SECTION 2 faceboook almost done

8/7/2019 SECTION 2 faceboook almost done

http://slidepdf.com/reader/full/section-2-faceboook-almost-done 1/16

qwertyuiopasdfghjklzxcvbnmqwerty

opasdfghjklzxcvbnmqwertyuiopasdfg

klzxcvbnmqwertyuiopasdfghjklzxcvb

nmqwertyuiopasdfghjklzxcvbnmqwe

yuiopasdfghjklzxcvbnmqwertyuiopa

dfghjklzxcvbnmqwertyuiopasdfghjklz

vbnmqwertyuiopasdfghjklzxcvbnmq

wertyuiopasdfghjklzxcvbnmqwertyu

pasdfghjklzxcvbnmqwertyuiopasdfgh

klzxcvbnmqwertyuiopasdfghjklzxcvbmqwertyuiopasdfghjklzxcvbnmqwer

uiopasdfghjklzxcvbnmqwertyuiopasd

ghjklzxcvbnmqwertyuiopasdfghjklzxvbnmqwertyuiopasdfghjklzxcvbnmrt

uiopasdfghjklzxcvbnmqwertyuiopasd

ghjklzxcvbnmqwertyuiopasdfghjklzx

?

FACEBOOK

FINANCIAL & NON FINANCIAL OBJECTIVES

Kabiru Ahmed Shahir SCM 013621 Almas

BeketovSCM 013296

10/3/2011



2 | P a g e FACEBOOK

FINANCIAL & NON FINANCIAL OBJECTIVESKabiru Ahmed Shahir ±SCM 013621 Almas Beketov²SCM 013296

Table of Contents Page No.

Financial Objections .............................................................................................. 3

1) Profit Maximization ........................................................................................... 3

2 .It ignores risk ..................................................................................................... 4

3) Principal Agent Problem .................................................................................... 6

SECTION 2 ........................................................................................................... 9

4) FACE BOOK NON-FINANCIAL OBJECTIVES ............................................. 9

Employee management and social welfare ............................................................. 9

Employee level of service .....................................................................................10

5) Fulfillment of responsibilities to words customers and supplirs .......................10

6) Growth Diversification and Leadership in research and development ...............12

Facebook launched and extended ± February 4th 2004 .........................................12

The ownership dispute in 2004 .............................................................................12

7) International expansion .....................................................................................13

8) Technological development ..............................................................................13

8) In research ........................................................................................................14

Reference ..............................................................................................................15





Financial Objections

1) Profit Maximization

1)Profit maximization is the (short run) process by which a firm determines the price and

output level that returns the greatest profit. The economists believes that one long period that the

maximum benefit of income is the single goal of any organization of businesses, because that

will also lead to the optimum allocation of resources. Actions which increase the benefit of

companies are undertaken and those which decrease the benefit are avoided. Thus, of the

prospect for the economic theory, the maximization of benefit is simple a criterion of economic

efficiency. There is also an extensive agreement which under the perfect competition,

The ³Facebook´ company previously expected revenues of $1.5 billion in 2010, double

the roughly $800 million that came in during 2009, (Facebook.com,2008) a stronger financial

results than expected thanks to strong growth in users and advertisers in this period, reported two

sources familiar with the company¶s accounts. The company also reported strong net income of

tens of millions of dollars last year, the results are significantly higher than those recorded in

2008 and higher than analysts¶ estimates, which predicted between 550 and 700 million dollars

(443 ± 565 million euros) in revenue for Facebook, whose leaders refused to make statements

regarding this information. But if 2010 year¶s take comes in higher than previously expected,

Facebook will have hit the $2 billion mark faster than Yahoo and at almost the same pace as

Google. Facebook has been gaining market share in display ads, and may have 9.4 percent of it

in the U.S. this year, compared to 6.6 percent in 2009, based on estimates from EMarketer Inc.

These statistics might not explain the increase in Facebook¶s revenues for the year,

assuming that whatever Bloomberg heard off the record bears fruit. The social network may be

employing a tactic more common among publicly held companies: Set lower expectations of

revenues or earnings so that you can beat them and then impress investors. This might make

more sense given how hot the company¶s shares are on SecondMarket.





. There are some limitations of profit maximization objectives as:

1. Ignores time value of money.

The fact that one rupee received today is of more than value than one rupee received later. This

concept is to lead been unaware of to the errors in decision making.

2 .It ignores risk

The future advantages can have various degrees of certainty. The more certain the return

envisaged is, the more is its high value or reciprocally more is the return envisaged dubious.

