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What the F? Facebook: The $100 billion social network
The white ‘f’, the thumbs up ‘like’ symbol, the ‘wall.’ These things mean one thing to over 900 million people worldwide: Facebook.
Since it was launched in a Harvard dorm room in 2004, Facebook has grown to become the world’s most popular social network and a multi-billion dollar turnover business. As of March 2012, the site had 901 million monthly active users (MAUs) worldwide; 526 million of which are classed as daily active users (DAUs). The company’s management team has successfully translated this in to revenues and profits, growing it into a $3.7 billion turnover company in just seven years.
Facebook’s ability to leverage the information users voluntarily supply (age, gender, location, relationship status etc.) means that it is able to offer advertisers a very attractive proposition. It can provide highly targeted advertising based on the users interests and can turn an advertising message into a trusted referral by including content from a user’s friends who are already affiliated with the product in question. Facebook has moved away from a total reliance on advertising revenue by growing its Payments division, which now accounts for 15% of Facebook’s revenues.
The success the company has enjoyed, both in growing its user base and monetizing its operation, led to much speculation that it would become a listed company and in February 2012, Facebook announced that it planned to undertake an initial public offering (IPO).
This Friday (18th May), the company’s shares are expected to begin trading on the NASDAQ under the ticker FB. The flotation was originally expected to raise $12 billion, but such has been the clamor for the stock that the size of the proposed IPO has been increased by 25% and is now expected to top $16 billion. This would make it the third biggest flotation in history behind Visa Inc. and General Motors.
The high level of demand has allowed the company to increase and narrow the price range from $28-$35 to $34-$38 per share, valuing the company somewhere between $93 billion and $104 billion.
Investors are split by what has been called the most polarizing stock in living memory, with some, such as Apple founder Steve Wozniak, stating that they are keen to invest regardless of the price, and others scoffing at the valuation, citing concerns about slowing growth in ad revenues and the difficulty Facebook is experiencing in monetizing mobile access. These people will not be investing.
Time will tell which the correct decision is, but one thing is for sure, there will be no shortage of takers when Facebook founder Mark Zuckerberg remotely rings the opening bell from the company’s Menlo Park headquarters this Friday morning.
To gain a more in depth understanding of Facebook’s meteoric rise and the challenges it faces in the future, access the full MarketLine research, ‘Facebook Case Study: How a social network became a multi-billion dollar business.’