Sie sind auf Seite 1von 34

Course

Facebook
ACCOUNTING

http://create.mheducation.com
Copyright 2014 by McGraw-Hill Education. All rights
reserved. Printed in the United States of America. Except as
permitted under the United States Copyright Act of 1976, no part
of this publication may be reproduced or distributed in any form
or by any means, or stored in a database or retrieval system,
without prior written permission of the publisher.
This McGraw-Hill Create text may include materials submitted to
McGraw-Hill for publication by the instructor of this course.
The instructor is solely responsible for the editorial content of such
materials. Instructors retain copyright of these additional materials.
ISBN-10: 1308388098

ISBN-13: 9781308388090

Contents
Facebook (in 2013): Will Wall Street Hit the Like Button? 1

iii

Credits
Facebook (in 2013): Will Wall Street Hit the Like Button?: Strategic Management, Second Edition 1

iv

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

MHE-FTR-016
007764506 5

FRANK T. ROTH AERMEL


SETH TAYLOR

Facebook (in 2013): Will Wall Street Hit the Like Button?

JANUARY 15, 2013, 10:03 A.M. Mark Zuckerberg, casually dressed in his hoodie, entered the media event
room at Facebook headquarters in Menlo Park, California. This was Facebooks first live introduction of a
new product. As he stepped in front of the audience, Zuckerberg noticed the numerous glowing white Apple
icons arrayed throughout the auditorium. These images very briefly reminded him of his mentor, the late Steve
Jobs, who played a significant role in his professional development and his companys success. Even some of
Facebooks current challenges were brought about by Jobs revolution of the mobile industry. Today, Zuckerberg
would attempt to engage an audience with a new product in a manner similar to Jobs flashy introductions of new
innovations.
Zuckerberg opened with a review of Facebooks mission and described the structure of the companys current
social ecosystem. Two current products, Timeline and News Feed, represented two of the three pillars supporting
the Facebook ecosystem. These two products allow users to view a portion of their social network by continuously
answering the questions, Whats going on? and Who is this? After reviewing the first two pillars, Zuckerberg
unveiled the third pillar: Graph Search, which allows users to query their social network directly. He intentionally
noted that Graph Search is very different from a normal web search because it filters results based on a users
connectivity to his or her social network.
After the presentation, Zuckerberg sat down with Sheryl Sandberg, Facebooks chief operating officer (COO)
and second in command, to discuss strategies for monetizing Facebooks data and users. Sandberg knew that she
and Zuckerberg had a strong professional relationship, but the topic of modifying Zuckerbergs creation for profit
was a subject of debate between them. Zuckerberg is all about building the best product and user experience,
while Sandberg, a Harvard MBA, is a driven businesswoman with a keen sense for shareholder value creation.
Sandberg eased into her chair saying, I think that went very well, referring to the Graph Search press event.
I believe you will change the way we look for answers from the Internet. It could also be a great tool for
advertisersand a way to deliver on the expectations of shareholders.
Zuckerberg answered immediately, I dont like seeing my vision for a connected world smothered with logos
and slogans! But that is why youre hereto try to convince me otherwise.
Sandberg responded, There are options for demonstrating the value of our data. Ways that can be a win for
everyoneyou, advertisers, shareholders, and users!
So, what are the latest ideas? countered Zuckerberg.
What are the latest ideas? The question stuck in Sandbergs mind. There were many ways to monetize
Facebooks user base of one billion people: ads on the mobile platform and the main site; charging users a usage

Frank T. Rothaermel and Seth Taylor (GT-MBA14) prepared this case from public sources. This case is developed for the purpose of class discussion. It is not
intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and
omissions, are entirely the authors. The authors thank Andrea Meyer for her editorial assistance and invaluable case writing guidance. by Rothaermel and
Taylor, 2015.

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

fee; traditional banner and skyscraper advertisements. But the method could not be a drastic diversion to the user.
As Sandberg considered Zuckerbergs question, she knew that no matter what, it would always be a hard sell to
him. At the same time, Facebooks investors were growing more restless as they monitored the young companys
share price.

A Brief History of Facebook


While attending Harvard University in the fall of 2003, Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash, which was similar to Hot or Nota social media site that prompted
users to submit photographs that were judged by other users as either hot or not. Zuckerbergs Facemash site
placed pictures of two female students next to each other and asked fellow students to choose the more attractive
person. To collect student images, Zuckerberg and his friends hacked into Harvards computer network and copied
files from campus houses. The site proved popular, attracting 22,000 views within its first four hours online.1 After
a few days, almost all Harvard students had either viewed the site or, at the very least, received an invite to view
it. University officials, however, quickly shut down Facemash and placed Zuckerberg on a six-month academic
probation for breach of security.
The following semester, Zuckerberg began work on a new websiteThe Facebookthat leveraged some of
the features from Facemash. Designed initially to replace Harvards printed student directory, Zuckerberg and
several fellow students officially launched The Facebook in February 2004 (the The was dropped shortly thereafter). Joining members were allowed to add a picture, major, and hometown to their profile and could link their
profile to those of their friends.2 Half of Harvards undergraduates had signed up within just over a month of the
launch. Realizing the sites potential, Zuckerberg opened the platform up to other universities in the Boston area,
and to Stanford, Columbia, and Yale. The only requirement to join was an e-mail address ending in .edu.3
Facebook continued to grow rapidly over the next several years. In May 2005, the website was in use at over
800 colleges and universities and received $12.7 million in investment from venture capital firm Accel Partners.4
High school and international school networks were added in the fall of 2005. By years end, Facebook had
achieved $9 million in revenue and accumulated six million monthly active users (MAUs).5 The following year
was another strong one for the company. In addition to launching Facebook Mobile, it hit 12 million MAUs
and earned $48 million in revenue. In April of 2006, Greylock Partners, Meritech Capital Partners, and PayPal
co-founder Peter Thiel invested $27.5 million in Facebook. By September, anyone with a verifiable e-mail address
could sign up, which paved the way for exponential user growth. More features were added over the next several
years to further enhance the sites user functionality, including a developer platform, chat capabilities, the Like
button, and an e-commerce payment feature, among other things.
The global footprint Facebook had achieved by 2012 was astronomical. Facebook tracks the number of monthly
active users (MAUs) and daily active users (DAUs) as a means to assess users engagement. Users who have
logged into Facebook within a 30-day period are counted as monthly active users. In the same way, daily active
users measure the number of users who have logged in within a 24-hour period. In addition to 1.06 billion monthly
active users (MAUs), Facebook had 618 million daily active users (DAUs), a 30 percent increase over December
2011. Exhibit 1 shows the MAUs, DAUs, and mobile MAUs from 2009 to 2012. Approximately 80 percent of the
sites users live outside the U.S. and Canada, and the website is available in more than 70 languages.6 Globally,
there were, on average, 2.7 billion likes and comments per day and over 100 billion friend connections by the end
of 2011.7
The growing user base also brought more revenues. The increase in MAUs from 2010 to 2012 led to a corresponding increase in revenues, from $731 million to $1,584 million, respectively.8 See Exhibit 2 for more
information about Facebooks revenue growth. Double-digit growth in monthly active users and annual revenue
quickly became the norm.

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

In 2012, Facebook brought in $5.09 billion in sales, a 37 percent increase over 2011 (Exhibit 3). The company
generated 84 percent of its revenue through advertising services and collected the rest through social gaming
fees charged to platform developers. Facebooks ad revenues are predicted to rise to $7.64 billion in 2014 (see
Exhibit 4), but there is still plenty of room for Facebook to grow.9 Google and Yahoo make nearly $88 per user
of their search engines, whereas Facebook makes only $15 per user account.10 However, Facebook chooses to
focus on average revenue per user (ARPU) as a tool for assessing its ability to monetize its users. Facebooks
ARPU (Exhibit 5) provides another metric for measuring how well Facebook is capturing value from its user
base. This measure has slowly risen over the years, with most of the growth being generated in North Americas
well-developed advertisement industry.
Facebook has ambitious plans for the future. The company has stated that it intends to connect the more than
two billion global Internet users.11 Its success in penetrating different countries, however, has varied. In most of
North America, South America, and Europe, Facebook reaches anywhere from 6080 percent of Internet users.
Exceptions are Brazil and Germany, where penetration rates are less than 30 percent. In Germany, users are quite
concerned about data privacy, while Googles Orkut social network competes with Facebook in Brazil (only
recently has Facebook surpassed Orkut in usage).12 In Russia, Facebook battles VKontakte for dominance, and in
China, Facebook is currently blocked by the government. This ban leaves a gap in the companys social network.
Facebooks equivalent in China is Renren, a network with roughly 200 million users.

