Facebook IPO and Growth
The company to be used in this case study is Facebook. Facebook is a social media company which is the biggest of is kind. Facebook facilitates communication of people across borders making it a big company. Facebook is a company in the communication industry. Its position in the capital markets is strategic for it works with other companies operating communication related entities like google, apple and android. The S-1 report filed by Facebook prior to the IPO offering contained the history of the company at length. The highlights of the report is the valuation of the company and it’s financial and ownership positions of the shareholders.
The revenue generation value of the company in the year 20111 was $ 3.7 billion. The daily income of operations was $1.7 billion. This figure is derived after subtraction of all the operation expenses. At the end of the year, the company had managed to generate a net income valued at 27%. This is an exponential profit margin because companies operating on normal profitability bases generate between 10 and 5 percent net margins. For the company to manage 27 percent means that its growth is rapid. The rapid growth of user base may reduce in future as the more people start using Facebook, the larger the denominator used to calculate the rate of growth grows. This is not to say that the influence of Facebook will decrease over time. Facebook has the potential to grow bigger and more profitable over time. After five years, Facebook has succeeded against all odds to achieve a good price for its shares which ultimately means that the company’s value has increased significantly.
In 2009, the company added the like button which was a tool added for the purposes of advertising. This addition turned the company around from recording losses to generating immense profits. More people now actively used the platform making it more appealing and popular to the users. The leadership and management of the company was not going to change following the IPO debut. Mark Zuckerberg was to remain the Chief Executive Officers. The shares of the company were grouped into two. This would mean that one group of shares has more value and influence in terms of monetary value and power of votes. There is one group of shares where one share is equivalent to ten votes while in the other group, one share is equivalent to one vote. This means that with 28.2% of the shares in his name, Zuckerberg remains the single most powerful shareholder in the company.
The growth of Facebook users grows exponentially every year. This is according to the statistics of 2011 where the users had increased by 39%. This was a 39% percent increase on 845 million users recorded in 2010. The revenue Facebook generates is from in-app purchases of games. This is where Zynga and Facebook strike a partnership. The importance of Zynga cannot be undermined. This is because, up to 97% of the revenue for Facebook is generated by Zynga and a small contribution from advertising. This partnership for Facebook has to be protected. This is because the growth of users was already set to decline after the year 2011 showed a decline from 2009/2010 period where the increase was recorded to be at 154%.
Facebook faces competition in countries like China and Japan which already have their social media platforms. Facebook has to work extra hard in these countries to gain popularity. In countries like Russia, the security status of Facebook is likely to be questionable and the locals may refuse to use (Arthur, 2012). Such are the challenges Facebook may face in their quest for expansion into foreign markets.in the S-1 report, Facebook filed the IPO value at one billion US dollars on first of February in 2012.
The company successfully raised capital from the IPO. The capital raised during the IPO was $16 billion. The revenue raised at the IPO was for the growth of the company. Zuckerberg had a vision of ensuring that all the social media platforms were integrated with Facebook. (Oreskovic & AlistaIR Blair, 2012) This would also be extended to as many applications on mobile phones as possible. This is a move that would see Facebook being influential and have wide access. Many if not all internet users will at some point get to use Facebook with one of the many applications people use in their day to day activities.
The company expanded operations after the IPO. This was seen in the company’s purchase of Oculus and Whatsapp. (Flegerman, 2017) This widened the talent base of the company and helps it maintain its position as a market leader. The advertising partnerships were opened up to more companies. Today many businesses have Facebook pages to use in advertising their products and services. This means that Facebook can successfully raise more revenue by giving advertisers a platform. The operations of Facebook have evolved and grown positively. The security of Facebook users and general experience has grown immensely. The security of the data of Facebook users has now been beefed up following the growth of the company as much as it has. The stock price of the shares of Facebook on the Stock Market has grown from the initial offer price of $38 per share to $144.85. This is a remarkable price given that at one point, the shares had dropped to as low as $17.55 per share. This means that five years later after the IPO, Facebook is performing better than its critics had expected when the IPO seemed to have failed.
I would be willing to invest in Facebook now because it has proven its worth over the last five years. By the time the company achieves its optimal revenue generation potential, much will have been doe and the value of the shares would be greater. The vision of the owner is also appealing to me as an investor. The company takes care of the employees as was seen during the IPO where they were offered the shares at a cheaper price. It is an idea company to invest in because the employees will always strive to grow with it because they own the company. Facebook has surpassed expectations in growth and the efficiency of wealth generation. The tactics applied by Zuckerberg to retain control of the company means that the vision and the goals of the company will be followed. It is an additional reason for any investor to spend whatever amount of money to acquire shares in the company. The rate of growth and revenue generation is not lily to slow down anytime soon. This means that investing at this time will likely pay off handsomely once the dividends are paid off.
Arthur, C. (2012, February 2). Facebook IPO: What We’ve Learned from its S-1 filling. Retrieved from The guardian: www.theguardian.com/technology/2012/feb/02/facebook-ipo-facts
Flegerman, S. (2017, May 18). 5 Years After Rocky IPO, Facebook is Stronger than Ever. Retrieved from CNN: money.cnn.com/2017/05/18/technology/facebook-ipo-anniversary/index.html
Oreskovic, A., & AlistaIR Blair. (2012, May 3). Facebook plans to Raise $10.6 billion in Mega IPO. Retrieved from Reuters: https://googleweblight.com/i?u=https://www.reuters.com/article/us-facebook/facebook-plans-to-raise-10-6-billion-in-mega-ipo-idUSEBRE8400PW20120503&grqid=yjznv5-&hl=en-KE
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