Facebook goes public
After much speculation, midst hope, fear, and anxiety, Facebook CEO and Founder Mark Zuckerberg rang the opening bell for NASDAQ from Facebook’s headquarters in Menlo Park, California. Facebook will be traded under ticker symbol FB on NASDAQ at the offering price of $38 per share, which is the top-most point of its $34-38 per share range reflecting the positive sentiment of the market.
At IPO, FB is offering 421,233,615 (421 million) shares of its common stock – 180 million from the company, and 241 millions from selling stockholders, and Barclays, Allen & Company LLC, BofA Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank Securities, Goldman, Sachs & Co., J.P. Morgan, and Morgan Stanley are the book runners for the offering.
By offering $38 per share, Facebook IPO has become the third-largest IPO ever in the history of United States, only trailing behind Visa and ENEL SpA, and seventh largest IPO of the world. It has left is arch-rival Google far behind. At the time of IPO in 2004, Google was valued at $26.4 billion, whereas at the IP price, Facebook has been valued for $104.2 billion, which is a tad more than its expectation of being valued at $100 billion.
Zuck got the last laugh
After spending sleepless nights and worrying about mobile platform killing FB’s profit, among other things, Zuck will finally get to sleep. Anxious CEO of the Menlo Park, California company has working closely with his team to prepare a list of possible threats, which along with other changes has been included in the 6th Amendment in S-1 filing to IPO.
When listing down the risk factors as part of issuing IPO, Facebook has demonstrated its discomfort with growing use of mobile phones and its inability to monetize on that. Facebook has listed quite many risk factors, which are listed below:
Factors that can negatively affect user retention, growth, and engagement:
- Users increasingly engage with competing products;
- We fail to introduce new and improved products or if we introduce new products or services that are not favorably received;
- We are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with respect to the frequency, prominence, and size of ads and other commercial content that we display;
- We are unable to continue to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and networks, and that achieve a high level of market acceptance;
- There are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, safety, security, or other factors;
- We are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and relevant to them;
- There are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements or consent decrees;
- Technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience;
- We adopt policies or procedures related to areas such as sharing or user data that are perceived negatively by our users or the general public;
- We fail to provide adequate customer service to users, developers, or advertisers;
- We, our Platform developers, or other companies in our industry are the subject of adverse media reports or other negative publicity; or
- Our current or future products, such as the Facebook Platform, reduce user activity on Facebook by making it easier for our users to interact and share on third-party websites.
Factors that could adversely affect the advertising revenue:
- Decreases in user engagement, including time spent on Facebook;
- increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;
- Product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;
- Our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;
- Decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;
- Loss of advertising market share to our competitors;
- Adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;
- Adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;
- Our inability to create new products that sustain or increase the value of our ads and other commercial content;
- The degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;
- Changes in the way online advertising is priced;
- The impact of new technologies that could block or obscure the display of our ads and other commercial content; and
- The impact of macroeconomic conditions and conditions in the advertising industry in general.
Factors that could affect FB’s ability to compete effectively:
- The usefulness, ease of use, performance, and reliability of our products compared to our competitors;
- The size and composition of our user base;
- The engagement of our users with our products;
- The timing and market acceptance of products, including developments and enhancements to our or our competitors’ products;
- Our ability to monetize our products, including our ability to successfully monetize mobile usage;
- The frequency, size, and relative prominence of the ads and other commercial content displayed by us or our competitors;
- Customer service and support efforts;
- Marketing and selling efforts;
- Our ability to establish and maintain developers’ interest in building on the Facebook Platform;
- Changes mandated by legislation, regulatory authorities, or litigation, including settlements and consent decrees, some of which may have a disproportionate effect on us;
- Acquisitions or consolidation within our industry, which may result in more formidable competitors;
- Our ability to attract, retain, and motivate talented employees, particularly software engineers;
- Our ability to cost-effectively manage and grow our operations; and
- Our reputation and brand strength relative to our competitors.
Other major risk factors detailed by Facebook are:
- Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results, and
- We may not be successful in our efforts to grow and further monetize the Facebook Platform.
Read the complete list of risk factors in details here.
How Strong is Facebook?
In Form S-1, Facebook has mentioned that as on March 31, 2011 it had 901 million monthly active users and 526 daily active users, which are 33% and 44% rise respectively on the numbers produced on March 31, 2011. In total there are 125 billion friendships on Facebook. People collectively upload 300 million photos daily and engage in 3.2 billion likes and comments every day.
Out of 901 million monthly active users, 488 million people access Facebook from their mobile devices, which is almost half of its total monthly active users. And as per FB’s admission, it cannot monetize this traffic, so half of the Facebook’s users are its liability.
But will people support it?
This is the question that has kept Zuck awake for many months epitomizing Intel’s Andy groves proclamation, “Only the Paranoid Survive”.
But this question is not altogether irrelevant, if we see the recent list of Facebook detesters. The following infographic will reveal the effect of timeline of Facebook loyalty.
In a study conducted by CNBC and the Associate Press, with a sample size of 1004 18+ individuals, it was found that 46% of Americans think Facebook is a fad and it would be replaced by a better technology in the near future.
And 60% people were not very confident about Zuck’s ability to run a large corporation like Facebook.
One of the major issues that will thwart Facebook’s growth, as per the poll, is the privacy and security concern of people when doing any transaction online (financial or otherwise).
The study also revealed that only 17% of Americans click on Facebook advertisements and sponsored content when using Facebook.
Life in Menlo Park might have resumed normality, nerve might have relaxed a bit, but the battle is far from being over at IPO launch, in fact, it has just begun and Zuck will need to keep his head buried in data, far from the glaring stories of his heroism, which the media is littered with, and work diligently to stand up to $104.2 billion expectation.
There will be a time and a place for this, but for now