Facebook's S-1 Filing
sec.gov
sec.gov
IMO, Facebook's future depends on two things:
1) Figuring out how to serve up contextually relevant ads on mobile platforms in a nonintrusive and, ideally, useful way.
2) Figuring out how to serve up contextually relevant ads outside of Facebook, to Facebook Connect-backended partner sites and apps. (Sort of like an AdSense/AdWords hybrid, but based on very intelligent user-interest and browsing data).
I'm betting on #2's being the runaway breadwinner for Facebook in the long run. The longterm strategy seems to be to reduce reliance/dependence on Facebook.com in favor of Facebook Connect.
Google brings us a few hundred a day, consisten conversion.
Apparel retail. FWIW.
As far as I'm concerned FB traffic is junk. Comes handy for load-testing though.
Search is the optimal context for presenting an ad -- you have the chance to make an impression to a person who is looking for information about something right at that moment. If you can get the right ads correlated to the search terms, you're handing the user a URL to information they're already looking for.
In most other situations, ads are noise -- they're a distraction from what the user really came there to pay attention to.
In the case of Facebook, it's the user's friends and interests. Which means your real goal with a FB campaign is to get people liking/following you. Buying comes later.
Our suppliers/vendors have exclussive right to brand management.
Were you doing multi-channel tracking ? - it's much more important when you're going after passive traffic sources in general.
Still, by far the best conversion comes from direct interaction with my community of potential users.
FB traffic is not very good if you don't optimize and tweak your campaigns to find what works best, but 200k uniques and no conversions is insane and I'm sure you could make that work much, much better; and I have data to prove it
disclaimer: I work for one of the first fb ads API tool vendors, but I'm an engineer, not a salesperson :)
Don't let the marketing talk of the homepage fool you into thinking we are all social-mediay-businesslike, we run on smart code and awesome client servicing.
Facebook is filled with smart people. They understand the trends better than we do. As you'll note, 4 of their top 5 Risk Factors relate to the web-to-mobile shift and the problems inherent with that.
From the filing:
#2 - "We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business;"
#3 - "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;"
#4 - "Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control;"
#5 - "We may not be successful in our efforts to grow and further monetize the Facebook Platform;"
I think this is correct, and it explains why the IPO exit is happening now. Most of the insane growth (in profit as well as valuation) has already been squeezed out.
I would amend that to say: most of the easy growth has been squeezed out. But there's still a huge opportunity for Facebook to grow revenue/profit if they switch to using personal data to make well-directed ads they can push to sites using Facebook Connect and/or if they can roll out a solid first-party Facebook-phone. [1]
Those are both far trickier than "grow Facebook", so it does make sense to capture some returns now. But I think it would be short sighted to write their future prospects off entirely.
[1] They could quite possibly fork Android and do to Google in the phone market what Amazon is doing to the tablet market. And they'd be crazy not to try.
Facebook has (wisely) focused almost entirely on user growth and retention over the last few years. That it stumbled into being an attractive display-advertising platform was almost inevitable, and required little effort. The real money lies on the distributed mobile and web ecosystem, into which Facebook has been diligently inserting itself as a de facto credential and backend. (Think of Facebook as the "Intel Inside" of the entire content web and mobile content web, and you get the idea).
Facebook has established an impressive beachead with FB Connect, and from there, it's only a matter of time before it can monetize its FB Connect partners through contextual and interest-based advertising services. Google should be very concerned -- and, to that end, it would not surprise me in the least if the threat of FB Connect to AdSense (and, to some extent, AdWords) was a significant factor in the race to develop Google+.
No, hitting the investor limit means only that you have filing obligations with the SEC. There is no obligation to trade your stock publicly.
Interesting. While the other points are gloomy-doomy and a bit vague, this one lends itself to a concrete solution, doesn't it?
Edit: Ooh i get it.
Since a lot of mobile apps have some type of Facebook integration (ie: a Facebook app id), Facebook has a good idea of who has what apps installed and they can serve up apps that are relevant to the user both on the interest graph and the data of what other mobile apps they have installed.
