According to its May 15th amended registration statement, Facebook sold just over 388 million shares for about $38 per share prior to its initial public offering. This has raised nearly $15 billion for the company founders, early-stage investors and others who managed to get their hands on some shares while the company was still officially private. However, since it went public Facebook has endured a substantial drop in share price from its IPO.
Below are some still relevant investment considerations now that the stock has officially gone public, despite the reactionary movements that occurred in the market earlier this week.
Facebook's user base has continued to skyrocket and now exceeds 901 million users, which it considers "monthly active users." This activity leads to 3.2 billion likes and comments each day, 300 million daily photo uploads and 125 billion friendships. This should be more than enough to cover the more than 7 billion humans currently on earth, which falls in line with Facebook's stated objective, or "social mission," "to make the world more open and connected." It has already been one of the most successful entities ever to do so, which contributed to the hype prior to last Friday. Whether or not this translates to long-term growth and revenue generation, time can only tell.
Finances and Platform
In terms of the financial equation, sales growth has also been meteoric. Facebook was only officially founded in July 2004 and has seen revenue shoot up from $0 to $3.7 billion for all of 2011. This is up nearly five-fold from 2009 when revenue stood at $777 million. Nearly all sales stem from advertising, as well as an online market that lets users purchase "digital goods" such as games and online services.
Facebook has spent heavily to develop its digital platform and grow subscribers, but has been solidly profitable for the past three years. Last year, it reported an even $1 billion in net income, though only $668 million was available to the common stockholders. However, despite these numbers an analyst for the underwriter Morgan Stanley cut revenue forecasts prior to the IPO, which resulted in some downward movement in its share price among institutional investors. Whether or not this estimate holds water, will depend on the social media giant's first quarterly report as a public company.
The market capitalization is currently around $70 billion, a drop from last week's $81 billion; 2013 earnings per share estimates are currently within the neighborhood of 40 cents, based on the current share count. This places the price-to-earnings ratio in even loftier territory at around 100. Some investors remain very optimistic on Facebook's future, hoping it will turn out to be the next Google, which currently has a market cap of close to $200 billion and revenue close to $40 billion. Google has grown sales and earnings more than 80% annually for a decade now, though growth has slowed a bit in recent years.
Of course, other investors like to point out that MySpace, a social networking firm set up several years ago with similar ambitions to Facebook, also had a quite a bit of hype in its earlier days. Media giant News Corp. bought my space for $580 million back in 2005, but ended up selling it for $35 million last June to Specific Media. MySpace had seen its user count dwindle to 34.9 million at the time of sale, down by roughly half from the prior year.
The Bottom Line
The half-a-billion-dollar loss on the part of News Corp would be child's play, should Facebook's business model follow a similar downward trajectory. This seems highly unlikely, but so does its ability to grow sales rapidly enough to justify its lofty market capitalization. Most individuals would probably be better served taking advantage of Facebook's power to connect the world's population, but avoiding the stock, for the time being. At this point in time, Google looks to have the much more appealing, and sustainable, business model.