Nine Things You Should Know About Facebook's IPO? I don't think so...
Facebook could be worth nearly $140 billion by today’s market close
The social network priced its shares at $38 apiece, valuing the company at $104 billion. The average first-day “pop” for a technology company is 32 percent;
if Facebook follows that trend, it’ll be worth $137 billion by day’s
end. But there’s little about Facebook that’s average, including its
public offering. This is the technology’s biggest initial public
offering and history’s second-biggest IPO, period, and it will raise
about $16 billion. Statistics suggests that the first-day pop—if there is one—will be more modest than average.
A lot of the smart money is getting out
Early investors such as the venture capital firm Accel Partners are selling an unusually high number of shares. Nearly 60 percent of the stock sold today comes from insiders, compared to 37 percent for Google (GOOG) when it went public in 2004. Goldman Sachs (GS) is selling about half its stake,
far more than the firm initially planned. “If you really thought that
12 months later the stock would be 50 percent higher, you wouldn’t leave
that on the table,” Erik Gordon, a professor at the Ross School of
Business at the University of Michigan, told Bloomberg News.
To justify its valuation, Facebook will need to annoy its users …
Thanks in large part to General Motors’s (GM) decision to de-friend Facebook,
there are a lot of questions about the efficacy and future of
Facebook’s ad-dominant revenue model. And it has high expectations to
live up to: The $38 price gives Facebook a whopping 107 price-to-earnings ratio. (For comparison, Apple’s (AAPL)
is around 13.) To dramatically boost ad revenues, the two best options
are either to put more ads on the site—which would annoy users—or find
more places to put ads. The latter means creating a network of ad
inventory across the Web, much the way Google’s Doubleclick sells ads
and places them on sites like that of the New York Times (NYT).
This would give Facebook far greater reach, but could also give users
the creeps. Imagine updating your Facebook status (“Really loving that
new Carly Rae Jepsen song!”) and then seeing ads to buy the track Call Me Maybe at every site you visit.
Do something besides advertising
Currently
Facebook’s only source of non-ad revenue is its digital currency,
Facebook Credits, which people use to buy virtual goods, such as
tractors in FarmVille (ZNGA).
During the first quarter of 2012, payments grew to make up almost 18
percent of Facebook’s revenue—close to $200 million in total. Overall,
though, fewer than 2 percent
of Facebook’s users have bought virtual goods with their payments
option. There’s a lot of potential growth, in other words, along with hints that a big online operator such as Spotify may begin accepting Facebook Credits in the future.
Facebook has plenty of revenue options beyond payments and advertising
Facebook is a force: It accounts for 9 percent of all online visits in the U.S., according to
Experian Hitwise, a company that measures website traffic. Hitwise also
says that Americans spend an average of 20 minutes per Facebook visit.
Worldwide, nearly 1 billion people have a Facebook profile. As investor Chris Dixon puts it,
Facebook has real assets—including “a vast number of extremely engaged
users, its social graph, Facebook Connect”—and should be able “to
monetize through another business model,” apart from advertising. It
could create the Social Smartphone, sell data analytics products, charge
for higher-res photo and video storage, or perhaps hawk vintage Mark Zuckerberg hoodies.
There’s already a “Facebook Mafia”
Heard
of the PayPal Mafia? Former executives from the online-payment
provider have gone on to start big-time tech firms, such as LinkedIn (LNKD), Yammer, and Yelp (YELP).
(And one member, Peter Thiel, cut the first big check for Facebook.) A
Facebook Mafia has already emerged, and members have founded Asana,
Path, and Quora.
The Facebook Mafia is real, even though the name could use some work,
says Dave Morin, Path’s chief executive officer, who previously
developed Facebook’s development platform. “I guess we can’t escape from
calling it that,” he says.
Facebook goes where Google won’t in photos
Facebook
owns one of the largest photo repositories in the world, and its
facial-recognition technology is getting a workout scanning them all,
with more than 300 million photos uploaded per day. Facebook stores 60
billion images, a whopping 1.5 petabytes of data. For each uploaded
photo, Facebook stores four images of different sizes. The site shows as
many as 550,000 images per second. This is an area that has upset
privacy critics and represents something that Facebook is willing to do
that even Google isn’t: Google’s Eric Schmidt said last year
that the company had built an app that would let people snap photos of
others and identify who they are but decided not to release it, due to
privacy concerns. Google and Facebook both have sophisticated
facial-recognition technology, but Google requires users to opt into
its photo-tagging service. Facebook users are included automatically.
Facebook’s new campus could be cursed
Late
last year the social network moved into a 57-acre site in Menlo Park
that was previously inhabited by Sun Microsystems. Sun’s fortunes soured
shortly after the computer company took up residence there. The same
thing has happened, in different times and places, to software-maker
Borland, Silicon Graphics, and even Apple (which nearly went bankrupt
three years after it moved into its current Cupertino, Calif.,
headquarters at 1 Infinite Loop). The good news: Companies that move
into pre-existing campuses seem to fare better. Google, for instance,
took up residence in SGI’s old digs.
Up north, Facebook is the only thing better than hockey
Facebook
is one of the top two websites in every country except China. The
social-networking site is most loved in Canada, where it wins 12 percent of all online visits.
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