Wouldn't be surprised to see them move into mobile advertising hard in 2012/2013.
* Disclaimer: This is all speculation, no insider information was divulged
They talk much about Pictures, but most of the people i know don't post any. The big success of Facebook is the E-Mail IM replacement for young people, but it is very difficult to advertise on that. Who made ever money on IM and Mail? ICQ and AIM had impressive numbers, but were never a big success financially.
I know also people who share them, but max every week and probably just 5 friend really look at them. When you look at pictures, how can you concentrate on ads? They are not even in the middle like Youtube's. Pictures on mobile reduces the space for ads even further and you will always be uglier than every competitor.
I'm not really sure that applies universally. The majority of my stream post pics from mobile (either directly, thru instagram, etc.).
>The big success of Facebook is the E-Mail IM replacement for young people...
In mobile? I don't see that happening either, as most too used to texting/iMessage/BBM
Where I do see a lot of usage is in-stream. If they can figure out how to serve up ads within the timeline without being too intrusive then that would be the way to do it in mobile. Tho that new timeline crashes more often than it works in mobile (at least in the iOS version)
What is the benefit of looking at someones timeline and how often will you do it? Facebook needs incredible engagement (what it has right now on the desktop) and space do display ads. Youtube has the content, but what brings people back to FB? Don't forget all these social Startups will hurt Facebook on engagement.
Also, I believe stats will show that engagement is rising rapidly on mobile, and that's what keep people logged on FB.
Let's not get carried away, this is not true at all. Even outside of tech circles, there are plenty of people that have no interest in what Facebook offers.
Phone numbers are definitely obsolete.
Phone numbers are abstracted, but they are definitely not obsolete.
Semantically, choosing "obsolete" might have been incorrect, but I think the point stands. IP address and phone numbers don't matter anymore to the end users.
So actually I don't worry about either company's continued success. Both Google and Facebook are here to stay and grow even bigger.
However, it knows so much about users and keeps them logged in, so it definitely has potential to serve highly targeted or viral campaigns everywhere else on the web and mobile apps, a much better version of adsense.
Secondly, it is involving itself deeply in to user's habits and eventually may make a big play in to e-commerce, getting a cut out of every transaction made by the user (while frictionlessly sharing the information, of course). Credits is just in its infancy.
Finally, its learning so much about user's habits on the web that it can do a better job than Google at search, and make a killing on search ads.
If all this happens, $100B is a bargain.
Serving up ads on other websites is where the magic happens.
This is the real reason Google is getting desperate about Google+, they are worried about FB launching its own hyper targeted ad network. Google has context and tons of advertisers, FB has context and deep demographics and quite a lot of advertisers.
For instance, in my business Facebook ads are worthless. We depend on user intent "I'm looking for THIS" (in our case local service professionals). In search that intent is very clear, in Facebook way less so.
If I was selling lifestyle merchandise or advertising a consumer site, Facebook would be really attractive I'd think.
Both sides want a big piece of what the other has.
1) They have users logged in all the time ... they can serve targeted ads (e.g. gender based ads) 2) AdSense is monopolizing the market now
The four things people do on phones (call, email, text, and nowadays photo-share) are all inherently social things. Crucially, your iPhone contacts list likely has only the first/last name and phone number for each person, whereas the Facebook app is far richer in its implementation of the very same contacts list -- because the person on the other side has gone to the trouble of keeping their address, phone, picture, and the like all fresh and up to date[1].
So the FB Phone would be an enormous improvement in contacts management over what we currently have, and an FB Phone Directory would probably not be long in following[2].
