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Facebook (in 2013): Will Wall Street Hit the “Like” Button? 1


Second Edition 1 iv .Credits Facebook (in 2013): Will Wall Street Hit the “Like” Button?: Strategic Management.

entered the media event room at Facebook headquarters in Menlo Park. The authors thank Andrea Meyer for her editorial assistance and invaluable case writing guidance. who played a significant role in his professional development and his company’s success. Sandberg eased into her chair saying. 2015. Ways that can be a win for everyone—you. what are the latest ideas?” countered Zuckerberg. “I believe you will change the way we look for answers from the Internet. . Today. “I don’t like seeing my vision for a connected world smothered with logos and slogans! But that is why you’re here—to try to convince me otherwise. Timeline and News Feed.” referring to the Graph Search press event. Even some of Facebook’s current challenges were brought about by Jobs’ revolution of the mobile industry. is a driven businesswoman with a keen sense for shareholder value creation.” Sandberg responded. are entirely the authors. represented two of the three pillars supporting the Facebook ecosystem. These two products allow users to view a portion of their social network by continuously answering the questions. All opinions expressed. There were many ways to monetize Facebook’s user base of one billion people: ads on the mobile platform and the main site. Zuckerberg noticed the numerous glowing white Apple icons arrayed throughout the auditorium.” while Sandberg. Two current products. Rothaermel and Seth Taylor (GT-MBA’14) prepared this case from public sources. Sandberg knew that she and Zuckerberg had a strong professional relationship.1 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer MHE-FTR-016 007764506 5 FRANK T. 2013. California. This was Facebook’s first live introduction of a new product.” Zuckerberg answered immediately. the late Steve Jobs. source of data. and all errors and omissions. These images very briefly reminded him of his mentor. casually dressed in his hoodie. Facebook’s chief operating officer (COO) and second in command. “I think that went very well. It is not intended to be used for any kind of endorsement. ROTH AERMEL SETH TAYLOR Facebook (in 2013): Will Wall Street Hit the “Like” Button? JANUARY 15. Zuckerberg unveiled the third pillar: Graph Search. Zuckerberg opened with a review of Facebook’s mission and described the structure of the company’s current social ecosystem. Zuckerberg is all about building the “best product and user experience. He intentionally noted that Graph Search is very different from a normal web search because it filters results based on a user’s connectivity to his or her social network. “What’s going on?” and “Who is this?” After reviewing the first two pillars. 10:03 A. It could also be a great tool for advertisers—and a way to deliver on the expectations of shareholders. What are the latest ideas? The question stuck in Sandberg’s mind. charging users a usage Frank T. © by Rothaermel and Taylor. advertisers.M. to discuss strategies for monetizing Facebook’s data and users. After the presentation. As he stepped in front of the audience. but the topic of modifying Zuckerberg’s creation for profit was a subject of debate between them. a Harvard MBA. “There are options for demonstrating the value of our data. Zuckerberg would attempt to engage an audience with a new product in a manner similar to Jobs’ flashy introductions of new innovations. Zuckerberg sat down with Sheryl Sandberg. This case is developed for the purpose of class discussion. or depiction of efficient or inefficient management. and users!” “So. shareholders. Mark Zuckerberg. which allows users to query their social network directly.

