Zuckerberg started the service at Harvard University.
That means anyone with the right amount of cash will be able to own part of a Silicon Valley icon that quickly transformed from dorm-room startup to cultural touchstone.
If its initial public offering of stock makes enough friends on Wall Street, Facebook will probably make its stock-market debut in three or four months as one of the world's most valuable companies.
Facebook, which is now based in Menlo Park, Calif., hopes to list its stock under the ticker symbol, "FB," on the New York Stock Exchange or Nasdaq Stock Market.
In its regulatory filing with the Securities and Exchange Commission, Facebook Inc. indicated it hopes to raise $5 billion in its IPO.
That would be the most for an Internet IPO since Google Inc. and its early backers raised $1.9 billion in 2004. The final amount will likely change as Facebook's bankers gauge the investor demand.
Joining corporate America's elite would give Facebook newfound financial clout as it tries to make its service even more pervasive and expand its audience of 845 million users.
It also could help Facebook fend off an intensifying challenge from Google, which is looking to solidify its status as the Internet's most powerful company with a rival social network called Plus.
The intrigue surrounding Facebook's IPO has increased in recent months, not only because the company has become a common conduit —for everyone from doting grandmas to sassy teenagers— to share information about their lives.
Zuckerberg, 27, has emerged as the latest in a lineage of Silicon Valley prodigies who are alternately hailed for pushing the world in new directions and reviled for overstepping their bounds.
In Zuckerberg's case, a lawsuit alleging that he stole the idea for Facebook from some Harvard classmates became the grist for a book and a movie that was nominated for an Academy Award last year.
Following the model of Google co-founders Larry Page and Sergey Brin, Zuckerberg set up two classes of stock that will ensure he retains control as the sometimes conflicting demands of Wall Street exert new pressures on the company. He will have the final say on how nearly 57 percent of Facebook's stock votes, according to the filing.
Even before the IPO was filed, Zuckerberg was shaping up as his generation's Bill Gates — a geek who parlayed his love of computers into fame and fortune.
Forbes magazine estimated Zuckerberg's wealth at $17.5 billion in its most recent survey of the richest people in the U.S. A more precise measurement of Zuckerberg's fortune will be available once the IPO is priced and provides a concrete benchmark for determining the value of his nearly 534 million Facebook shares.
The IPO will also mint hundreds of Facebook employee as millionaires because they have accumulated stock at lower prices than what the shares are liked to be valued at on the open market. Facebook employed 3,200 people at the end of last year.
Depending on how long regulators take to review Facebook's IPO documents, the company could be making its stock market debut around the time that Zuckerberg celebrates his next birthday in May.
The IPO filing casts a spotlight on some of Facebook's inner workings for the first time. Among other things, the documents reveal the amount of Facebook's revenue, its major shareholders, its growth opportunities and its concerns about its biggest competitive threats.
The documents show, as expected, that Facebook is thriving. The company earned $668 million on revenue of $3.7 billion last year, according to the filing. Both figures nearly doubled from 2010.
"The company is a lot more profitable than we thought," said Kathleen Smith, principal of IPO investment advisory firm Renaissance Capital.
Although she considered Facebook's numbers "very impressive," she said Facebook needs to talk more about where it sees its growth coming from.
"What new areas of business is it expecting to pursue beyond display ads?"
What's not in the documents, yet, is Facebook's market value. That figure could hit $100 billion, based on Facebook's rapid growth and the appraisals that steered investors who bought stakes while the company was still private.
Facebook heads a class of Internet startups that have been going public during the past year.
The early crop has included Internet radio service Pandora Media Inc., professional networking service LinkedIn Corp. and daily deals company Groupon Inc.
Most of those Internet IPOs haven't lived up to their lofty expectations. The list of disappointments includes Zynga Inc., which has built a profitable business by creating a variety of games to play on Facebook. Zynga's stock fell 5 percent below its IPO price on the first day of trading.
Facebook stands apart, though. As it rapidly expands, people from Silicon Valley to Brazil to India use it to keep up with news from friends and long-lost acquaintances, play mindless games tending virtual cities and farms and share big news or minute details about their days. Politicians, celebrities and businesses use Facebook to connect with fans and the general public.
It's becoming more difficult to tell whether going to Facebook is a pastime or an addiction. In the U.S., Facebook visitors spend an average of seven hours per month on the website each month, more than doubling from an average of three hours per month in 2008, according to the research firm comScore Inc.
More than half of Facebook users log on to the site on any given day. Using software developed by outside parties — call it the Facebook economy — they share television shows they are watching, songs they are playing and photos of what they are wearing or eating. Facebook says 250 million photos alone are posted on its site each day.
To make money, Facebook sells the promise of highly targeted advertisements based on the information its users share, including interests, hobbies, private thoughts and relationships. Though most of its revenue comes from ads, Facebook also takes a cut from the money that apps make through its site. For every dollar that "FarmVille" maker Zynga gets for the virtual cows and crops it sells, for example, Facebook gets 30 cents.
Facebook files $5 billion IPO: What is an IPO anyway?
Facebook announced its $5 billion IPO late Wednesday afternoon. But what is all the hype about? What is an IPO, how does it work, and will a publicly traded Facebook affect how we use the social network on a daily basis? Here's a quick guide.
WHAT EXACTLY IS AN IPO?
When a privately owned company makes an Initial Public Offering, it means they're moving to be publicly traded on the stock market for the first time. That means that anyone can buy stock in the company and own a portion of it.
Going public can help a company raise significant capital if a lot of people want to buy its stock. It also means that the company has to publicly disclose details about its finances, like its earnings, that it previously kept private.
WHO DECIDES THE VALUE OF AN IPO?
