Facebook (FB) is one of the leading social media companies in the world and one of the most coveted technology stocks available on the public market. As of May 14, 2020, it had a market capitalization of $589.2 billion and is one of the largest companies in the world by market capitalization.
- Facebook's IPO launched at $38 on May 18, 2012.
- The stock fell significantly, bottoming out at $17.73 on Sept. 4, 2012, before rising sharply in 2013.
- If you invested in Facebook at its IPO, your investment would have had a 23.3% annual rate of return as of May 14, 2020.
- An initial investment at the company's all-time low would have netted you an annual rate of return of 37.6% as of May 14, 2020.
The Social Network
Facebook is probably the largest social networking site in the world. The company was founded by a group of Harvard students—notably Mark Zuckerberg—in February 2004 and was originally meant to be a directory for students at Harvard.
As the site's popularity expanded, it branched off to include students at other schools before taking off as the leading social network, open to anyone over the age of 13 with a valid email address. As of the first quarter of 2020, the company boasted 2.6 billion active monthly users.
For the first quarter of 2020, Facebook reported revenue of $17.7 billion, compared to $15.1 billion in the same period in the previous year—an increase of 18%. Net income came in at $4.9 in the first quarter of 2020, up 102% from Q1-2019.
Facebook Stock Debuts
Facebook made its long-awaited filing for an IPO with the Securities and Exchange Commission (SEC) on Feb. 1, 2012. Prior to going public, Facebook reported a net income of $1 billion in 2011—an increase of 65% from 2010. The company also stated it had 845 million monthly active users and 483 million daily active users as of Dec. 31, 2011.
On May 18, 2012, Facebook held its initial public offering, trading on the Nasdaq. At that time, it was the largest technology IPO in U.S. history. Facebook offered 421,233,615 shares at a price of $38 per share and raised $16 billion through that offering.
The stock continues to trade on the Nasdaq and is part of a group of important technology companies commonly referred to as FAANG stocks: Facebook, Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). Together, these companies have a combined market cap of more than $4 trillion and make up a significant portion of the S&P 500.
Facebook's success doesn't just come from its massive user base. Its primary source of revenue comes from advertising. Ads are directed at users based on their profiles and preferences. Companies that advertise through Facebook and its other sites pay when an ad makes an impression on users. So if a user clicks on an ad, Facebook gets paid.
The majority of Facebook's revenue is derived from advertising.
The company also uses strategic acquisitions to bolster itself as the behemoth it is today. Facebook has acquired more than 80 different companies, including:
- Instagram: Launched in 2010, Instagram is probably one of the most recognizable photo-sharing apps in the world and is very popular with young people who share, edit, like, and tag content with followers. Facebook acquired the app in April 2012 for $1 billion. The company decided to keep Instagram going as a completely separate social networking platform.
- WhatsApp: Facebook acquired the messenger service in 2014 for almost $20 billion. WhatsApp allows its users to make phone calls and send text messages to others who also use the service—all for free.
- Oculus VR: Oculus VR is best known for designing a gaming headset using virtual reality technology. Facebook purchased the company in March 2014 for $2 billion. This acquisition helped Facebook secure its foray into the world of virtual reality.
If You Invested in Facebook at Its IPO
Let's assume you would have been able to purchase Facebook shares at $38 when it launched its IPO. If you purchased $10,000 worth of shares, your investment would be worth $53,540 as of May 14, 2020—almost exactly eight years later. That's a compound annual growth rate of 23.3%. Pretty impressive, right? Sounds good, but you would have come out better if you waited just a little longer to invest in the company.
Facebook actually went significantly lower later in 2012, hitting an all-time low of $17.73 on Sept. 4, 2020. If you invested $10,000 in Facebook stock at that price instead, your investment would be worth $116,480 as of May 14, 2020. That's a 37.6% compound annual growth rate.