More is its lower value. This concept is also completely ignored. It also arranges the two

proposals implying various degrees of risk.

Profit Maximization is not the main goal of the firm, because it¶s a short term goal.

2-3) Shareholder wealt h maximization & Shareholder well-being

maximization

The basic premise underlying the study of modern corporate finance is that the objective

of the firm is to Maximize Shareholder Wealth (SWM). Most individuals seek to maximize their

personal well being which is partially defined, from an economic perspective, as theconsumption of goods and services. While there certainly are other motivations and rewards in

living a good life, most of us desire to achieve a certain level of material comfort which requires

an appropriate level of wealth or ability to consume.( dividendinvestor.com 2009) Achieving

this goal requires foregoing current consumption in order to free up funds for investment in

either equity or debt securities issued by corporate or governmental agencies with the

expectation that it will increase our future ability to consume. While higher rewards are more

desirable, this is tempered by the reality that the risk of losing all or part of our investment keeps

most long term investors from operating in a risk-prone manner.(Bloomberg

Businessweek.com2010)

Facebook Share price was $17 billion valuation on Second Market, competing private

SharePost claims that Facebook¶s valuation is $11.5 billion in 2010. There are a number of





reasons the valuation could be so different, but most of it boils down to the lack of information in

private markets.According to Henry Blodgett We also could guess that there is a large discrepancy

between the bid and ask price currently on the SharesPost market. Sellers may want to sell at $15

billion but buyers want to sell at $10 billion, for example.. Also, in many of these markets

(SecondMarket included), the deal is not completed until a broker finalizes the transaction. When

we got an offer to purchase shares of Facebook at a $17 billion valuation from SecondMarket the

other week, there¶s a chance the broker was fishing for a large investor who would be willing to

pay a large premium on the shares. That way, they could pay the seller a lower valuation and

pocket the difference.(All Facebook.com,2010)

Every organization has numerous 'stakeholders' in the form of lenders, employees,

customers and suppliers, with interests other than maximizing shareholder wealth, they generallygain when the shareholder gains. Equity shareholders bear the final responsibility in the sense

that they are last in the bankruptcy food chain and stand to lose all of their investment if things

go badly. So long as the shareholder is "taken care of" in the sense of gaining value from their

investment, other stakeholders should also benefit. The difficulty occurs when management loses

its focus on its role as an "agent" employed to act in the shareholder's best interest. Agents are

those whom we empower to act on our behalf and in our self interest.

A locally owned and managed firm is well aware of the equity investor since it is identical to

the management. There is no difficulty keeping track of whose interests they are pursuing or

who will bear the consequences of erroneous decisions. They have invested their own money

and seek to earn a daily living as well as to create longer term value which they can leave to

their children or to provide a form of retirement fund. They view SWM in a different manner

than the CEO of a publicly traded corporation since they have their own views on defining

"wealth" and the time frame over which they will "maximize" their investment of time, effort

and money. (Financial Modeling Guide 2007)

A senior manager in a publicly traded corporation, on the other hand, is separated from

the pleasure and pain of owning the entire equity funded portion of the firm and it is not their

own money at risk. They are typically employed via a contract which specifies remuneration and

responsibilities, but they do not personally bear the entire financial consequences of decisions





made. Shareholders can ask the Board of Directors and the senior management to act in our own

selfish interest as equity holders.

3) Principal Agent Problem

Principal agent problem is a situation arises from different thoughts among people with

different intentions and motives. This comprehensive term is used in political science and

economics. The arrangement that exists when one person or entity (called the agent) acts on

behalf of another (called the principal). For example, shareholders of a company (principals)

elect management (agents) to action their behalf, and investors (principals) choose fund (agents)

to manage the interests. This arrangement works well when the agent is an expert at making the

necessary decisions, but doesn't work well when the interests of the principal and agent differ

substantially.

Asymmetric information is the main reason behind principal agent problem, and it is

usually found in employer and employee relationship. It can be defined as ³Principal- agent

problem is a particular game-theoretic description of a situation. There is a player called a

principal, and one or more other players called agents with utility functions that are in some

sense different from the principal's. The principal can act more effectively through the agents

than directly, and must construct incentive schemes to get them to behave at least partly

according to the principal's interests. The principal-agent problem is that of designing the

incentive scheme. The actions of the agents may not be observable so it is not usually sufficient

for the principal just to condition payment on the actions of the agents.