and mobile MAUs from 2009 to 2012. Zuckerberg opened the platform up to other universities in the Boston area. however. More features were added over the next several years to further enhance the site’s user functionality.6 Globally. Zuckerberg began work on a new website—The Facebook—that leveraged some of the features from Facemash. which paved the way for exponential user growth.7 billion likes and comments per day and over 100 billion friend connections by the end of 2011. and Canada. Approximately 80 percent of the site’s users live outside the U. received an invite to view it. and the website is available in more than 70 languages. Realizing the site’s potential. The global footprint Facebook had achieved by 2012 was astronomical.2 Half of Harvard’s undergraduates had signed up within just over a month of the launch. University officials. As Sandberg considered Zuckerberg’s question. Greylock Partners.4 High school and international school networks were added in the fall of 2005. The site proved popular. and PayPal co-founder Peter Thiel invested $27. the Like button.S. at the very least. traditional banner and skyscraper advertisements.7 The growing user base also brought more revenues. The following semester. A Brief History of Facebook While attending Harvard University in the fall of 2003.2 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? fee. Users who have logged into Facebook within a 30-day period are counted as monthly active users. In addition to launching Facebook Mobile. major. 2 . on average. In addition to 1. and Yale. At the same time. it hit 12 million MAUs and earned $48 million in revenue. Zuckerberg and several fellow students officially launched The Facebook in February 2004 (the “The” was dropped shortly thereafter). a 30 percent increase over December 2011. DAUs. anyone with a verifiable e-mail address could sign up. she knew that no matter what. Exhibit 1 shows the MAUs.3 Facebook continued to grow rapidly over the next several years. and to Stanford. In May 2005. Facebook had 618 million daily active users (DAUs). Joining members were allowed to add a picture. Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash. Meritech Capital Partners. it would always be a hard sell to him.8 See Exhibit 2 for more information about Facebook’s revenue growth. daily active users measure the number of users who have logged in within a 24-hour period. The increase in MAUs from 2010 to 2012 led to a corresponding increase in revenues. By year’s end.1 After a few days. which was similar to Hot or Not—a social media site that prompted users to submit photographs that were judged by other users as either “hot” or “not. among other things. To collect student images.06 billion monthly active users (MAUs).” Zuckerberg’s Facemash site placed pictures of two female students next to each other and asked fellow students to choose the more attractive person. chat capabilities. By September. But the method could not be a drastic diversion to the user. attracting 22. from $731 million to $1. the website was in use at over 800 colleges and universities and received $12. and hometown to their profile and could link their profile to those of their friends. quickly shut down Facemash and placed Zuckerberg on a six-month academic probation for breach of security. In April of 2006. Facebook’s investors were growing more restless as they monitored the young company’s share price.000 views within its first four hours online. Designed initially to replace Harvard’s printed student directory. including a developer platform. almost all Harvard students had either viewed the site or.5 The following year was another strong one for the company. 2. In the same way. Columbia. The only requirement to join was an e-mail address ending in . respectively. Facebook tracks the number of monthly active users (MAUs) and daily active users (DAUs) as a means to assess users’ engagement. Double-digit growth in monthly active users and annual revenue quickly became the norm.5 million in Facebook.7 million in investment from venture capital firm Accel Partners. and an e-commerce payment feature. Facebook had achieved $9 million in revenue and accumulated six million monthly active users (MAUs).584 million. there Zuckerberg and his friends hacked into Harvard’s computer network and copied files from campus houses.