An investment bank determines how much money the company can expect to make on the stock market based on a number of factors, from the health of the economy to how popular the company's product is expected to be in the future. The initial valuation is always a bit of a gamble, since the stock has never been traded publicly before, and analysts can't look at past behavior to figure out how it should be priced.
Morgan Stanley is expected to spearhead Facebook's IPO filing, with Goldman Sachs playing a supporting role, the Wall Street Journal reported Saturday. Facebook's IPO has been pegged at $5 billion. The company itself being valued between $75 billion and $100 billion, unnamed sources familiar with the deal told the Journal.
The IPO sets a record among technology companies. Google currently holds the record for the largest tech IPO at $1.6 billion, according to the Washington Post.
HOW WILL IT CHANGE FACEBOOK?
Facebook is releasing previously private financial information, so we'll be able to see how much the company is actually making, how much the executives earn, and what its biggest sources of revenue are, among other things.
Facebook CEO Mark Zuckerberg is known for wanting to maintain creative control over his creations -- he's rejected lucrative offers from companies who wanted to acquire Facebook, including when Microsoft tried to buy it for more than $15 billion in 2007.
Now everyday investors will own part of the company, and he'll be accountable to them.
Once a company goes public, it has to worry about turning a profit and satisfying investors, lest they start dumping its stock.
WILL IT CHANGE THE WAY I USE FACEBOOK?
There probably won't be any noticeable changes in the short term. The Guardian predicts that with greater public pressure to be profitable, Facebook will likely get more aggressive about targeted advertising, and may try to find new ways to make money off of private user data.
WHO CAN PURCHASE SHARES IN AN IPO?
Small-fry investors don’t have much of a shot. The investment bank underwriting the deal typically gets to dole out shares at the IPO price to favored clients. In a hot IPO, the majority of those are institutional clients, and any individual investors who get in are usually frequent traders with big accounts, according to Scott Sweet, senior managing partner at IPO Boutique.
WHAT EXACTLY IS AN IPO?
When a privately owned company makes an Initial Public Offering, it means they're moving to be publicly traded on the stock market for the first time. That means that anyone can buy stock in the company and own a portion of it.
Going public can help a company raise significant capital if a lot of people want to buy its stock. It also means that the company has to publicly disclose details about its finances, like its earnings, that it previously kept private.
WHO DECIDES THE VALUE OF AN IPO?
An investment bank determines how much money the company can expect to make on the stock market based on a number of factors, from the health of the economy to how popular the company's product is expected to be in the future. The initial valuation is always a bit of a gamble, since the stock has never been traded publicly before, and analysts can't look at past behavior to figure out how it should be priced.
Morgan Stanley is expected to spearhead Facebook's IPO filing, with Goldman Sachs playing a supporting role, the Wall Street Journal reported Saturday. Facebook's IPO has been pegged at $5 billion. The company itself being valued between $75 billion and $100 billion, unnamed sources familiar with the deal told the Journal.
The IPO sets a record among technology companies. Google currently holds the record for the largest tech IPO at $1.6 billion, according to the Washington Post.
HOW WILL IT CHANGE FACEBOOK?
Facebook is releasing previously private financial information, so we'll be able to see how much the company is actually making, how much the executives earn, and what its biggest sources of revenue are, among other things.
Facebook CEO Mark Zuckerberg is known for wanting to maintain creative control over his creations -- he's rejected lucrative offers from companies who wanted to acquire Facebook, including when Microsoft tried to buy it for more than $15 billion in 2007.
Now everyday investors will own part of the company, and he'll be accountable to them.
Once a company goes public, it has to worry about turning a profit and satisfying investors, lest they start dumping its stock.
WILL IT CHANGE THE WAY I USE FACEBOOK?
There probably won't be any noticeable changes in the short term. The Guardian predicts that with greater public pressure to be profitable, Facebook will likely get more aggressive about targeted advertising, and may try to find new ways to make money off of private user data.
WHO CAN PURCHASE SHARES IN AN IPO?
Small-fry investors don’t have much of a shot. The investment bank underwriting the deal typically gets to dole out shares at the IPO price to favored clients. In a hot IPO, the majority of those are institutional clients, and any individual investors who get in are usually frequent traders with big accounts, according to Scott Sweet, senior managing partner at IPO Boutique.
Facebook IPO announced
After much anticipation, Facebook filed its paperwork for an initial public offering Feb. 1, 2012, the same week the world's largest social network celebrates its eighth birthday. Facebook's S-1 revealed it is looking to raise $5 billion, and it has a valuation estimated at $100 billion. That would make the social network about four times the value of Google at the time it went public in 2004 with a valuation at $23 billion the day after.
The Facebook IPO filing revealed some details that had previously been private about the company. Facebook — which earned $1 billion on sales of $3.7 billion in 2011 — now has 845 million active users on the site, up from the estimated 800 million using the site back in September. It also revealed salaries of execs, including founder Mark Zuckerberg's $500,000 salary, COO Sheryl Sandberg's $300,000 and CFO David Ebersman $300,000.
The company recently pushed out its new Timeline feature to all users and stopped its share trading on secondary markets, both without explanation -- early hints at an impending IPO filing.
The Facebook IPO filing revealed some details that had previously been private about the company. Facebook — which earned $1 billion on sales of $3.7 billion in 2011 — now has 845 million active users on the site, up from the estimated 800 million using the site back in September. It also revealed salaries of execs, including founder Mark Zuckerberg's $500,000 salary, COO Sheryl Sandberg's $300,000 and CFO David Ebersman $300,000.
The company recently pushed out its new Timeline feature to all users and stopped its share trading on secondary markets, both without explanation -- early hints at an impending IPO filing.
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