Wednesday, February 8, 2012

What Facebook's IPO filings reveal

You've probably already heard that Facebook stock will soon go public.  In order to do the IPO (Initial Public Offering, in case you're wondering), they have to file a variety of documents and reports with the SEC and the markets.  These filings offer some detailed looks into Facebook's status and operations.
  The numbers for last December indicate that there were 823 unique users (or at least user accounts), and that more than half (430 million) used Facebook through a mobile device.
   On the financial side, Facebook reported earning $3.74 billion in gross revenues for 2011 (up 88% from 2010), with $1.7 billion in operating profits before tax (and about $1 billion after).  That resulted in a very healthy profit margin of around 27%.
  Facebook seems poised to continue its push into mobile.
"We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage is critical to maintaining user growth and engagement over the long term," the company wrote in its filing.
  The high degree of mobile use has potentially positive and negative implications for Facebook.  On the positive side, a mobile-friendly systems is a huge advantage in globalization, as mobile networks are expanding much faster than computer networks, and consumers seem much more willing to invest in "feature" phones than in PCs, in emerging markets.  And with Facebook working to embed its platform on SIM cards, Facebook access could become a standard feature of new mobile phones.  On the negative side, Facebook currently generates less advertising revenue from mobile users, as third-party advertising does not display in current mobile apps.  Some analysts are also suggesting that Facebook may have to work out some revenue-sharing with cell operators, if features like Facebook chat service displace SMS use (and revenue).
  While display advertising currently drives revenues, the IPO filings show that in-app purchases from games and other apps is a significant and rapidly increasing revenue source.
“Users are paying for premium content and features through these games and apps, and everybody is surprised by just how much money that is generating for Facebook,” commented Adrian Drury, senior consultant at Ovum.
In general, the future seems bright for Facebook.  However, one analyst cautioned that Facebook's current success is attributable, at least in part, to its focus on providing value to its users, rather than maximizing profits.  Will going public shift that focus significantly?  If it does, users may well shift to other, more user-friendly social media systems and start a spiral of decline seen recently in other media.

Sources - What Facebook's IPO filing means for the telecoms
Facebook files for $5B IPO, shows 425M mobile usersFierce Mobile Content
Facebook's SEC Filing

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