Once people are using the FB Phone, you'd want to heavily push FB Credits as the payment solution for everything. I am sure that from a fraud protection standpoint, the identity signals that an FB account provides are highly desirable to Visa and Mastercard. FB could also just cut out the middleman and do payments directly with an FB Card, instantly accepted by 800+ million people worldwide and countless businesses. Sign up for FB.com and accept/receive payments. Use the social graph for authentication, where each node has an authenticity rank (based on its date of first signup, number of non-commercial posts, number of authentic friends, and the like). It's easy to set up a fake email address, but much harder to fake a realistic profile for years and get "real people" to friend you and interact with you.
Thus, a Facebook purchase or clone of something like WePay or Square would seem like a logical move. Embrace the shift towards mobile and own mobile payments by owning identity. Owning identity means a lower risk profile and higher profit margin than any competitor in payments.
[1] Not incidentally, the use of the FB Phone would ensure that people have even more of an incentive to keep their contact information up to date and searchable.
[2] This directory would be a huge product in its own right and the core of a real social search product, something more along the lines of findpeopleonplus.com than anything that's called itself "social search" to this point. The purpose of social search is to find a person, not a web page.
Today, the most effective FB ads are the ones that show up in the News Feed after your friends "Like" or take action on an ad or brand page. The ROI on these ads crushes that of traditional display ads (including those on the FB right-side margin) AND the targeting is still in its nascency.
The best part is that these ads transfer seamlessly to mobile or any future platform.
I wouldn't by into such an ownership structure, though to be fair, google has such a structure and those that bought that at IPO have done very well so far.
From the risks section:
As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of XX shares of common stock, representing a majority of the voting power of our outstanding capital stock following our initial public offering. As a result, Mr. Zuckerberg has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr. Zuckerberg has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.
I would under some circumstances, but there are absolutely no circumstances under which I would be prepared to invest in a company where one person has majority voting power. At least with Google, no single person's psychotic break can bring down the company.
So he must act in good faith except when he doesn't. Got it.
Think of a member of a military. They have a clear duty to act according to the policy and orders of their superiors. But in most nations, they can also vote, in their personal capacity as citizens, to change the top level of leadership, and they have no obligation to exercise their vote in furtherance of anyone's agenda but their own.
Zuckerberg's position is similar. What's out of whack is that he controls a majority vote of the "citizenry" (shareholders) himself.
A public company should be public not half private.
(3) The fine print.... The amount reported represent approximately $692,679 for costs related to personal use of aircraft chartered in connection with his comprehensive security program and on which family and friends flew during 2011.
Like a boss.
1) If he's already flying domestically and first class, that shaves what? An hour? Please.
2) The company doesn't have to charter a jet to fly friends and family.
So… let's just call it for the luxury that it is. They're not strapped for cash, after all.
(Besides, just how liquid is Mark Zuckerberg? He's only a billionaire on paper, right?)
One should also remember that in the infinite wisdom of the Congress and whoever was President at the time, any cash salary over $1 million gets an extra tax on top of normal income taxes. Better to pay for his security in before tax dollars.
"In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which we display ads from other advertisers."
It appears they would still be profitable without Zynga.
Are those ads counted toward the 12% statistic?
Is it reasonable to conclude that Zynga constitutes 80% of FB's credit ecosystem?
"In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which we display ads from other advertisers."
For example, if an advertiser pays Zynga to put a banner ad in their application or above the Flash widget containing their game, Facebook doesn't see a penny of that.
Zynga pays Facebook to advertiser in the right-hand column, though. Lots.
Additionally (and this doesn't count towards advertising revenue), Facebook Credits are mandatory for all games on the Facebook Platform, and Facebook takes a 30% cut any time a player purchases some.
That assumes many of those Zynga users would still be on, or use Facebook as often, if it wasn't for Zynga or other games on the platform. The significant amounts of time spent on Facebook is due in large part to games and photos. That length of time on the platform helps to drive display ad revenue.
- Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;
- Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control;
Link: http://www.sec.gov/Archives/edgar/data/1326801/0001193125120...