Facebooks Leadership
MARK ZUCKERBERG
Founder Mark Zuckerberg (nicknamed Zuck) remains the CEO and chairman of Facebook, despite the fact
that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more
experienced, professional managers. Compelled by the companys vision to connect the world by building a great
user experience, Zuckerberg wont see his ambitions sidelined by an outsider motivated primarily by increasing
shareholder value. Facebook is the obvious fusion of Zuckerbergs academic passions in psychology and computer science at Harvard. The website collects data to map out human relationships and social connectivity, which
Zuckerberg refers to as a social graph. Taken together, it is a social graph that has mapped one-tenth of the world
population in less than seven years.
In the early days, Facebook operated directly under Zuckerberg, who coded much of the original site and then
managed the engineering teams in the next phase. As Facebook grew out of its start-up phase, however, some
industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO. At times,
Zuckerbergs inexperience and casual appearance have received criticism. On several occasions, Zuckerberg has
worn flip-flops and hoodies to meetings with other executives. With his habit of arriving late to work and staying
into the middle of the night, even his work schedule hearkens back to college habits. He received more negative
press over comments he made in a speech in 2007, when he stated that young people are just smarter.13 In recent
years, it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and
activities. He even hired a public speech coach, former president Bill Clintons speech adviser.
Even as Zuckerberg has adapted to his role as a business leader, the way the company has tried to juggle user
privacy and the monetization during his tenure has opened him up to additional criticism. In December 2007,
Facebook launched a new advertising mechanism called Beacon. The feature was designed to track users activity
across all of the websites they visited and share their activity with friends via their Facebook account. Its release
prompted condemnation from users and privacy groups alike. A similar situation occurred in 2009, when the company released new privacy controls that, under the new settings, made public some messages originally thought
to be private. Addressing privacy concerns effectively remains in the front of Zuckerbergs mind as he considers
ways to monetize Facebooks prime audience, mobile users.14

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

SHERYL SANDBERG
Sheryl Sandberg joined Facebook as chief operating officer (COO) in 2008, following a six-year stint as Googles
vice president of global online sales and operations. In that capacity, she worked with Googles AdSense and
AdWords programs; a unit that began with 300 staff but grew to 4,000, or about one-quarter of Googles work force,
under Sandbergs leadership.15 Eric Schmidt, Googles CEO at the time, considered her a superstar, but tension
grew between the companies after her departure, partly because Sandberg recruited Google executives and employees to work for Facebook.16 Sheryl Sandberg attended Harvard for both her undergraduate (economics) and graduate (MBA) degrees. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U.S.
Department of Treasury prior to working at Google.17 Time magazine considers her one of the 100 Most Influential
People in the World, and Fortune places Sandberg as one of the 50 Most Powerful Women in Business.
Sheryl Sandberg is a vocal advocate for women in leadership. Her TED talk entitled Why We Have Too Few
Women Leaders has some three million views,18 and her book Lean In is a bestseller. In both, Sandberg speaks
about the low number of female leaders in todays society and how to overcome this situation.19
As COO and Zuckerbergs second in command at Facebook, Sandberg focuses on operations, revenue, and
international reach. She was also tapped for her sales, business development, public policy, and communications
prowess. Given Zuckerbergs public relations challenges, many consider Sandberg the professional face of
Facebook.20 Zuckerberg sought out Sandberg amid a shake-up of his executive team. He was looking for someone who would be comfortable serving as his No. 2 within the company, allowing him to maintain a tight rein on
Facebooks activities. To some extent, the leadership dynamic between the CEO and his COO can be explained in
simple terms: Zuckerberg brings in the users, while Sandberg brings in the money. The dynamic between the two
is respected within both Facebook and its board of directors.
Sandberg has been able to attract high-profile advertisers by showing them how targeted their ads can be when
theyre hooked into a network as intimately familiar with its users as Facebook is. She has also stepped up in unexpected areas when needed, such as when she completed a round of funding for Facebook when its chief financial
officer (CFO) left suddenly.21 Sandberg is known for her ability to form teams and break deadlocks, bringing an
analytics perspective and authentic communication to bear on the issues. In this way, Sandberg has been a key
figure in reshaping Facebooks business model. She is now working hard to help Zuckerberg find a viable business
model that will monetize the companys mobile users.22

DAVID EBERSMAN
After the departure of Facebooks chief financial officer Gideon Yu in 2009, the company sought a CFO with
public company experience that could help it prepare to go public in the next few years.23 The search turned up
David Ebersman, who was in his 15th year as CFO at the biotech company Genentech Inc. Prior to working at
Genentech, Ebersman, who received an undergraduate degree in economics from Brown University, held positions with Oppenheimer & Co. Inc. and the U.S. Department of Treasury.24
Ebersman was indispensable to the launch of Facebooks IPO on May 18, 2012, working closely with advisers from the institutions underwriting the offering, particularly those at J. P. Morgan. The SEC and the media
criticized Ebersman for his decision to raise the number of shares offered in Facebooks IPO three days before
Zuckerberg rang the NASDAQ bell, even going so far as to blame this decision for the stagnant stock price on the
day the IPO was issued.25

Three Pillars of a Business Model


Mark Zuckerbergs Graph Search announcement on January 15, 2013, launched the third pillar of Facebooks
social ecosystem. The three pillars consist of News Feed, Timeline, and Graph Search.
4

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

NEWS FEED
Released in September 2006, News Feed quickly became a core feature of Facebook. It is at the heart of a
users homepage and provides regular updates of friends posts, photos, events, group memberships, and so on.
The priority of items displayed in the News Feed is based on a complex algorithm. Several factors, such as the
number of friend comments on an item, who posted the original item, and the actual content, play a critical part
in the priority ranking.26 The success of the logic behind News Feed has kept users engaged and has contributed
to the immense popularity of the site. Zuckerberg claims that News Feed answers the question, Whats going on
in the world around you?27

TIMELINE
An updated version of the profile page, called Timeline, was launched in September 2011. It allows each user
to paint a complete life story on his or her profile. Users can select what information to share and with whom to
share it. Milestones older than 2004 (Facebooks launch year) are now easily represented on a graphical display.
Inspiration for this product came when its creator, Sam Lessin, viewed a hard copy of his profile stretched across
the office.28 According to Zuckerberg, Timeline answers the question, Who is this person?29

GRAPH SEARCH
Zuckerberg calls the network of connections between people the social graph. Facebook, as a product, is an
attempt to map the global social graph in the form of a massive database. Graph Search is a search bar that hovers
at the top of every Facebook page. In addition to acting as a title for the content of that page, Graph Search also
allows users to search for people, places, photos, and interests in their portion of the social graph. Zuckerberg
stated that Graph Search is meant to help people discover and make new connections,30 whereas the previous
two pillars helped people maintain their connections. Later releases of the tool will include information from
Open Graph (described in the following Creating Value for Developers section) and allow users to search
Facebook posts. It is also expected to migrate to Facebook mobile.
Facebook has taken a giant step into Googles territory with the release of Graph Search. The years that
Facebook spent attracting users and their personal information have come together to give Facebook an edge
over Googles user database. In fact, in anticipation of such a move by Facebook, Google launched its own social
networking tool, Google1 in 2011. So far, Google1 has made little headway against Facebooks massive head
start in the social network space.31 Facebook search capabilities will also directly compete with other social-based
information services like Yelp, LinkedIn, and Amazon.com in the areas of finding restaurants and shops, making
business connections, and buying goods.32

Facebooks Products for Users


Facebook has evolved tremendously over its eight years of operation. The company strives to build the tools
necessary for users to connect, share, and communicate with each other across the Internet.

MESSAGES
Included with the initial launch of Facebook, messaging has remained a core feature of the social networking
site. Today, Facebooks messaging products include e-mail (i.e., users can opt to utilize a free@facebook.com e-mail
address), chat, and text messaging. Since November 2010, users have seamlessly accessed all three products in one
integrated location. A separate mobile application (app) called Messenger was launched in November 2012. This app
allows users to quickly message with their Facebook friends and supports image attachment and audio messages.
5

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

GROUPS
Facebook Groups provide users with an online space to discuss common interests. Examples of Groups
include family, sports teams, and church groups. Launched in September 2004, the feature allows users to
control the content they sharefor example, pictures, calendars, and commentsvia customizable privacy
settings.