Exceptions are Brazil and Germany.64 billion in 2014 (see Exhibit 4).10 However. Facebook’s ARPU (Exhibit 5) provides another metric for measuring how well Facebook is capturing value from its user base. Facebook brought in $5. Facebook launched a new advertising mechanism called Beacon. Even as Zuckerberg has adapted to his role as a business leader. The website collects data to map out human relationships and social connectivity. On several occasions.09 billion in sales. whereas Facebook makes only $15 per user account. despite the fact that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more experienced. mobile users. South America. professional managers. it is a social graph that has mapped one-tenth of the world population in less than seven years. Facebook is the obvious fusion of Zuckerberg’s academic passions in psychology and computer science at Harvard. As Facebook grew out of its start-up phase. with most of the growth being generated in North America’s well-developed advertisement industry. Compelled by the company’s vision to connect the world by building a great user experience. He received more negative press over comments he made in a speech in 2007. Zuckerberg’s inexperience and casual appearance have received criticism.9 Google and Yahoo make nearly $88 per user of their search engines. The company has stated that it intends to connect the “more than two billion global Internet users. The feature was designed to track users’ activity across all of the websites they visited and share their activity with friends via their Facebook account. In December 2007.”11 Its success in penetrating different countries. and in China. Facebook operated directly under Zuckerberg. who coded much of the original site and then managed the engineering teams in the next phase. a network with roughly 200 million users. Zuckerberg won’t see his ambitions sidelined by an outsider motivated primarily by increasing shareholder value. under the new settings. In Germany. but there is still plenty of room for Facebook to grow. Addressing privacy concerns effectively remains in the front of Zuckerberg’s mind as he considers ways to monetize Facebook’s prime audience. however. He even hired a public speech coach. Facebook has ambitious plans for the future. the way the company has tried to juggle user privacy and the monetization during his tenure has opened him up to additional criticism. even his work schedule hearkens back to college habits. This measure has slowly risen over the years. Zuckerberg has worn flip-flops and hoodies to meetings with other executives. In most of North America.3 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? In 2012. Facebook battles VKontakte for dominance. however. The company generated 84 percent of its revenue through advertising services and collected the rest through social gaming fees charged to platform developers. Its release prompted condemnation from users and privacy groups alike. made public some messages originally thought to be private.14 3 . Facebook’s ad revenues are predicted to rise to $7. In the early days. former president Bill Clinton’s speech adviser. where penetration rates are less than 30 percent. Facebook chooses to focus on average revenue per user (ARPU) as a tool for assessing its ability to monetize its users. Taken together. has varied. Facebook’s equivalent in China is Renren. when the company released new privacy controls that. and Europe. which Zuckerberg refers to as a social graph. when he stated that “young people are just smarter. At times. With his habit of arriving late to work and staying into the middle of the night. Facebook reaches anywhere from 60–80 percent of Internet users. A similar situation occurred in 2009.12 In Russia. users are quite concerned about data privacy. while Google’s Orkut social network competes with Facebook in Brazil (only recently has Facebook surpassed Orkut in usage). it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and activities. a 37 percent increase over 2011 (Exhibit 3). Facebook’s Leadership MARK ZUCKERBERG Founder Mark Zuckerberg (nicknamed “Zuck”) remains the CEO and chairman of Facebook. Facebook is currently blocked by the government. This ban leaves a gap in the company’s social network.”13 In recent years. some industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO.

17 Time magazine considers her one of the “100 Most Influential People in the World. particularly those at J.” Sheryl Sandberg is a vocal advocate for women in leadership. The dynamic between the two is respected within both Facebook and its board of directors. launched the third pillar of Facebook’s social ecosystem. In both.4 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? SHERYL SANDBERG Sheryl Sandberg joined Facebook as chief operating officer (COO) in 2008.S. Timeline. while Sandberg brings in the money.22 DAVID EBERSMAN After the departure of Facebook’s chief financial officer Gideon Yu in 2009. Prior to working at Genentech. and the U. Inc. and international reach.20 Zuckerberg sought out Sandberg amid a shake-up of his executive team. partly because Sandberg recruited Google executives and employees to work for Facebook. 4 . even going so far as to blame this decision for the stagnant stock price on the day the IPO was issued.S. 2012. and Graph Search. Department of Treasury.19 As COO and Zuckerberg’s second in command at Facebook. Sandberg has been a key figure in reshaping Facebook’s business model. considered her a “superstar. or about one-quarter of Google’s work force. Google’s CEO at the time. In this way. revenue.23 The search turned up David Ebersman. In that capacity. Morgan. the leadership dynamic between the CEO and his COO can be explained in simple terms: Zuckerberg brings in the users.000. and communications prowess. Ebersman. The three pillars consist of News Feed.” and Fortune places Sandberg as one of the “50 Most Powerful Women in Business. the company sought a CFO with public company experience that could help it prepare to go public in the next few years.16 Sheryl Sandberg attended Harvard for both her undergraduate (economics) and graduate (MBA) degrees.25 Three Pillars of a Business Model Mark Zuckerberg’s Graph Search announcement on January 15. following a six-year stint as Google’s vice president of global online sales and operations.18 and her book Lean In is a bestseller. who received an undergraduate degree in economics from Brown University. she worked with Google’s AdSense and AdWords programs.” but tension grew between the companies after her departure.21 Sandberg is known for her ability to form teams and break deadlocks. Department of Treasury prior to working at Google. Sandberg focuses on operations. a unit that began with 300 staff but grew to 4.24 Ebersman was indispensable to the launch of Facebook’s IPO on May 18. Given Zuckerberg’s public relations challenges. 2 within the company. She was also tapped for her sales. The SEC and the media criticized Ebersman for his decision to raise the number of shares offered in Facebook’s IPO three days before Zuckerberg rang the NASDAQ bell. He was looking for someone who would be comfortable serving as his No. business development. 2013. Her TED talk entitled “Why We Have Too Few Women Leaders” has some three million views. allowing him to maintain a tight rein on Facebook’s activities.15 Eric Schmidt. P. who was in his 15th year as CFO at the biotech company Genentech Inc. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U. To some extent. under Sandberg’s leadership. such as when she completed a round of funding for Facebook when its chief financial officer (CFO) left suddenly. She has also stepped up in unexpected areas when needed. Sandberg speaks about the low number of female leaders in today’s society and how to overcome this situation. Sandberg has been able to attract high-profile advertisers by showing them how targeted their ads can be when they’re hooked into a network as intimately familiar with its users as Facebook is. bringing an analytics perspective and authentic communication to bear on the issues. held positions with Oppenheimer & Co. public policy. many consider Sandberg the “professional face” of Facebook. working closely with advisers from the institutions underwriting the offering. She is now working hard to help Zuckerberg find a viable business model that will monetize the company’s mobile users.

