Facebook's Feb. 1 filing for a $5 billion initial public stock offering has the potential to give the world's biggest social network a market capitalization that would put it in the same rarified league as Google and Apple. The question is whether its future growth and financial performance will keep it there.
filed for a $5 billion initial public offering (IPO) Feb. 1
, claiming to
make $3.7 billion in annual revenue, $1.8 billion in operating income and $1
billion in net income.
some 845 million users, Facebook may not have been an Internet darling for a
few years. When the social network goes public, it will get a seat at the
adult's table, joining Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) as an arbiter
of online services.
question turns to what will happen to Facebook when its financial performance is
watched closely by investors and public shareholders. While Facebook follows in
the footsteps of Yahoo (NASDAQ:YHOO) and Google as a well-heeled Silicon Valley
company, it will go public with a massive ecosystem of dependents already
plugged into its matrix.
call Facebook an ecosystem, or a mothership, or a microorganism," Altimeter Group
analyst Rebecca Lieb told eWEEK
"There are so many companies using either its API or its advertising
services, and we're only going to see more of that."
example, Facebook has tapped The Washington Post, Foodspotting, Spotify,
Netflix, Pinterest and dozens of other companies as "social apps"
partners. These software makers integrate their apps into Facebook to
facilitate sharing users' interactions with those programs.
gaming platforms such as Zynga butter their bread in Facebook, making money
from virtual goods and giving Facebook a cut. Ad platforms such as Buddy Media
rely heavily on Facebook. Lieb also sees great untapped potential for Facebook
in social commerce, where the company could compete with daily deals providers
such as Groupon and Google's Offers deals service.
ecosystem has made Facebook so rich in user data that Lieb believes talk of the
Google last week said it will be putting nearly 60 of its Web services under
enable each of the services to share data. Facebook already has this in place.
product is customer data," Lieb explained. "Their revenue stream is
advertising. Advertisers are advertising on Facebook because targeting is
theoretically so precise on the platform. In order to compete with Facebook as
a media, Google had to do this."
Tucker, associate professor of marketing for MIT's Sloan School of Management,
said Facebook itself is only beginning to recognize the "untapped
potential" of this kind of advertising through its platform, APIs and
social network Websites haven't borne a lot of financial fruit for advertisers
to date, Tucker said Facebook's data can be hugely valuable to marketers. In a
research paper, Tucker examined data from an experiment in which a nonprofit
charity used both traditional and social advertising on Facebook.
found that social ads tailored for friends of "fans" of the nonprofit
on Facebook attracted far more clicks than those that were not. "When you
target ads based on who is friends with whom, you can double the number of
clicks," Tucker said. "This is because advertisers can uncover
consumers who could also get excited about their product."
itself acknowledged in its IPO filing:
believe that the recommendations of friends have a powerful influence on
consumer interest and purchase decisions. We offer advertisers the ability to
include 'social context' with their marketing messages. Social context is
information that highlights a user's friends' connections with a particular
brand or business, for example, that a friend Liked a product or checked in at
the rest of the social media market is thrilled with the news.
this comment from enterprise social software specialist Jive Software CEO Tony
Zingale, who went so far as to say Facebook's success "paved the way for
us at Jive to bring the social revolution to the enterprise and have one of the
most successful IPOs last year."
IPO is the ultimate proof that social is the new way to connect and share
personal information," Zingale said.