EVENTS
The Event feature lets users create an event, invite other Facebook users to the event, and track RSVPs for the
event. An event can include a map location for the address and a host for the event who is also a Facebook user.
In addition, guests can communicate with each other on the event page. A new version of Facebook Events was
launched in May 2010. This upgrade made it easier for users to create events from their homepage while adding
more details about an event.

PLACES
Launched in August 2010, Places is a Facebook mobile feature that lets users share their physical location
with other users by checking in. Users can tag other Facebook users who are with them as well and, if their
Facebook friends have visited the same location and left comments about their experience, users can see that
information.

NOTIFICATIONS
Introduced in May 2009, Facebook Notifications are visual alerts that signal users to activity on their page
or within their social graph. Separate notifications appear for friend requests, messages, and general activity. Notifications accumulate and are displayed as numbers within red notification bubbles located on the
Facebook page.

PHOTOS AND VIDEOS


Originally designed by a single engineer and designer in October 2005, the ability to share pictures is one of
Facebooks most popular features. Users upload more than 250 million photos on average each and every day,
making it the most popular photo uploading service on the web.33 Users can share an unlimited number of photos,
photo albums, and videos with friends, family, or the world, depending on their profiles privacy settings. They
can also add captions and locations to their photos and identify other users by tagging them. On May 22, 2012,
Facebook released a Facebook Camera mobile app that made it easier for mobile users to take pictures and upload
them to their account directly from their phone.

FRIENDS LISTS
Launched in December 2007, Friends Lists added another layer to the News Feed algorithm. Users can use
Friends Lists to create Smart lists or Friends and Acquaintances lists to ensure that content from specific friends
is given the highest priority on their homepage. Friends Lists was updated in September 2011 to compete with
circles on Google1, which some considered superior to Facebooks solution.34 Lists, like Googles circles, help
users focus on content that they are immediately interested in reviewing, eliminating the need to wade through
mundane updates from those to whom they arent as closely connected. This feature also provides users with a
way to share information privately.35

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

PAGES
Also launched in late 2007, Facebook Pages allow any individual or group (e.g., celebrities, public figures,
businesses, colleges, or organizations) to create a public profile page in order to interact with the Facebook community. When users like a page, they automatically sign up for any and all content published through that page;
this content is then posted to the users News Feeds. Pages operate similarly to the model of Facebook competitor
Twitter in that the owner of a Facebook Page need not approve likes from users (unlike a friendship between individual Facebook users, which requires dual acceptance). Through effective use of pages, an owner can increase
his or her exposure by taking advantage of the algorithms associated with the News Feed. By the end of 2011,
there were more than 37 million Facebook Pages, including ones for most Fortune 500 companies, a large number
of public and private universities, and many national and local celebrities.36

VIDEO CALLING
In the summer of 2011, Facebook partnered with Skype (which had been purchased by Microsoft in May
2011) to form Video Calling, a feature intended to compete directly with the Hangouts feature on Google1. Video
Calling enabled users to call friends for free directly from Facebook after installing the Skype plug-in.

SUBSCRIBE
September 2011 brought another new feature to Facebook: Subscribe, which promotes the further customization of the Facebook experience. The Subscribe feature gives users the option to tailor what they pull into their
News Feed, allowing them to turn on or off comments, photos, life events, or games from individual Facebook
friends. In addition, a user can subscribe to articles authored by his or her favorite journalists from sites such as
CNN, USA Today, The Wall Street Journal, and Forbes. From then on, any time a favorite journalist authors an
article, it is posted to the Facebook users News Feed.

GIFTS
The Facebook Gifts feature was rolled out in December 2012 as a way to capitalize on e-commerce beyond
the cut that Facebook takes from game developers on the Facebook platform. Users can visit a friends Timeline,
click Give Gift, select a gift, insert a message, and send a physical gift to that friend. Currently, this feature is
only available in the United States, but Facebook plans to expand it to other countries.

Facebooks Business Areas


In a Securities and Exchange Commission (SEC) filing in early 2012, Mark Zuckerberg stated, Simply put:
we dont build services to make money; we make money to build better services.37 Such a dismissal of the importance of monetization scares investors. Still, Zuckerberg and Sandberg know that developing an effective business
model is crucial to Facebooks future success.

CREATING VALUE FOR ADVERTISERS AND MARKETERS


Advertisements on Facebook revolve around the creation of a Facebook Page for an organization. Once an
organization creates a Facebook Page, the company may launch ads, sponsor content about its business, and check
advertisement analytics to gauge the success of its campaigns. Facebook has identified four value propositions for
advertisers and marketers: reach, relevance, social context, and engagement.38

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

Reach. With more than one billion MAUs, if Facebook were a country, it would be the third largest in the world
by populationthat amounts to quite a reach. Companies have the ability to purchase lists of the users who subscribe to the pages of other companies, which can be used to target a specific audience. As an example, in 2010
IronPlanet Motors (a competitor to eBay Motors) purchased the BMW and Mercedes-Benz Fan Page subscriber
lists in order to advertise the launch of its new car auction website to those users. Similarly, movie studios can
notify fans on their page of an upcoming movie release. Paramount Studios, for example, reached 65 million fans
in one day when it advertised the release of Transformers: Dark of the Moon on Facebook.39 Facebook also offers
free tools for tracking the performance of ads called the Ads Manager. With the release of Graph Search, Facebook
intends to open up a new opportunity for advertisers and marketers: Companies that have a page can be discovered
by users as a result of their Graph Search queries based on the information the organization posts on its page.40
Relevance. Relevance is important to advertisers because, in todays economy, marketers are being asked to do
more with less. This is where Facebook can play a vital role. Users identify themselves based on many demographic factorsfor example, age, gender, race, location, education level, and special interestswhich allows
Facebook to deliver targeted ads with a higher success rate than industry averages (90 percent versus 35 percent,
according to a recent study).41 A good example of a targeted advertising campaign is that of CM Photographics, a
wedding photography company based in Minneapolis, Minnesota. With Facebooks help, CMPhotographics, on
a limited budget of $1,544, targeted recently engaged women aged 24 to 30 who lived in close proximity to CMs
location.42 The targeted campaign led to a substantial increase in revenue during the ensuing 12 months.
Social Context. With sponsored stories and social ads, Facebook provides a rich social context for advertisers. As of January 2012, sponsored stories (e.g., a friend checking in to a Starbucks) are prominently displayed
directly in a users News Feed. The friend has now automatically become an advocate for the company across
his or her social graph, driving company awareness. Social ads allow marketers to add context to their ads. This
enables product differentiation and, according to a recent Nielsen study, increases ad recall by more than 50
percent.43
Engagement. The social web is an evolving species, and Facebook has been a leader in identifying new advertising tactics that improve user engagement. For instance, dynamic ads that include a poll, hit upon a users special
interest, or encourage feedback all improve awareness. For example, through its Facebook page, the Chinese restaurant P.F. Changs offered a free lettuce wrap to all customers during a three-week period.44 All of P.F. Changs
fans and friends of those fans saw the ad. Over 50,000 customers took advantage of the offer; 40 percent of them
were first-time customers.45
Market Opportunities. Facebook ads can display in multiple locations on the screen, and Facebooks ad system
guarantees a fixed number of ad impressions for a fixed price. Most important, Facebook invests in technology
that dynamically decides the best available ad to display to a user depending on that users unique attributes. The
system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that
type of user. This type of technology helps Facebook maximize ad revenue.
As Facebook continues to expand its advertising offering, it expects its ad revenue to follow suit. Additional
advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising,
online advertising, and mobile advertising. In 2010, traditional offline advertisingtelevision, print, and radio
was a $363 billion industry, representing 62 percent of the total worldwide advertising spent.46 As marketers
continue to gravitate toward online advertising, a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. Similarly, the global mobile advertising market is expected to grow from
$1.5 billion to $17.6 billion by 2015.47 Currently, Facebooks mobile app is one of the most popular downloads;
Facebook boasts 680 million mobile MAUs. However, the mobile path has an added challenge in that greater
mobile use generally reduces ads per user, given the smaller screen size of mobile devices.48

