A rewarding time to be a facebook 'friend'?

Facebook was founded by Mark Zuckerberg in 2004, while he was attending Harvard University. In one of the biggest ever US stock flotations, the company launched Friday on the Nasdaq Stock Market with a starting price of $42 a share under the symbol “FB.” Mark Zuckerberg remotely rang the morning bell on this Initial Public Offering (IPO) at 9:30 EST from Facebook headquarters in Menlo Park, California, essentially becoming billions of dollars wealthier in that moment. No American has company has been as so highly valued at its stock market debut.

Frenzied demand, especially from individual investors hoping to buy into an Internet juggernaut that touches hundreds of millions of people every day, drove the shares well above its initial public offering price. In the first five minutes, 100 million shares were traded with their value increasing more than 10% to $42 within minutes, before quickly falling back to end their first day of trading at $38.23, barely above the company’s initial pricing of $38.

It is estimated that Zuckerberg will become the 23rd richest person on the planet according to figures from Forbes magazine. In addition, 1000 present and former employees will be transformed into millionaires. One of Facebook’s founders, Eduardo Saverin, who previously held dual U.S. and Brazilian citizenship has renounced his United States citizenship to take up permanent residence in Singapore which does not have capital gains tax, so saving him millions of dollars.

It’s also a “Beautiful Day” to be Bono. As Facebook goes public, the U2 frontman could stand to make up to $1.5 billion off the widely anticipated IPO. The business-savvy, Irish rocker owns 2.3 percent of the shares of Facebook through his investment group, Elevation Partners. This will make Bono the richest musician in the world, overtaking Paul McCartney.

Facebook didn’t have to go public to raise money, of which it had plenty in the bank. It was pushed into doing so by federal law, which mandates public financial disclosures once shares in a company become distributed to a large enough insider group. Facebook’s 421.2 million shares offered to the public will raise $17.7 billion, bringing its valuation to $116.6 billion, which will make the company bigger than online rival Amazon, and far ahead of well-known institutions like Disney and Kraft.

Some analysts doubt whether Facebook is worth its current valuation and argue that the hype is proof of another dotcom bubble. They point to slowing revenue and user growth and its weak spot of advertising on the mobile devices, through which more than half of its users log in. 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. Last year Facebook made $3.7 billion in revenues and $1 billion in profits, one tenth the value of Google, whose shares now sell for over $620. Certainly, the flotation is likely to change the future strategic direction of Facebook. It may push the social network to place more advertising on its pages and create more commercial opportunities to take advantage of its nearly one billion active users and increase its revenues. Ironically, the launch came only two days after General Motors cancelled its $10 million Facebook advertising budget after discovering that people don’t shop for cars between status updates, pokes, likes, and virtual crop harvests.

As a public company, Facebook will have to balance the demands of its shareholders for a quick profit against the concerns of users and governments about privacy. Facebook has been criticised for its poor privacy practices by US and European regulators and its approach to corporate social responsibility will be a major challenge for Zuckerberg. For example, Facebook owns one of the largest photo repositories in the world, with more than 300 million photos uploaded per day and a store of 60 billion images. The site itself 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 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 shares were always going to pop at the open, that’s no surprise at all,” said Sam Hamadeh, co-founder of PrivCo, a financial analyst. “After the first couple of weeks, I think it’ll drop back down to the mid-twenties.” Hamadeh believes Facebook was worth $24-$25 a share. “And that’s being generous,” he said.

Whatever the financial future for Facebook, its founders and early investors are certainly celebrating.

Key Facebook facts and figures

901 million monthly active users at the end of March 2012. Approximately 80% are outside the US and Canada.
526 million daily active users on average in March 2012.
488 million monthly active users used Facebook mobile products in March 2012 and more than 500 million mobile monthly active users as of April 20, 2012.
During March 2012, 398 million users were active with Facebook on at least six out of seven days.
More than 125 billion friend connections on Facebook at the end of March 2012.
On average more than 300 million photos uploaded to Facebook per day in the three months ended March 31, 2012.
An average of 3.2 billion Likes and Comments generated by Facebook users per day during the first quarter of 2012.
Facebook is available in more than 70 languages.
Facebook accounts for 9 percent of all online visits in the U.S., according to Experian Hitwise,

IB-style questions

1. Define the following terms:

Public company
Corporate social responsibility

2. Prepare a SWOT and PEST analysis for Facebook.

3. Analyse the reasons why Facebook may choose a different strategy towards its social responsibility than other technology companies such as Google and Amazon.

4. Using your SWOT and PEST analysis, discuss Facebook’s future strategy and objectives following its flotation.

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