And for the solutions of the agent problem can be example a Facebook. Facebook let

employees sell some stock ± at internal $4 billion valuation. Facebook has an internal valuation

of $4 billion, as we¶ve previously reported. It will begin letting current employees sell 20 percent

of their fully vested stock options at that valuation, starting this fall, I¶ve learned from well-

connected sources. Facebook isn¶t commenting. (directmarketingobservations.com, 2010) Butthis is a nice early windfall for Facebook employees, assuming my sources are correct. Other

³liquidity events,´ like an initial public offering or a purchase of the company itself, are looking

unlikely. Facebook has said it¶s not planning to IPO anytime soon, and it has rebuffed multiple

purchase offers over the years ² instead raising hundreds of millions of dollars as it seeks to

become a big business. Indeed, this move incentives current employee to stay with the company





while simultaneously allowing them to reap some of the benefits of their hard work. Some

former employees ² who have left for a wide variety of personal reasons, I¶ve separately

learned ² have been selling their vested stock at around this valuation. Unlike current

employees, former employees don¶t need permission from the Facebook board of directors to sell

stock. There has been at least one report of a former employee selling stock at an implied

valuation of at least $6 billion, although other reports point to market-based stock sale valuations

closer to $4 billion.(directmarketingobservations.com, 2010)

The company officially derives its $4 billion number based on a legally-mandated internal

estimate of its worth, that it provides the Internal Revenue Service multiple times per year.

4) Incremental Cash Flows

The additional operating cash flow that a company or business owner receives from

taking on a new project is termed the incremental cash flow. A positive incremental cash flow

means that the company¶s cash flow will increase if the project is implemented, and a company

should probably invest time, resources and capital in the project. A negative incremental cash

flow, on the other hand, will provide a financial modeler with an indication that the company

probably should not proceed with the project unless there is a strategic or competitive rationale

that exceeds the need for financial viability.(All Facebook.com2009)

In a financial modeling exercise involving the assessment of incremental cash flows,

there are several components that should be considered, these include: the initial capital outlay,

the cash flows attained from implementing / investing in the project, the terminal value or cost,

and the scale and timing of the project.

Here are some examples of incremental cash flows to consider in a financial modeling

exercise, in a number of basic categories:

� Net initial investment outlay: The net initial investment outlay comprises of cash

expenditures, changes in net working capital, net cash flow from the sale of existing / old or non-

useful equipment, and investment tax credits.

� Net operating cash flow: Net operating cash flow is the revenue net of expenses and tax

liabilities for the time period under consideration. (Financial modeling guide)





� Net salvage value: The net salvage value is the after tax net cash flow for the termination,

liquidation or sale of an investment, project or business that is financially unsustainable or which

the owner simply no longer wishes to keep. This comprises of sale of assets, cleanup and

removal expenses, and release of net working capital. (Financial modeling guide)

Regarding to the Facebook cash, following its $240 million investment from Microsoft,

now has plenty of it. It might have much more if reports prove true that other investors have, or

will soon, join in. With those lofty sums, Mark Zuckerberg said him and his crew can hire

armies of programmers, build data centers, acquire other startups and do whatever else they need

to do to make the company grow. Mark Zuckerberg also added there¶s at least one way,

however, in which the fallout from this blockbuster financing round could hurt: it will make

Facebook¶s stock options the main financial incentive to work at any Silicon Valley company

much less attractive. (All Facebok.com) Options, of course, give the employee the right to buy

stock at a given price. That price will go up significantly for options granted to new employees

following Microsoft¶s investment and Facebook¶s jump in valuation to $15 billion

Microsoft¶s investment, said Joseph Grundfest, a former member of the Securities and

Exchange Commission and an expert on corporate governance at the Stanford Law School. Mr.

Grundfest added that there were other ways besides stock options in which Facebook could offer

equity incentives to prospective employees. According (Miguel H, 2010) to What¶s more, many

hesitant candidates may see Microsoft¶s investment as a further assurance of Facebook¶s

eventual success. Still, it seems clear that the chance to strike it rich, or at least really rich, will

be greater for current Facebook employees than for its future hires.(NewYork times,2011)

MIGUEL HELFT





SECTION 2

4) FACE BOOK NON-FINANCIAL OBJECTIVES

Employee management and social welfare

Employee social welfare

As part of facebook employee welfare the staff have their own food traditions, they observe

cultural and religious holidays from around the world at a café they call CafeX, According to

( Josef,2010) the name of our main cafeteria and kitchen in our headquarters office. As a global

company with employees hailing from... around the world, we try to acknowledge and take part

in as many of their diverse cultural celebrations as we can.