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

CREATING VALUE FOR DEVELOPERS


Approximately 15 percent of Facebooks revenue is generated through its developer platform, which was
first launched in May 2007 with 85 developers and 65 apps.49 The platform is a set of development tools
and application programming interfaces (APIs) that enables software and web developers to create innovative experiences for the Facebook community. Facebooks f8 conferences, held near-annually, bring together
developers, entrepreneurs, and innovators to collaborate on new websites, apps, and devices that take advantage of the Facebook platform.50 Zynga, creator of the game FarmVille and many other wildly popular games,
is currently the largest developer; the fees collected from Zynga accounted for 12 percent of Facebooks
revenue in 2011, but declined in 201251 as the popularity of Zyngas games declined.52 Other examples of
developer integration using the platform include the ability for users to listen to music on Spotify, read news
and sports articles on Yahoo, track runs via MapMyRun, and use the Nike1 mobile app to share their exercise
activity.
Through products such as Open Graph, Social Plugins, and Payments, Facebook offers significant value to
developers.
Open Graph. Open Graph allows app developers to map the content of their apps and see how users can interact with it. In this way, developers can learn how to connect user Facebook accounts from within their app. This
enables users to share personal content generated by the app with their friends on Facebook through their News
Feed and Timeline. Spotify is an excellent example. Through Spotify, a users current songs are shared through
Facebook.53
Social Plugins. The Facebook platform can carry over the social experience from Facebook to any website
that has the Facebook social plugins enabled. Social plugins include the Like, Send, Subscribe, and Login buttons, comments, the activity feed, registration, and the Facepile feature, which displays thumbnails of friends
profile pictures. Social Plugins give website owners the opportunity to broadcast interests from one friend to
another non-connected friend. As an example, the Yahoo Social Plugin shares articles directly to Facebooks
News Feed.
Social Channels. Social channels provide a way for developers to integrate with News Feeds and requests.
Content can be generated from the app and distributed to a users News Feed using Social Channels. Developers
can also integrate with requests that allow a Facebook user to encourage other friends to use an app.
Graph API. This application programming interface feature of the Facebook platform allows apps to read and
write data to Facebook.
Login. Users can log in to an app or website using their Facebook credentials, speeding up the registration process. LinkedIn and Google have deployed similar login methods.
Payments. Finally, payments, through the use of Facebook Credits, create an infrastructure for developers to
receive funds for the purchase of their virtual and digital goods. This well-established, safe, and secure system has streamlined the transactions between users and third-party developers.54 Currently, fees collected from
Facebook Payments almost exclusively come from the purchase of virtual goods used in social games. According
to Facebooks S-1 filing with the SEC, The worldwide revenue generated from the sale of virtual goods increased
from $2 billion in 2007 to $7 billion in 2010, and is forecasted to increase to $15 billion by 2014.55 The projected
increase in social gaming will undoubtedly provide future revenue for Facebook. However, extending beyond the
core area of gaming, for example, by allowing users to purchase songs from iTunes that a friend listened to, could
open up new opportunities for Facebook.

10

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

Current Competitors
INSTAGRAM
Instagram, a photo-sharing service for iPhones and Android phones, was founded in October 2010 and quickly
became a leader in online photo sharing. In March, CEO Kevin Systrom announced that registered Instagram
users had nearly doubled from 15 million to 27 million in the previous three months.56 On April 9, 2012, Facebook
acquired Instagram for $1 billion, the largest deal ever for Facebook.
Zuckerberg saw the acquisition as a milestone for the company and said, We dont plan on doing many
more of these, if any at all.57 Photo sharing, which is one of Facebooks core features, has been a vital element in
the companys success and efforts to drive user engagement. By acquiring Instagram, Facebook has eliminated a
potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android.
For now, Facebook plans to retain Instagram as a separate business unit, but it will be expected to share some of
its talent and innovation with the parent company.

TWITTER
Launched in July 2006, Twitter has become an extremely popular free micro-blogging and social networking
service. As of July 30, 2012, Twitter had over 500 million accounts with 27 percent designated as active users,
according to the French analytics firm, Semiocast. The most popular method of using Twitters service has been
through the companys main website, which is accessed through desktop computers rather than through mobile
devices. This accounts for 27.6 percent of worldwide activity.58
Twitter gives users the ability to communicate with friends and family via text-based posts in real time. Users
submit a tweet, which is limited to 140 characters in length, to their profile page. A subscriber to the users page
(known as a follower) then receives the tweet automatically. Unlike Facebook, which requires the dual acceptance
of friend requests, Twitter stimulates interaction between complete strangers because users dont need to approve
who follows them.
Individuals, organizations, and companies have quickly realized the benefit of this type of interaction: the
ability to reach an unlimited, yet targeted, audience. TV channels such as CNN, MSNBC, and ESPN now use
Twitter as part of their broadcasts. And celebrities, athletes, and politicians have accepted the technology as well;
75 percent of NBA players, 82 percent of U.S. Congress members, and 85 percent of U.S. Senators are active
Twitter users.59 Former vice president of product, Jason Goldman, attributes Twitters appeal to the fact that it
delivers interesting, relevant timelines ... about the people and places that matter to you. Giving people better information about the world around them and the things they care about has become the cornerstone of the
product offering. 60
Even though mainstream adoption has quickly become a reality, Twitter is still growing its business model.
Twitters 2011 ad revenue was $139.5 million. While analysts estimate that it will grow to $540 million by 2014,
the percent change in revenue is expected to decline year over year during that time (see Exhibit 6).61 Meanwhile,
Facebooks ad revenue was $3.15 billion in 2011 alone.62 In addition, users of Facebook spend significantly more
time on the website each month than users of Twitter. Of all social media site visits in October 2012, Facebook
captured 62.39 percent, while Twitter captured only 1.85 percent (see Exhibit 7).63
For the time being, Twitter generates only a fraction of the ad revenue and user interest of Facebook; however,
as Twitter continues to grow, the chance of users spending more time with it communicating with friends and
family will grow as well. Professor Tim Loughran of Notre Dame summed it up as follows: Facebook is in the
business of communication. Anybody who can facilitate a more precise or quicker communication should be
perceived as a threat to Facebook.64

10

11

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

GOOGLE
Founded in 1998 as a provider of Internet search results, Google has become a leader in cloud computing and
advertising, particularly since its highly successful IPO in 2004, which raised $1.9 billion on a valuation of $23
billion (see Exhibit 8). The companys strategic growth, both organically and through acquisitions, beyond its
initial core competency of Internet search is evident in its stock performance (see Exhibit 9).
A major driver of revenue for Google, just as with Facebook, is online advertising. In the large $40 billion U.S.
online advertising market, Google holds a commanding lead over its competitors. It currently has a 44.9 percent
share of the market, while Yahoo and Facebook hold 7.4 percent and 6.5 percent, respectively (see Exhibit 10).65
In 2014, Google is projected to have a 47.4 percent share of the industry, which will then have grown to $53 billion. While Facebook is expected to oust Yahoo from its second-place position during that same time, it is still
projected to claim only a 7.1 percent share of the market.66
In the online display advertising market, a subset of the overall online advertising market, Google and Facebook
are more evenly matched. In this $15 billion industry, the two companies each hold about 16 percent of the market. However, Google is projected to supplant Facebook as the leader in online display ad revenue by 2013 and
grow its market share further in 2014, by which time it is expected to account for 21.7 percent of the market,
while Facebook slips to 17.1 percent (see Exhibit 11).67 Google also added to its revenue by acquiring Motorolas
mobile divisionin 2012, 8 percent of Googles revenues came from the hardware and services of Motorola
Mobile.68
For Facebook, another area of concern is Google1. Google1 has several improved and additional features
over Facebook. Google1 circles allow users to organize the people they are connected to and give them better
control over their privacy settings. Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. The integration of Google1 with YouTube and the image organizer and viewer,
Picasa, allows for improved video and photo sharing. Whats more, the third-party developer platform associated
with Google1 (which is similar to Facebooks developer platform) is completely free, while Facebook charges a
30 percent commission. This incentive could drive developers away from Facebook and to the Google1 platform,
which would parallel Googles initiative of driving iPhone developers to the Android operating system through
more attractive developer commissions.
Yet, Google1 lacks Facebooks installed base of users as of late 2012. Google1 had 235 million active users
at the end of December 2012, up from 150 million in June of that same year. However, even with this increase,
Google1 claimed only 1.32 percent of social media site visits (Exhibit 7).69 Meanwhile, Facebooks one billion
active users comprise 62.39 percent of social media site visits.70 Still, Google has seen a boost in click-through
rates on some display ads of anywhere from 2 percent to 15 percent due to the additional user information provided by its social media product.71
Googles drive for Internet dominance and social strategy includes a suite of products and services (e.g.,
Chrome, Google.com, Picasa photo software, YouTube, Translate, Analytics, AdWords, and others). Rather than
focusing on any single product, what matters most to Google is how much time users spend within the Google
ecosystem once logged in to their account.72 Now that all of these products and services are linked to Google1,
Google will be able to paint a more complete picture of each of its users. Such fine-grained data will be vital in
Googles push to become the dominant online presence delivering customized advertising.

