1FACEBOOK IPO

Presented by: NAYANA. N.PKIRUTHIKA.N

2Company Description

• The firm was launched in 2004 by Harvard student Mark Zuckerberg as an

online version of the Harvard Facebook.

• Facebook lets users share information, post photos and videos, play games,

and otherwise connect with one another through online profiles.

• Facebook has about 850 million total users and about 480 million daily users.

• the company had 3,200 full-time employees as of December 31, 2011.

3Financial information

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• crossed the line into profitability in 2009, • Facebook earned $229 million that year on sales of $777 million,

and has remained profitable ever since.

Financial information

6How Facebook makes money

1. Advertising :• 85% of Facebook's 2011 revenue, almost $3.2

billion, comes from advertising.

• Facebook has grown by grabbing market share from Google and Yahoo. Last year

2. Apps and games:• Facebook allows outside developers to build apps

that integrate with Facebook.• Revenue from Zynga, which makes FarmVille and

other games played on Facebook, represented 12% of Facebook's total revenue in 2012.

7Facebook IPO

8Facebook IPO

9Face book's Strategy

• a) IPO Document Statement

• In the IPO document, Facebook describes its strategy as follows :

• “We are in the early days of pursuing our mission to make the world

more open and connected. We believe that we have a significant

opportunity to further enhance the value we deliver to users,

developers, and advertisers. Key elements of our strategy are:

– Expand Our Global User Community.

– Build Great Social Products to Increase Engagement

– Provide Users with the Most Compelling Experience

– Build Engaging Mobile Experiences

– Enable Developers to Build Great Social Products Using the Face book

Platform.

– Improve Ad Products for Advertisers and Users

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The early start up and expansion of face book was funded in the years

from 2004 by:

– Zuckerberg and Savarin

– injections of cash by various venture capital funds such as Accel partners

– funding from various corporations and Microsoft who purchased 1.6% of Face

book’s stock for$240 million in 2007

– funding from private individuals such as Hong Kong billionaire Li Ka Shing who

invested $60 million in November 2007

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• Sale of MySpace to News corp. in July 2005

• Rumors about possible sale of face book to

Yahoo in Sept 2006

• Did not happen since Face book board valued it

to $8 billion

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• Initial Public Offering in 1st February 2012

• Seeking to raise $5 billion

• The company document announced

– 845 million active users

– 2.7 million daily likes and comments

• After IPO, Zuckerberg will retain 22% ownership share in

face book and will own 57% of the voting shares.

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• Underwriters values shares at $38 each, pricing the

company at $5 billion – largest valuation to a newly

public company

• 16th May-FB announced it would sell 25% more shares.

• IPO raised to $16 million

• 18th May trading began –NASDAQ started with some

technical delay, but stock struggled to stay above IPO

price most of the day

• 25th May- stock ended its full week of trading at

$31.91 ,16% decline

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• 22nd May – Wall streets Financial Regulatory

Authority –investigate-banks underwriting FB

had improperly shared info with selected clients

• Allegations sparked and law suits were filed

claiming $ 2.5 million losses due to IPO

• Bloomberg estimated- retail investors lost $

630 million

15Conclusion : reasons to not 'like' Facebook's IPO

1- Slowing growth? Already?• Facebook's sales increased suddenly for the past few years.• Revenue rose by more than 150% in 2010. Sales were up nearly 90% last

year. But in the first quarter of 2012, revenue was up just 45% from the same period a year ago

• Facebook's first quarter sales fell 6% from the fourth quarter of 2011

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2- Rising expenses

• Facebook says in its IPO filing:– “Building great things means taking risks. This can be scary and prevents most

companies from doing the bold things they should. However, in a world that's changing so quickly, you're guaranteed to fail if you don't take any risks.“

It can be seen : – Net income fell 12% in the first quarter as costs and expenses doubled from a

year ago

IT means:Facebook investors should be prepared for the company to make more big purchases; Facebook admitted as much in its IPO filing

Conclusion : reasons to not 'like' Facebook's IPO

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3- Facebook is a media company

Facebook generates most of its money from advertising

AND

That is a changeable and inconsistent business

- ARPU (average revenue per user ):

Facebook : $1.21 in the first quarter of 2012

EBay : $12 in the first quarter of 2011

Conclusion : reasons to not 'like' Facebook's IPO

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4- Everybody is gunning for Facebook

- Facebook will not remain the undisputed leader in social forever.

Competitor and risks:

- Twitter

- Google+ (a company that has $49.3 billion in cash .That's almost 13 times the amount Facebook has.)

- if Facebook does decide to bulk up in China, it will face intense competition (Tencent, Sina and Renren )

- LinkedIn (professionals are using that site, and not Facebook)

Conclusion : reasons to not 'like' Facebook's IPO

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