Facebook users spend 56 percent more time online than Google, viewing twice as many pages. So why is the Facebook revenue 1/10th of Google's, at $3.7 billion and $37.9 billion, respectively? Is the Facebook IPO worth $100 billion?
Facebook filed its initial paperwork for its IPO on Feb. 1, 2012, in what is assured to be the most talked about IPO in 2012. Like Google's IPO in 2004, everyone wants to know how to buy in, at Face Value so to speak, without even knowing if they are getting a good deal. However, before you "friend" the Facebook share, it will pay to do some digging into their StockVille.
Is Facebook Worth $100 Billion?
During the IPO period, the valuation gets hammered out, but current estimates are pegging Facebook's valuation at $100 billion, which is pricey considering that the company only had $3.7 billion in revenue and $1 billion in net income in 2011. If Facebook can live up to its potential -- which would be to get to Google's $38 billion in annual revenue and $9.74 billion in yearly net income -- then Facebook is worth $100 billion today. There are signs that could be the case. But, there are just as many hurdles that Facebook must leap before they get there.
Five Hot Facebook "It" Factors
1.Revenue has increased almost five times in three years -- to $3.7 billion in 2011 from $777 million in 2009
2.27 percent profit margin -- right in line with Google's
3.$1 billion in net income in 2011, up from $229 million in 2009
4.Users spend 56 percent more time on Facebook than Google, on average. (423 minutes/user a month vs. 271 minutes*)
5.Facebook has more than two times as many page views as Google. (114 billion vs. 55 billion*)
*Source: comScore Media Metrix, December 2011 statistics
The "If" Factors
Is Zuckerberg the Next Warren Buffett?
The real question is simple. Can Mark Zuckerberg, who is chairman and CEO of Facebook, with a 28.2 percent controlling interest, transform Facebook's popular success into income without losing Facebook's "friends." Facebook's prospectus quotes that the company has 845 million active monthly users worldwide, however the unique U.S. visitors per month, according to ComScore, are 162.5 million. Incidentally, that number was lower in December than it was in October, when the UV count was 166 million. Too early to know if this is a new trend. One thing is sure. The Kenyan school girls that I mentor, and their friends and family, are lucky to get on Facebook for a few minutes every week or so and have no money to buy anything. So, don't be too punch drunk on the 845 million number.
Google's Founders Hired a Mentor/Boss
Google had a "triumvirate" when they launched their IPO (a three-person decision-making team), however the structure of power fell to Dr. Eric Schmidt, who was hired as chairman and CEO of Google in 2001 -- three years before the IPO. As chairman and CEO of Google, Dr. Schmidt provided the experience and wisdom necessary to transform the unique vision of Google founders Sergey Brin and Larry Page into dollars and $ense. And he had the power to break a tie, if need be.
Mark Zuckerberg has a very respected, experienced COO in Sheryl Sandberg and many mentors, including respected Internet venture capitalist Marc Andreessen. However, Zuckerberg still holds the voting power, the money and the top job. (Insiders at Facebook have 10 times the voting rights as common shareholders.) Larry Page and Sergey Brin were willing to cede control to Schmidt, who ultimately positioned Google for the great success that the company has become -- not just in media metrix, but in top and bottom line revenue. Shareholders care deeply about profits and value! Zuckerberg has the power in the executive suite, but he will lose that if he cannot win the support of shareholders. Shareholders may not have much say by vote, but their opinions are always reflected in the share price of any publicly traded company.
Zynga/Facebook Symbiosis
Another "if" factor lies in the relationship with Zynga. Twelve percent of Facebook's revenue comes from Zynga. Facebook is heavily reliant upon gaming for income. Will gaming suffer as more people go back to work? Was the Great Recession a unique period for the industry -- when so many people were out of a job? This is definitely something to monitor. Facebook's current agreement with Zynga is valid through 2015.
Insider Selling
The Facebook IPO will be the first time that some Facebook insiders have the opportunity to sell their shares. Insiders may begin selling shares as early as the first week of May, 2012. Others have to wait 6-18 months. Be aware that a need to pull some profits off the table could create volatility in the share price, once Facebook shares hit the big boards.
Vision Vs. Bottom Line
Mark Zuckerberg's mission is to "make the world more open and connected." In his letter to prospective shareholders, he writes, "Simply put: we don't build services to make money; we make money to build better services."
Yes, Facebook is immensely popular and we now have multiple reasons to visit the site over four hours a month (on average). However, there are fierce competitors in the social networking and gaming space, including Google. "Stickiness" didn't stop the world from abandoning MySpace for Facebook in 2007. This is a huge concern because MySpace was once bigger than Facebook and the founders were not successful in making the transition into multi-billion-dollar executives. This is the challenge of any entrepreneur. Many newbies fall off the Billionaire List with the same speed as their meteoric rise to power. It took Steve Jobs two tries to make Apple the most valuable company in the world.
So far, Zuckerberg's decisions have been the best the social networking world has to offer to users, as exhibited by Facebook's enormous dominance in the field. Beating Google in page views and time online is no small feat! Catching up to Google's sales and income is the next milestone for the gifted, young executive, who will have to make the leap to multi-billion dollar sales and income to live up to a $100 billion market valuation.
It will take a few weeks for Facebook shares to begin trading on the Big Boards. If you wish to participate in the IPO, contact your brokerage to see if you qualify.
About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and Put Your Money Where Your Heart Is, and the founder and CEO of the Women's Investment Network, LLC. She is a blogger on HuffingtonPost.com and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Follow her on Facebook.com/NWPace. For more information please visit NataliePace.com.