MICROSOFT
Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 million), Microsoft
remains a Facebook competitor across several market segments. Similar to Google, Microsoft commands a large
percentage of advertising revenue and both online and offline user interaction. Microsoft offers a fleet of products

11

12

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

and services that competes directly with Facebook. Windows Mobile, the Xbox 360, the Bing search engine, and
MSN (a portal to news, sports, games, shopping, and videos) all drive traffic away from Facebook and Google. In
2012 alone, Microsoft accounted for 5.7 percent of U.S. online advertising revenue and was projected to remain
third behind Google and Facebook over the next several years (see Exhibit 10).
On the other hand, Facebook and Microsoft have formed a strategic partnership that enables the two companies to compete directly with Google on several fronts. In May 2011, Microsoft purchased Skype for $8.5 billion
and soon after partnered with Facebook to challenge Google1s videoconferencing capabilities.73 At the time
of the deal, Zuckerberg said, We have a really good relationship with Microsoft. Now that Skype is owned by
Microsoft, that gives us the sense of stability that its going to be with a company we can trustthat we know we
have a longstanding relationship with.74 The truth of this statement seemed evident in May 2012, when Microsoft
sold $550 million worth of patents and licenses to Facebook.75
Previously mentioned as a competitor in the area of user interaction, Microsofts Bing search engine has also
formed an alliance with Facebook in an effort to improve the breadth and depth of its social search data. Bing
is now the default search engine within Facebook. This partnership will compete directly with Google1 and
Google.com search results. Moreover, Bing search queries conducted within Facebook are not directly accessible
to Google for further data analysis.

LINKEDIN
Started in 2002 in co-founder Reid Hoffmans living room, LinkedIn has grown into the worlds largest professional network.76 In February 2012, the company had more than 150 million members accessing the site from
more than 200 countries in 17 languages; 60 percent of LinkedIn members live outside the U.S.77 All Fortune 500
companies have at least one executive with a LinkedIn profile, and 82 Fortune 100 companies use the recruiting
tools provided by LinkedIn. At the beginning of 2012, there were more than two million LinkedIn Company Pages
(which are similar to Facebook Pages) and almost one million online job applications originating from within
LinkedIn.78
LinkedIn held its IPO on May 19, 2011, at a price of $45 per share. The stock quickly jumped to over $90
per share, making the company worth around $9 billion (see Exhibit 9).79 In 2011, the company recorded
$522 million in revenue with earnings of $11.91 million, which equates to a very healthy price-to-earnings
ratio (P/E) of approximately 850.80 However, LinkedIns ad revenue drags behind Facebooks. It was $154.6
million in 2011, and is projected to increase to $405.6 million by 2014 (see Exhibit 12).81 Meanwhile,
Facebooks ad revenue was $3.15 billion in 2011.82 In addition, LinkedIn site visits accounted for only 0.83
percent of all social media site visits in October 2012 (see Exhibit 7).83 Still, although LinkedIn users spend
much less time on the site than Facebook users do on Facebook, LinkedIn brings in $1.30 per user-hour
spent on its site, while Facebook brings in only $0.06.84 In addition, LinkedIn has added more user-friendly
features, making it more akin to a network that allows for professional connections embedded within social
interactions.
LinkedIn operates on a business model called freemium, in which it offers its core product for free but then
charges for premium services. LinkedIn offers premium products to individuals as well as to companies. For
example, users have a choice of three subscription levels, getting access to a larger number of services at each
level. Premium services enable users to see who has viewed their profile, do premium searches that let them build
job leads, see full profiles beyond second-degree connections, and send messages to people with whom users are
not connected. For their part, companies can purchase LinkedIn products, such as LinkedIn Recruiter Corporate,
that help them find qualified employees and contact those individuals directly. Another product, LinkedIn Sales
Navigator, helps salespeople build better prospect lists.

12

13

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

Facebooks Initial Public Offering (IPO)


Facebooks IPO on May 18, 2012, was one of the largest in U.S. history, dwarfing even that of Google in
2004.85 With an IPO price set at $38 per share, Facebook was valued at $104 billion and planned to raise approximately $18.4 billion through its IPO.86 Facebook valuations historically have been optimistic. Before its IPO,
Facebook was valued by several companiesYahoo offered $1 billion for the company, Microsoft invested in
October 2005 at a valuation of $15 billion, Accel Partners sold its stake at a $35 billion valuation in November
2010, and Goldman Sachs led funding at a $50 billion valuation in January 2011. These valuations and the hype
around Facebooks IPO made it one of the most anticipated public offerings to date (see Exhibit 13). In 2011,
Facebook had earned $3.71 billion in revenue and $1 billion in net income. These recent earnings, combined with
Facebooks lofty valuation, equated to a high P/E of 104 for Facebook. In comparison, other large-cap NASDAQbased companies have much lower P/Es: Apple has a ratio of 18.2, Google sits at 21.33, and Microsoft is at 11.33.
To match these expectations, Facebook knew it would have to grow its earnings quickly in 2013 and beyond.

STUMBLING OUT OF THE GATE


As if signaling future disaster, problems arose just moments before Facebooks initial public offering. To start,
the NASDAQ exchanges system entered an automated loop that delayed trading by 30 minutes. Another glitch
occurred once trading started, when investors were unable to check the size or value of their trades because confirmations on orders from the NASDAQ system were delayed three hours.87 Errors of this variety and magnitude
had never occurred during an IPO and made it appear as though fate was against a publicly traded Facebook. The
calamitous opening may have cost firms as much as $500 million in investments, leaving many investors with an
unpleasant feeling about Facebook stock.88
The accuracy of Facebooks pre-IPO assessments was to be tested as Wall Street determined the market-driven
public value of the social network. After one month of public trading, the stock price had fallen from $38 to $32,
and early investors suffered significant losses. Despite the suffering stock price, analyst ratings remained optimistic
about Facebooks future, believing that the company would lead an Internet revolution and estimating that its user
base would grow 70 percent by 2014. Morgan Stanley, J. P. Morgan, and Goldman Sachs rated the stock as a buy
and gave price targets of $38, $45, and $42, respectively (see Exhibit 14).89 J. P. Morgans Doug Anmuth wrote:
We believe Facebooks virtual ownership of the social graph, strong competitive moat, and unwavering focus on the
user experience position the company to significantly improve monetization over time and to become an enduring,
blue-chip company built for the long term.90

Only one analyst, Daniel Salmon at BMO Capital Markets, called for an underperform rating and gave a price
target of $25, citing his concern about Facebooks advertising revenue.91
Facebook stock continued its downward trend in July and August of 2012 (Exhibit 9). The market cap as of August
16 was $48 billion, 54.2 percent ($56.8 billion) less than the IPO market cap.92 In the months following the IPO,
Facebook far underperformed its closest comparable IPOs: Google and LinkedIn. Google grew much faster than the
NASDAQ 100 in its first six months, while LinkedIn grew at roughly the same rate as the NASDAQ 100 over the same
period. Even investors who anticipated that Facebook would perform no worse than LinkedIn were disappointed.