The facebook staff also a special holidays like the according to an engineers, (Ali Heydari,2010)

called "New Day," is an ancient Iranian festival observed by more than 300 million people and as

a national holiday in 11 nations. It celebrates the start of the Iranian New Year, which was on

March 20 2010. They also have a holiday menu which traditional foods are made as authentic as

possible some times they include so of the nations personal to help with the feast and table

decorations according to (Navid Mansourian,2010) from IT and (Niloofar Nafici 2010 )from our security team took members of our culinary team to a local Iranian restaurant Rose International

Market, in Mountain View, Calif., so we could sample many of the dishes that would be on the

menu.

This was the first time that we celebrated Nowruz at Facebook, but we have celebrated several

other holidays and festivals. These include Thanksgiving, Christmas and Passover, as well as

Halloween Niloofar added.





5) Employee level of service

In facebook to look at the employees level of service we must firstly examine one of the many

visions of the company what Mark Zuckerberg (director and CEO of FACEBOOK) has laid out

According to Mark "Facebook is a social utility that helps people communicate more efficiently

with their friends, family and coworkers. The company develops technologies that facilitate the

sharing of information through the social graph, the digital mapping of people¶s real-world social

connections. Anyone can sign up for Facebook and interact with the people they know in a

trusted environment". Which is the core service of Facebook

6) Fulfillment of responsibilities to words customers and supplirs

Privacy concern of member data ± December 14th, 2005

In the year 2005 two MIT students downloaded over 70,000 Facebook profiles from four schools

(MIT, NYU, the University of Oklahoma, and Harvard) using an automated script, as part of a

research project on Facebook privacy. Microsoft invested into security campaign worth 25

million dollars in 2006,in 2005 13million from Accel Partners, April 20006 another 25million

from

In May 2005 Facebook received a $13 million cash infusion from venture firm Accel Partners,

followed in April 2006 by a further $25 million from Greylock Partners, Meritech Capital

Partners, and investor Peter Thiel, the co-founder of PayPal.

Facebook last week from a range of partners including

spokesman Chris R. Hughes explained the rationale for the investment when he said:

³This investment supports our goal to build an industry-leading company that will continue to

grow and evolve with our users. We¶re committed to building the best utility to enable people to

share information with each other in a secure and trusted environment.´

Paul S. Madera, Meritech¶s managing director, said his firm was impressed by Facebook¶s rapid

growth and its potential for further expansion in the coveted college-age market.





³They¶ve been designated by t heir community as t he chosen community portal,´ Madera said.

³This is a company t hat t he entire venture community would love to be a part of.´

All this measurees was taken to proect facebook users of identity thefit because that is the major

problem faced by facebook since 2005 till date.

At the time of the launch the Facebook blog made these comments which indicates the delicate

balance in getting the balance right between advertising revenue and user experience. They said

first of all, what's not changing:

³Facebook will always stay clutter-free and clean.

Facebook will never sell any of your information.

You will always have control over your information and your Facebook experience.

You will not see any more ads than you did before this´.

This was the trust or word that facebook gave coustomers and suppliers in other to gain their

desired trust

According to facebook this the new measures taken

³You now have a way to connect with products, businesses, bands, celebrities and more on

Facebook.

Ads should be getting more relevant and more meaningful to you.

You now have the option to share actions you take on other sites with your friends on

Facebook´ (these were originally implemented as ³social ads´ and were based on a piece of

technology known as ³Beacon´ that tracks purchases or reviews made by Facebook users on

outside sites, then reports these purchases to those users¶ friends on was introduced)..

http://www.facebook.com/joinred)





7) Growth Diversification and Leadership in research and development

Facebook launched and extended ± February 4th 2004

Facebook was founded while Mark Zuckerberg was a student at Harvard University. Initially

membership was limited to Harvard students. The initial viral effect of the software was

indicated since more than half of the undergraduate population at Harvard registered on the

service within the first month!

