The largest social networking site in the world, Facebook became one step closer to becoming a publicly traded company. Founded in 2004, by Mark Zuckerberg at Harvard, the website now has over 850 million monthly active users.
Zuckerberg, who passed off offers from Yahoo for 1 billion and Microsoft for 15 billion, can look back at his decisions to pass up such large sums of money, and see how good of a choice he has made. Some say the IPO could raise around 5 to 10 billion dollars, while the market capitalization (total value of the tradable shares) could reach anywhere between 75 and 100 billion dollars. With Zuck owning around 28% percent of Facebook, you can do the math.
What’s great to see now that Facebook has filed, is the information the company now has to share the risks to potential shareholders of what can devalue the company. Some of the ones that caught my eye and which I think are potential red flags are:
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;
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;
Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. May of these laws and regulation are subject to change and uncertain interpretation, and could harm our business;
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed;
As you can see from some of these points, the revenue model consists mostly of advertising. If advertising doesn’t increase or they can’t find a good way to increase revenue through their mobile platform, there may be a big problem. How big of a problem, who knows. They did make over 3.7 billion in revenue in 2011, and would have a substantial increase in money to figure them out.
For good or for bad, Facebook has changed the way people interact, businesses market, people share information, and more. No matter what, I can’t wait to see what happens when the company makes it’s IPO. Facebook has defined a new era in communication and has become the biggest distribution platform on the web. All eyes will be on Facebook and Wall Street as they they make one of the most anticipated public offerings ever.