2011 Compared to 2010. Revenue in 2011 increased $1,737 million, or 88% compared to 2010. The increase was due primarily to a 69% increase in advertising revenue to $3,154 million. Advertising revenue grew due to a 42% increase in thenumber of ads delivered and an 18% increase in the average price per ad delivered. The increase in ads delivered was driven primarily by user growth. The number of ads delivered was also affected by many other factors including product changes that significantly increased the number of ads on many Facebook pages beginning in the fourth quarter of 2010, partially offset byan increase in usage of our mobile products, where we do not show ads, and by various product changes implemented in 2011that in aggregate modestly reduced the number of ads on certain pages. The increase in average price per ad delivered was affected by factors including improvements in our ability to deliver more relevant ads to users and product changes that contributed to higher user interaction with the ads by increasing their relative prominence.
This is going to be a super volatile stock. If there Q1 2012 revenue is flat QoQ, this is probably a $50B company, if it is up 15%, then this is probably a $100B company.
This is going to be a super volatile stock. If the Q1 2012 revenue is flat QoQ, this is probably a $50B company, if it is up 15%, then this is probably a $100B company.
I agree that ads revenue growth will be key for them in the short term. The Q4 2011 vs 2010 growth was 44% and it seems like perhaps the growth rate is slowing down.
Of course they're not yet showing ads on mobile..
I think on balance mobile is not really an opportunity. They are losing the game revenue to the mobile/tablet platforms and in-app mobile monetization is a minimal opportunity for a task based application.
I don't use facebook, but can you explain what it means to be working on payments? I thought that was just their taking a 30% cut on game payments on their platform. That kind of margin doesn't exist for more general "payments".
Even with all my negativity, I am still cautiously bullish on Facebook. They are only making 50 cents/month per active user. I see no reason they can't double that.
I'm really proud of him for clearly and loudly representing the hacker way when the whole world is watching.
I suspect it's also a shout out to future potential employees that he doesn't intend FB to change focus or style as a consequence of going public.
You might not necessarily agree with the extent the word "hacker" is applied to nowadays, but considering you are in a site called "hacker news" you probably should
1. http://techcrunch.com/2012/02/01/facebooks-s-1-and-the-large...
Since when? Way back in the dark ages (2003), it was seen as a lack of faith in the company if the insiders were selling.
It is the paradox of the sale: If you think the stock is about to double or triple, why would you part with any of it? Sensible folks would go get a loan, esp with interest rates so low.
A bird in the hand is still worth two in the bush, even if you're pretty sure you can get the two (or four) in the bush later.
Having been involved in a few startups where my equity was eventually valued at nothing, I'd certainly jump at the chance to sell some percentage of a future company I was involved with for real cash money even if I was pretty certain the stock might be worth more later.
Founders Fund have even branded a share structure which allows easier conversion of co-founder (sometimes actually called Series FF) shares to shares of a later series sellable to investors in future rounds. I think that trying to grant early liquidity to founders has been common for at least two years and was a cause of major controversy during the Groupon IPO.
See also: http://www.startupcompanylawyer.com/2007/12/22/what-is-serie... http://www.quora.com/What-is-Series-FF-stock-and-how-does-it...
Before any impression on any online media, advertisers will make a query to Facebook to find out which of the ads should be shown to this user. And Facebook will charge a small fee for each such query.
src: https://twitter.com/#!/goldman/status/164830894685818880
http://sec.gov/Archives/edgar/data/1288776/00011931250407363...
I saved this when I came across it a while back. Also, they had $961mm in net income the year they went out
It's hard to believe that a fb board member could make more accurate revenue predictions than random people with strong opinions commenting on HN ;)
gojomo: "To be specific, I will bet $100 that Facebook's annual revenue will reach $2 billion/year by 2014. Do we have a bet?"
jacquesm: "absolutely."
For example, there are an estimated 2 billion people online today, compared to 360 million in 2000.
The IAB estimated $1.7 billion total spend on online advertising in 4Q 2003. In 2011, over $7 billion in a quarter, a 7x increase. (http://www.iab.net/about_the_iab/recent_press_releases/press...)
