“Facebook, Inc: The Initial Public Offering”
Facebook, which was founded by Mark Zuckerberg in February 2004, is an online social networking platform with the mission of making the world more open and connected. Within a few years, Facebook attracted millions of new users, from 1 million Monthly Active Users to 845 millions Monthly Active Users. Though competing with global and regional corporations in the industry, Facebook kept growing rapidly. With the high expectation of investors, Facebook finally decided to go public. The “Red Herring” of Facebook stated that its goal was to connect all two billion global Internet users. Basing on our analysis of Facebook’s IPO, we would like to give several recommendations on the investment of Facebook. Analysis
Facebook generated its revenues mainly through advertising. Advertising accounted for 98% of Facebook’s revenue in 2009, 95% in 2010 and 85% in 2011. As a real identity networking website, Facebook can match the proper products based on users’ preferences. Facebook provides advertisers the opportunity to target the users based on the users’ demographic information. It owns any information uploaded by users. Facebook records all these information in database, which can be used by advertisers to target specific segments of users (social context). Moreover, Facebook generates money by its payments business from selling virtual goods through online gaming companies. Revenues generated from selling goods in online games increased from $13 million in 2009 to $557 million in 2011 and still has upward trend. It seems that the huge customer database with tremendous information about these users and the penetration of smartphone are the most significant value drivers of Facebook. As we know, Facebook appealed to people who are looking to reconnect with family and old friends or to find new friends. That is what made Facebook an outstanding company comparing to LinkedIn, Google plus and Twitter etc. In other words, the authentic identity of users together with the strong users base made Facebook an advantageous company. Additionally, the overall technical approaches brought simplicity both in its look and even in its functionality.
In 2011 Facebook Inc. decided to go public because of the rising popularity and the visibility of social media companies. Moreover, Facebook IPO will create public market for the existing shareholders and enable future access to the public equity markets. The Proceeds from the IPO would be used for working capital and other general corporate purposes.
In general, the global economic environment is moving forward now but it is still fragile. The annual GDP growth rate is predicted to be 2.2 percent in 2012, up from 1.7 percent in 2011. Additionally, US unemployment remained high above 8 percent. The market volatility and economic uncertainty had left the IPO market in the doldrums. The number of the IPOs during the first quarter of 2012 fell down significantly to 157 from 383 of the second quarter of 2011. Similarly, raised IPO capital was only 14.3 billion during the first quarter of 2012 compared to 46.6 billion during the first quarter of 2011 (Exhibit 1- 2).
Several Social Networking companies went public in the US in 2011. In May 2011, LinkedIn had raised $353 million by issuing 7.84 million shares at $45/share. Because the demand by investors was overwhelming, the price talk was increased from the range of $32 to $35 to the range of $42 to $45 before IPO day. Although the price already rose sharply before the IPO day, LinkedIn’s stock price rose 109 percent on the first day of trading, making the IPO a huge success.
The “deal-of-the-day” coupon company Groupon went public in November 2011, raising $700 million in the largest US tech IPO since Google. Due to the popularity of the deal, the offered shares were increased from 30 million to 35 million and the price also rose to $20, which is above the initial range of $16...
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