Zuckerberg used open source software PHP and the MySQL database to create the original

³TheFacebook.com´ site and these technologies are still in use today.

first launched in February 2004, Facebook users could do only three things on the site,which are

regarded as core functionality of the site. Users could create a profile with your picture and

information, view other people's profiles, and add people as friends. Since 2004, Facebook has

introduced other functionality to create the Facebook experience. Some of the most significant of

these include:

- A Wall for posting messages - News feeds

- Messages - Posting of multiple photos and videos

- Groups - Applications

- Facebook or Social Ads

The ownership dispute in 2004Since 2004 an ongoing dispute on ownership of Facebook has been an ongoing event from

Harvard-originated social networking site ³HarvardConnection´, which later changed its name to

Connect U, alleged in September 2004 that Zuckerberg had used source code to develop

Facebook when they originally contracted him to help in building their site. It is also alleged that





another system predated Facebook. Aaron J. Greenspan, a Harvard student in 2003 created a

simple web service that he called houseSYSTEM.

Facebook was formally called ³The Facebook´ until in August,2005 Facebook bought the

domain name facebook.com from the Aboutface Corporation for a whopping $200,000 anddropped "the" from its name.

8) International expansion

In the whole of the year 2005 facebook has been growing from college to college university to

university and country to country like a wild fire, by the year end of 2005 it¶s included in the

most part United States, Canada and Mexico and also in many universities in the UK and Ireland

and by December, Australia and New Zealand were added to the Facebook network, bringing its

size to more than 2,000 colleges and over 25,000 high schools.

9) Technological development

Facebook introduced some technologies in 2008 January ,and 140 new applications are added

per day , with. More than 95% of Facebook members ,is said to have used at list one application.

Out of ,Over 18,000 applications that have been built on Facebook Platform some of the mostfamous application on Facebook as at 2008 from the listing made during that year

FunWall. , Top Friends, Super Wall Bumper Sticker, Friends For Sale, Scrabulous,

Compare People and Are YOU Interested?

Some of the problems that was faced with facebook applications was that Some applications

have been accused of FB Application Spam, i.e. "spamming" users to request that the application

be installed.

In the late 2007 facebook luched the facebook mobile Platform, Although most of the facebook

users alredy intract with their friends via mobile





10) In research

Data produced by querying the Facebook ad targeting tool completed in November 2007 by

blogger PK Francis suggests that themajority of Facebook users in many countries are

female.

In terms of user engagement metrics, Facebook statistics shows there are:

68 million active users

An average of 250,000 new registrations per day since Jan. 2007

Sixth-most trafficked site in the United States (comScore)

More than 65 billion page views per month

More than half of active users return daily

People spend an average of 20 minutes on the site daily (comScore) Advertisers assess

reputational damage ± Summer 2007

In August 2007, the BBC announced that six major mainly financial services firms (First Direct,

Vodafone, Virgin Media, the AA, Halifax and the Prudential) had withdrawn advertisements

from the networking website Facebook, after they appeared on a British National Party page.





Reference:

1. UK-business,(2010),Profit Maximization,http://www.uk-business-centre.com/profit-maximization-approach-the-financial-management-objectives.htm, accessed 10/03/2011

2. Answer.com,(2011),Reference Answers, http://www.answers.com/topic/profit-maximization

3. Accessed 10/03/2011

4. Jackie C ,All Facebook (2010)., Facebook May Pull $2 Billion In RevenuesThis Year http://www.allfacebook.com/facebook-may-pull-2-billion-in-revenues-this-

year-2010-12Accessed 11/03/2011

5. Facebook earnings, the Facebookers (2009), Facebook Earnings Estimated 645million euros in 2009,http://www.thefacebookers.com/tag/facebook-net-income/Accessed 11/03/2011

6. 7. Jackie C ,All Facebook (2010)http://www.allfacebook.com/facebook-share-

price-discrepancy-highlights-risks-of-private-markets-2010-03?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%253A+allfacebook+%2528Facebook+Blog%2529

8. Accessed 13/03/2011

9. Firmsobjectives,Jkowens(2010),http://jkowens.com/FMT/Chapter%20One/Goals.htm Accessed 14/03/2011

10. Financial Modeling Guide(2008),http://www.financialmodelingguide.com/financial-modeling-tips/tricks/incremental-cash-flow/Accessed 14/03/2010

11. Eric Eldon ,Venturbeats,(2010),FACEBOOK,http://venturebeat.com/2008/08/04/facebook-to-let-employees-sell-some-stock-options-at-internal-4-billion-valuation/Accessed 14/03/2010

12. The new York Timesonline,Facebook stock options(2011)FACEBOOK http://bits.blogs.nytimes.com/2007/10/25/facebooks-stock-options/




Accessed 14/03/201013. FACEBOOk(2010) http://www.facebook.com/joinred

Accessed 15/03/2010

SECTION 2 faceboook almost done

Documents

Transcript of SECTION 2 faceboook almost done