UNDER SCRUTINY
Discussions over the declining stock prices put Morgan Stanley, the NASDAQ exchange, and Facebook executives under great public scrutiny. Morgan Stanley and Facebooks CFO have been criticized for making changes
to the price and number of shares just before the offering. These shares and prices were set at the far upper end of

13

14

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

the limit for the company.93 As a result, the NASDAQ faces a review of its systems and procedures by the SEC.94
Perhaps the sharpest criticism may have been offered against Mark Zuckerberg, whom many have perceived as
an untested CEO.95
For her part, chief operating officer, Sheryl Sandberg, has been fielding questions about Facebooks advertising strategies and pointing to positive signals and moves. At Facebooks first earnings call after its IPO,
Sandberg called Facebook a platform company, saying, We want to take social companies and make them
big, and take big companies and make them social. Her approach highlighted the growth that Facebook was
seeing in its social ads, which are sponsored stories that show up in a users News Feed. Sandberg has noted
Facebooks commitment to scrutinizing sponsored stories, saying, Were looking at the social context to make
sure its really relevant.96 Facebook also monitors user reactions to make sure the ads are adding value and not
alienating users, because News Feed is so core to the user experience. Sandberg added that sponsored stories
perform multiple times better than ads in Facebooks sidebar, because they are more like a recommendation
from a friend.
Another advantage that Sandberg sees for Facebook is in the area of local business advertising. Local businesses represent a huge opportunity for Facebook, Sandberg said, adding that local is the Holy Grail of
Internet.97 Local businesses are typically not very tech-savvy, and more than 40 percent of them have no
web presence at all, Sandberg said. This gives Facebook an advantage because many business owners are
Facebook users in their private lives. If they see messages from other businesses, they can imagine ads working
for their businesses as well, and they know how to set up their profiles and timelines, which are very similar
to business pages.

DEFENSIVE MEASURES
After a disappointing start, concerns about Facebooks stock price deepened in the fall of 2012, as investors
prepared for the release of a large portion of public shares scheduled to hit the market in late November (see
Exhibit 15). Zuckerberg and other company executives had indicated on September 5, 2012, that they would not
sell more shares than were necessary to cover their tax liabilities. This measure was taken as a statement of faith
in the companys future. Facebook also sought to protect its stock prices by buying back 101 million shares before
the lockup periods expired and more shares become available for sale.98
In an interview with Michael Arrington at TechCrunchs Disrupt conference on September 11, 2012, Zuckerberg
publicly confessed to feeling disappointed in Facebooks stock performance and conceded that it wasnt good for
company morale. Even so, Zuckerberg reassured shareholders, employees remained motivated by their desire to
[build] stuff they are proud of.99 In addition, he issued formal responses to rumors, denying development of a
Facebook phone and hinting at future work with search engines. More important, he revealed the strategic focus
for Facebooks future: mobile devices. After admitting that Facebook had made a mistake in its early mobile strategy by focusing development on HTML5, Zuckerberg said the company would concentrate on native applications
for mobile devices going forward. While there was no mention of immediate opportunities in the mobile market,
Zuckerberg did explain how the task of monetizing Facebook mobile products was up to the product development
teams.
Since Facebooks services have already captured 600 million of 5 billion mobile Internet users, Facebooks
mobile days may be its brightest if it can replicate Twitters recent success.100 Digital marketing research company eMarketer cites a marketing campaign launched by P.F. Changs as the reason Twitters ad revenue jumped
from $139.5 million to $259.9 million in 2012. P.F. Changs Lunar New Year advertisement generated one million
clicks70 percent of which were from mobile devicesin just four days.101

14

15

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

A New Business Model?


Facebooks IPO has put tremendous pressure on Sandberg and the Facebook team to come up with a strategy to
justify Facebooks $100 billion valuation in the stock market. Sandberg needs to come up with a business model
that will generate sufficient income to justify this valuation. She sees competitors like LinkedIn using a combination of freemium and subscription business models. Googles revenue stream, in contrast, relies on advertising
more than anything else; it generates $88 in advertising revenue per user.102 For Facebook to follow such a path,
it would need to increase its advertising revenue per user, which currently sits at $15, substantially.
Expanding Facebooks mobile advertising has been vital for Facebook to stay current, but mobile advertising
generates less revenue compared to desktop advertising because fewer ads are shown. Facebook has enviable
relevance and reach to offer its advertisers, and Sandberg has strong relationships with large advertisers from her
Google days. Overall advertising revenues for Facebook are growing. Should she focus on convincing advertisers to pay higher ad rates for the precision and social benefits theyre getting from Facebook? Are there ways to
expand mobile revenues?
Sandberg has seen how utilities like electric and gas companies use the pay-as-you-go business model. To
many people, Facebook is almost as vital as electricityits a communication tool that users have come to rely on
daily. Do users value Facebook enough to pay to use it, or would charging users open the door to a no-fee competitor? Facebook users would face high switching costs due to the network of connections theyve established, the
photos theyve uploaded, and the timeline activities theyve shared on the site. Would they give it up if Facebook
started to charge them?
Sandberg is also pushing to expand to other countries. These markets have vast numbers of potential users, but
revenues per user are lower than in the U.S. Can the market size make up for the lower per-user revenues? What
effect might local competitors have in foreign markets? And what about Instagram? Is there a way to monetize
that acquisition to a larger degree? Are there other acquisitions that Facebook should make? Sandberg remembers how quickly MySpace lost its first-mover advantage after focusing too much on monetization. She wants to
ensure that Facebook does not encounter a similar fate.
The clock is ticking. What business model and monetization strategy should she propose?

15

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 1

Facebooks Global Usage, 20092012 (in millions)

Panel 1: Monthly Active Users (MAUs)

1,100%
1,000%
900%
800%
700%
600%
500%

U.S. & Canada


Europe
Asia
Rest of the World

400%
300%
200%
100%

Ju
nSe 09
pDe 09
cM 09
ar
Ju 10
nSe 10
pDe 10
cM 10
ar
Ju 11
nSe 11
pDe 11
cM 11
ar
Ju 12
nSe 12
pDe 12
c12

0%

Panel 2: Daily Active Users (DAUs)

700%
600%
500%
400%
300%

U.S. & Canada


Europe
Asia
Rest of the World

200%
100%
0%

Ju
nSe 09
pDe 09
cM 09
ar
Ju 10
nSe 10
pDe 10
cM 10
ar
Ju 11
nSe 11
pDe 11
cM 11
ar
Ju 12
nSe 12
pDe 12
c12

16

(continued)
16

17

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 1

(Continued)

Panel 3: MAUs on Mobile Devices

700%
600%
500%
400%
300%
200%
100%

Se

p10
De
c1
M 0
ar
-1
1
Ju
n11
Se
p11
De
c1
M 1
ar
-1
2
Ju
n12
Se
p12
De
c12

10

Ju

n-

09

-1

ar

09

cDe

09
n-

pSe

Ju

0%

Source: Authors depiction of data in Facebooks SEC filing, http://1.usa.gov/14GKFGS.

EXHIBIT 2

Facebook Revenues, 20102012 (in $ millions)

$1,400
Advertising
Rest of the World

$1,200

Asia

$1,000

Europe
$800

U.S. & Canada

$600

Payments & Other Fees


Rest of the World

$400

Asia
$200

Europe
U.S. & Canada

cDe

pSe

12

12

12
nJu

ar

-1

11
cDe

Se

p-

11

11
Ju

n-

1
-1
ar
M

De

c-

10

$0

Source: Authors depiction of data in Facebooks SEC filing, http://1.usa.gov/14GKFGS.

17

18

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 3

Facebook Financial Data, 20102012 (in $ millions, except EPS data)

Fiscal Year

2010

2011

2012

Cash and short-term investments

1,785

3,908

9,626

373

547

1,170

Property, plant, and equipment total (net)

574

1,475

2,391

Depreciation, depletion, and amortization (accumulated)

246

450

882

2,990

6,331

15,103

29

63

65

367

398

1,991

Receivables total
Inventories total

Assets total
Accounts payable trade
Long-term debt
Liabilities total

828

1,432

3,348

Stockholders equity total

2,162

4,899

11,755

Sales (net)

1,974

3,711

5,089

Cost of goods sold

354

537

720

Selling, general, and administrative expense

449

1,095

3,187

Income taxes

402

695

441

Income before extraordinary items

606

1,000

53

Net income (loss)

606

1,000

53

Earnings per share (basic) excluding extraordinary items

0.28

0.47

0.02

Earnings per share (diluted) excluding extraordinary items

0.28

0.47

0.02

Source: Compustat.

EXHIBIT 4

Facebook Ad Revenues, 20112014 (in billions with % change)

100%

$10
$8

$7.64

68.2%
60.6%

$6
$4

$6.72

60%

$5.06
32.8%

$3.15

2011

2012

2013

Facebook ad revenues
% change

40%
13.7%

$2
$0

80%

2014

20%
0%

Source: Authors depiction of data from Google edges closer to Facebook as US display advertising becomes two-horse race, eMarketer,
February 22, 2012, http://bit.ly/WnbzfA.