Molly Graham, the daughter of Donald E. Graham, a member of our board of directors, is employed by us. During 2009, 2010, and 2011, Ms. Graham had total cash compensation, including base salary, bonus and other compensation, of $98,058, $133,620, and $189,168.
That's pretty darn good money, but not a huge amount more room for user-growth. They'll grow by having new businesses/making current ones more profitable. New business would have to be monetizable (eventually, at least), current businesses would either have to convert better or become less costly to run.
Facebook is full of some smart cookies - it'll be interesting to see how they accomplish those paths.
I would imagine a next logical step would be to expand its ad network beyond facebook (i.e. serve facebook ads outside of facebook itself), it would allow for a significant jump in growth potential while staying close to their core competency.
It can be tricky to get into the IPO though. Don't know the details on those rules.
Look into what is involved in buying stock in any American company from the EU. If you're still interested, you can pick up a few shares after it's trading on the exchanges.
On top of that, "a couple of hundred €" is probably not enough money. The fees to buy stocks on the Nasdaq is usually in the tens of euro. You'll probably have between 10 and 50 euros of fees at the cheaper online trading platforms.
You can also call your traditional bank to buy the stocks but the fees would probably be higher.
A valuation of $80-$100 billion dollars after the IPO would mean Facebook would be trading at 80 to 100x earnings.
Facebook is going to need to see some serious growth to continue to command a PE ratio like that long term. Serious Growth
http://theairspace.net/commentary/letter-mark/
The Hacker Way has grown up and lambasted Wall St.
http://www.sec.gov/Archives/edgar/data/1326801/0001193125120...
Wonder what amt of RSUs the rank-and-file are getting?
Also, it'll be interesting to see how the culture changes when a good % of the populace are millionaires
Disclaimer: This analysis is flawed
- Using multiples is not a perfect method to understand the valuation of a business. It's one of many. It's a proxy. It's quick.
- This chart uses 2011 financial data. Facebook is growing fast - their multiples would come down significantly if we used 2012 projections - which we don't have. If I had more than 10 minutes on this - I would use 2nd half of 2011 or Q4 2011 as a run rate.
Quick Thoughts (Not Conclusions):
- In Ben Horowitz's argument against the bubble - he says the valuations they were seeing at AH for large private tech companies (like facebook) is in line with large public tech companies (google). So just looking at the data quickly, I was disappointed that FB appeared to have higher multiples (his blog post: http://bhorowitz.com/2011/03/24/bubble-trouble-i-don%E2%80%9...)
- DAYAM FB has a crazy operating margin
- And they're getting better at monetizing each user. User growth was 40% from end of 2010 to end of 2011, while revenue grew 80% (http://allthingsd.com/20120201/facebook-has-845-million-user...)
Awesome.
[1]: http://www.sec.gov/Archives/edgar/data/1288776/0001193125060...
I mean, think about it: Mark owns over $10 billion in Facebook stock--he makes over a billion dollars by pushing the stock price up 10% (or loses over a billion if the stock drops 10%). Either way, a $15 million salary would be fairly insignificant...
[1] http://www.businessweek.com/bwdaily/dnflash/content/may2007/...
1) It looks good to investors: you've got to believe in it if your worth is in the stock, for instance most of Bill Gates net worth is in Microsoft stock and it would look bad if he sold it all,
2) You pay lower taxes: capital gains vs income, not to mention
3) it sounds good in the press and when people say it
Can't make people happy.
That blows some estimates out of the water.
I would love to see that compared to users. Especially if new users flattened out somewhat compared to increasing revenues.
I am not sure, but I dont think that FB userbase went up by 4.5x in the same period as did revenues.
That means they are getting far better at monetizing the users/advertisers are willing to spend far more to advert to the users, than before.
Subscriber rates have fallen and the future is filled with uncertainty. Let's go Public!
Google SYWP changing the game of advertising. Panic!
Exit strategy for investors to monetize their investments. Priceless!
In the business world, we can now call this "Doing a Jobs".