18

19

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 5

Facebook Average Revenue per User (ARPU), 20102012

$5

$4
$4.08

U.S. & Canada

$3.40

$3

$3.20
$2.84

$2.77

Europe

$3.20
$2.90

$2.80

Worldwide

$2.49

Rest of the
World

$0.44

$0.47

$0.56

c-

p-

De

Ju

n-

12

$0.37

12

$0.41

12

$0.69

c-

pSe

n-

1
-1
M

ar

cDe

$1.29
$0.58

-1

$0.40

$1.28
$0.55

ar

$0.38

$1.21
$0.53

$0.31

$0.56

11

$0.33

$1.37
$1.54

$1.38

11

$1.24
$0.54

11

$0.44

$1.26
$0.50

$1.43

$1.40

$1.34

$1.14
$0.43

10

$0

$1.25

$1.33

Ju

$1

$1.19

De

$1.26

Asia

$1.71

$1.60

Se

$2

Source: Authors depiction of data in Facebooks SEC filing, http://1.usa.gov/14GKFGS.

EXHIBIT 6

Twitter Ad Revenues, 20102014 (in millions with % change)

$600

$540.0

210%

$500
$399.5

$400
$300

$0

% change

$259.9
86%

$200
$100

Twitter ad revenues

54%

$139.5

35%

$45.0
2010

2011

2012

2013

2014

Source: Authors depiction of data from Twitter, LinkedIn to see solid ad revenue growth, eMarketer, January 31, 2012.

19

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 7

Social Media Site Visits in October 2012

70
Percent Share of Visits

60
50
40
30
20
10

es

m
Cl

In

as

st

sm

at

ra

ed

ag

gg
Ta

Li

Ya

ho

o!

Pi

An

nk

sw

ed

er

In

t
er
nt

og

le

es

er
itt

ub
uT

Tw

Go

Fa

Yo

ce

bo

ok

Source: Authors depiction of data from Most popular social media websites in the United States in October 2012, Statista Industry
Statistics, November 25, 2012.

EXHIBIT 8

Various IPOs and Market Cap, 19942012 (in billions)

$300
Market Cap, in billions

Google (GOOG)

$250

Facebook (FB)
Amazon (AMZN)

$200

LinkedIn (LNKD)

$150

Groupon (GRPN)
Yahoo (YHOO)

$100

eBay (EBAY)

$50

Netix (NFLX)

Source: Authors depiction of data drawn from Bloomberg.

20

12

20

11

20

10

20

09

20

08

07

20

20

06

20

05

04

20

20

03

20

02

01

20

20

00

99

20

19

98

97

19

96

19

95

19

19

94

$0

19

20

21

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 9

Facebook, LinkedIn, and Google Post-IPO Stock Performance

Panel 1: Google

NASDAQ: 100

NYSE: GOOGLE

1-

05
rAp
1-

ar

-0

05
1-

1N

Fe

11Oc
t-1
1

Ja

b-

05
n-

c1-

1-

De

No

v-

04

04

4
t-0
1-

1-

1-

Oc

pSe

Au

g-

04

04

140%
120%
100%
80%
60%
40%
20%
0%
220%

Panel 2: LinkedIn

NYSE: LINKEDIN

NASDAQ: 100

12
Ja
n1-

1D

ec
-1

1
ov
-1

1
Se
p1
1-

1
g1
1Au

1
l-1
Ju
1-

1
n1
Ju
1-

1Ma

y-

11

40%
30%
20%
10%
0%
210%
220%
230%
240%

(continued)

21

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 9

(Continued)

Panel 3: Facebook

NYSE: FACEBOOK

NASDAQ: 100

13
1-

Ja

n-

12
De
1-

1-

No

v-

c-

12

2
t-1
Oc
1-

Se
1-

Au
1-

p-

g-

12

12

2
l-1
Ju
1-

nJu
1-

ay

-1

12

20%
10%
0%
210%
220%
230%
240%
250%
260%
270%

1-

22

Source: Authors depiction of data from Yahoo.

EXHIBIT 10

Percent Net U.S. Online Ad Revenue, 20112014


2011

2012

2013*

2014*

Google

41.0%

44.9%

46.6%

47.4%

Yahoo!

9.5%

7.4%

6.2%

5.6%

Facebook

5.4%

6.5%

7.1%

7.1%

Microsoft

5.7%

5.7%

6.0%

6.5%

AOL

2.8%

2.4%

2.2%

2.1%

Total Top 5

64.4%

66.9%

68.1%

68.7%

Total Internet (billions)

$32.0

$39.5

$46.5

$52.8

*Projected.
Source: Authors depiction of data from Google edges closer to Facebook as US display advertising becomes two-horse race, eMarketer,
February 22, 2012, http://bit.ly/y2FYgi.

22

23

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 11

Net U.S. Online Display Ad Revenue, 20112014 (in $ billions)


2011

2012

2013*

2014*

Facebook

$1.73

14.0%

$2.58

16.8%

$3.29

17.7%

$3.75

17.1%

Google

$1.71

13.8%

$2.54

16.5%

$3.68

19.8%

$4.76

21.7%

Yahoo!

$1.35

10.8%

$1.40

9.1%

$1.50

8.1%

$1.64

7.5%

Microsoft

$0.56

4.5%

$0.67

4.4%

$0.80

4.3%

$0.96

4.4%

AOL

$0.53

4.3%

$0.62

4.0%

$0.71

3.8%

$0.81

3.7%

Total Top 5

$5.88

47.4%

$7.81

50.8%

$9.98

53.7%

$11.92

Total Online Display

$12.40

$15.39

$18.57

54.4%
$21.91

*Projected.
Source: Authors depiction of data from Google edges closer to Facebook as US display advertising becomes two-horse race, eMarketer,
February 22, 2012, http://bit.ly/y2FYgi.

EXHIBIT 12

$450
$400
$350
$300
$250
$200
$150
$100
$50
$0

LinkedIn Ad Revenues (millions and % change)

$405.6
95%
$310.7
$226.0
$154.6

46%
37%

2011

2012

2013

31%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

LinkedIn ad revenues
% change

2014

Source: Authors depiction of data from Twitter, LinkedIn to see solid ad revenue growth, eMarketer, January 31, 2012, http://bit.ly/
A3mdNS.

23

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 13

Valuation History (in billions)

$104.8

Opening price for IPO


($38.00 per share)

$80.0
before IPO
$15.0

$50.0
$35.0
after IPO

$10.0

18-Dec-2012

18-Nov-2012

18-Oct-2012

18-Sep-2012

18-Aug-2012

18-Jul-2012

18-Jun-2012

2012
18-May-2012

2011

2010

2009

2008

2007

2006

$1.0
2005

24

Source: Authors depiction of data from Facebook investors cash out, The Wall Street Journal, August 17, 2012, http://on.wsj.com/
ZX1r4W.

EXHIBIT 14

Analyst Ratings of Facebook Stock, June 27, 2012

Bank

Analyst

Rating

Price Target

Morgan Stanley

Scott Devitt

Overweight

$38.00

J. P. Morgan

Doug Anmuth

Overweight

$45.00

Goldman Sachs

Heather Bellini

Buy

$42.00

BofA-Merrill

Justin Post

Neutral

$38.00

Barclays

Anthony DiClemente

Equal-weight

$35.00

Citigroup

Mark Mahaney

Neutral

$35.00

Credit Suisse

Spencer Wang

Neutral

$34.00

RBC Capital Markets

Andre Sequin

Outperform

$40.00

Wells Fargo

Jason Maynard*

Outperform

$37.00

BMO Capital Markets

Daniel Salmon

Underperform

$25.00

Lazard Capital Markets

William Bird

Neutral

Piper Jaffray

Gene Munster

Overweight

Raymond James

Aaron Kessler

Market Perform

N/A

Stifel Nicolaus

Jordan Rohan

Hold

N/A

William Blair

Ralph Schackart

Outperform

N/A

Cowen & Co.

Kevin Kopelman

Neutral

N/A

Pacific Crest

Evan Wilson

Sector Perform

Oppenheimer & Co.

Jason Helfstein

Ouperform

N/A
$41.00

N/A
$41.00

Source: Authors depiction of data from Analysts hit the tepid button on Facebook, The Wall Street Journal, June 27, 2012, http://on.wsj.
com/VE9P23.

24

25

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

EXHIBIT 15

History of Facebook Public Shares Available (in millions)

Shares

New public shares

2,500
2,000

149

47

1,197

1,500
1,000

55
271

500
421

421

692

747

1,944

2,093

May 2012

Aug 2012

OctNov 2012

Nov 2012

Dec 2012

May 2013

Source: Authors depiction of data from Facebook investors cash out, The Wall Street Journal, August 17, 2012, http://on.wsj.com/
ZX1r4W.

25

26

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

Endnotes
1. The Social Network [Film], 2010.
2. Facebook IPO filing puts high value on social network, USA Today, February 2, 2012, http://usat.ly/y5z8UK.
3. A brief history of Facebook, The Guardian, July 24, 2007, http://bit.ly/AHNfU.
4. Facebook IPO filing puts high value on social network.
5. Facebook Form S-1 registration statement, SEC, May 16, 2012, http://1.usa.gov/LJb1NN.
6. Ibid.
7. Ibid.
8. Ibid.
9. Google edges closer to Facebook as US display advertising becomes two-horse race, eMarketer, February 22, 2012,
http://bit.ly/y2FYgi.
10. Facebook: One billion and counting, The Wall Street Journal, October 5, 2012, http://on.wsj.com/134nYvE.
11. Facebook Form S-1 registration statement.
12. Floating Facebook: The value of friendship, The Economist, February 4, 2012, http://econ.st/yq7kQa.
13. Facebook CEO seeks help as site grows upGoogle veteran to be Zuckerbergs no. 2, The Wall Street Journal,
March5, 2008, http://on.wsj.com/TBMcIs.
14. Ibid.
15. Helft, M. (2010), Mark Zuckerbergs most valuable friend, The New York Times, October 2, http://nyti.ms/1aiOvsN.
16. Ibid.
17. Person of the Year: Mark Zuckerberg, Time magazine, December 15, 2010.
18. http://www.ted.com/talks/sheryl_sandberg_why_we_have_too_few_women_leaders.html.
19. Sandberg, S. (2010), Why we have too few women leaders, TEDWomen, December.
20. The acceptable face of Facebook, The Economist, July 21, 2011, http://econ.st/VDqBi8.
21. Sandberg, S. (2013), Lean In (New York: Knopf).
22. Facebook CEO seeks help as site grows up.
23. Facebook seeks a new finance chief as Yu leaves, The Wall Street Journal, April 1, 2009, http://on.wsj.com/1jska.
24. Facebook hires finance chief, The Wall Street Journal, June 30, 2009, http://on.wsj.com/4vQ9Fa.
25. Inside fumbled Facebook offering, The Wall Street Journal, May 23, 2012, http://on.wsj.com/JEVdyb.
26. Facebook overview, Facebook, http://bit.ly/GMr0Lq.
27. Graph search event video, Facebook Newsroom, January 15, 2013, http://bit.ly/14mMqrL.
28. Facebook overview.
29. Graph search event video.
30. Ibid.

26

27

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

31. Facebook on collision course with Google on web searches, The Wall Street Journal, January 16, 2013, http://on.wsj
.com/14mMZBT.
32. Ibid.
33. Facebook overview.
34. Ibid.
35. Facebook to organize friends into lists, The Wall Street Journal, September 13, 2011, http://bit.ly/Vltapl.
36. Facebook overview.
37. Facebook Form S-1 registration statement.
38. Ibid.
39. Ibid.
40. Introducing Graph Search: Help people discover your business, Facebook-Studio, January 15, 2013, http://bit.ly/
WcKyPl.
41. Facebook Form S-1 registration statement.
42. Ibid.
43. Ibid.
44. Ibid.
45. Ibid.
46. Ibid.
47. Ibid.
48. Facebook annual report, Facebook, 2012.
49. Ibid.; Facebook IPO filing.
50. f8 conference, Facebook, September 11, 2012, https://www.facebook.com/f8.
51. Facebook annual report, Facebook, 2012
52. Facebook Form S-1 registration statement.
53. Ibid.
54. Ibid.
55. Ibid.
56. Insta-Rich: $1 billion for Instagram, The Wall Street Journal, April 10, 2012, http://on.wsj.com/IfvnR7.
57. Ibid.
58. Twitter may have 500M1 users but only 170M are active, TechCrunch, July 31, 2012, http://tcrn.ch/Xst7NM.
59. Twitter shares active user numbers, The Wall Street Journal, September 8, 2011, http://on.wsj.com/q27dF1.
60. Twitter VP Jason Goldman steps down, The Los Angeles Times, December 8, 2010, http://lat.ms/fSWZnI.
61. Twitter, LinkedIn to see solid ad revenue growth, eMarketer, January 31, 2012, http://bit.ly/A3mdNS.

27

28

Facebook

Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

62. Ibid.; Facebook Form S-1 registration statement.


63. The mounting minuses at Google1, The Wall Street Journal, February 28, 2012, http://on.wsj.com/zjRr06.
64. What keeps Facebook up at night, Fox Business, February 2, 2012, http://fxn.ws/yRkBrc.
65. Google edges closer to Facebook as US display advertising becomes two-horse race, eMarketer, February 22, 2012,
http://bit.ly/y2FYgi.
66. Ibid.
67. Ibid.
68. Form 10-K, Google Inc., 2012, http://1.usa.gov/HeZUPW.
69. Theres no avoiding Google1, The Wall Street Journal, January 3, 2012, http://bit.ly/WiALDF.
70. The mounting minuses at Google1, The Wall Street Journal, February 28, 2012, http://on.wsj.com/zjRr06.
71. Theres no avoiding Google1.
72. Why it doesnt matter that Google1 users only spend three minutes a month on the site, Forbes, February 28, 2012,
http://onforb.es/yoxUre.
73. Microsoft to acquire Skype, Microsoft, May 10, 2011, http://bit.ly/kRB0Gt.
74. Why the Facebook-Microsoft alliance should worry Google, The Wall Street Journal, July 7, 2011, http://bit.ly/
noRRYd.
75. Parkhurst, E. (2012), Microsoft, Facebook get cozy as competitors hover, Puget Sound Business Journal, May 4,
http://bit.ly/17N5yzp.
76. About LinkedIn, LinkedIn, http://press.linkedin.com/about.
77. Ibid.
78. Ibid.
79. LinkedIn IPO soars, feeding web boom, The Wall Street Journal, May 20, 2011, http://on.wsj.com/mbbJlr.
80. About LinkedIn.
81. Twitter, LinkedIn to see solid ad revenue growth.
82. Facebook Form S-1 registration statement.
83. The mounting minuses at Google1.
84. Why Wall Street likes LinkedIn more than Facebook, Forbes, August 4, 2012, http://onforb.es/PSdwxh.
85. Facebook sets historic IPO, The Wall Street Journal, February 2, 2012, http://on.wsj.com/xcZO7h.
86. Facebook prices IPO at record value, The Wall Street Journal, May 17, 2012, http://on.wsj.com/J0D5tn.
87. SEC could seek Nasdaq upgrading, The Wall Street Journal, June 29, 2012, http://on.wsj.com/NHWO36.
88. Facebook IPO hasnt hit Nasdaq volumes, The Wall Street Journal, June 29, 2012, http://bit.ly/ViCGcx.
89. Analysts hit the tepid button on Facebook, The Wall Street Journal, June 28, 2012, http://on.wsj.com/LB2NcX.
90. Ibid.
91. Ibid.
92. Google edges closer to Facebook as US display advertising becomes two-horse race.

28

29

Facebook (in 2013): Will Wall Street Hit the Like Button?
Final PDF to printer

Facebook (in 2013): Will Wall Street Hit the Like Button?

93. Analysts hit the tepid button on Facebook.


94. SEC could seek Nasdaq upgrading, The Wall Street Journal, June 29, 2012, http://on.wsj.com/NHWO36.
95. Stock traders to Mark Zuckerberg: Do you hear us now? Forbes, July 31, 2012, http://onforb.es/PkPafk.
96. Facebook Q2 2012 earnings call, Facebook, July 26, 2012, http://bit.ly/1bknWSy.
97. Ibid.
98. Facebook plays defense, The Wall Street Journal, September 5, 2012, http://on.wsj.com/PZnD7U.
99. Zuckerberg admits to missteps, The Wall Street Journal, September 11, 2012, http://on.wsj.com/OEFfmx.
100. Facebook: One billion and counting, The Wall Street Journal, October 5, 2012, http://on.wsj.com/134nYvE.
101. Twitters mobile ads begin to click, The Wall Street Journal, June 28, 2012, http://on.wsj.com/MapjuQ.
102. Facebook: One billion and counting.

29

Das könnte Ihnen auch gefallen