and Amazon. This app allows users to quickly message with their Facebook friends and supports image attachment and audio messages. LinkedIn. Milestones older than 2004 (Facebook’s launch year) are now easily represented on a graphical display. Users can select what information to share and with whom to share it. Zuckerberg claims that News Feed answers the question. “What’s going on in the world around you?”27 TIMELINE An updated version of the profile page.e.5 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? NEWS FEED Released in September 2006. and communicate with each other across the Internet.26 The success of the logic behind News Feed has kept users engaged and has contributed to the immense popularity of the site. News Feed quickly became a core feature of Facebook. Zuckerberg stated that Graph Search is meant to help people “discover and make new connections.”30 whereas the previous two pillars helped people maintain their connections. MESSAGES Included with the initial launch of Facebook. The company strives to build the tools necessary for users to connect. Google launched its own social networking tool. in anticipation of such a move by Facebook. users can opt to utilize a free@facebook. group memberships. Facebook. “Who is this person?”29 GRAPH SEARCH Zuckerberg calls the network of connections between people the social graph. and text messaging. Google1 in 2011. Inspiration for this product came when its creator. as a product. and buying goods. It is also expected to migrate to Facebook mobile. photos. events. The years that Facebook spent attracting users and their personal information have come together to give Facebook an edge over Google’s user database. is an attempt to map the global social graph in the form of a massive database. Today. photos. Timeline answers the question. Graph Search is a search bar that hovers at the top of every Facebook page. Google1 has made little headway against Facebook’s massive head start in the social network space. Sam Lessin. called Timeline. and the actual content. In fact. play a critical part in the priority ranking. messaging has remained a core feature of the social networking site. making business connections. The priority of items displayed in the News Feed is based on a complex algorithm.32 Facebook’s Products for Users Facebook has evolved tremendously over its eight years of operation. share. such as the number of friend comments on an item. viewed a hard copy of his profile stretched across the office. and so on. was launched in September 2011. In addition to acting as a title for the content of that page. It allows each user to paint a complete life story on his or her profile. 5 .com e-mail address). Later releases of the tool will include information from Open Graph (described in the following “Creating Value for Developers” section) and allow users to search Facebook posts. So far.28 According to Zuckerberg. It is at the heart of a user’s homepage and provides regular updates of friends’ posts. and interests in their portion of the social graph. Facebook’s messaging products include e-mail (i. Several factors.31 Facebook search capabilities will also directly compete with other social-based information services like in the areas of finding restaurants and shops. Facebook has taken a giant step into Google’s territory with the release of Graph Search. who posted the original item. places. chat.. users have seamlessly accessed all three products in one integrated location. Since November 2010. Graph Search also allows users to search for people. A separate mobile application (app) called Messenger was launched in November 2012.

family. making it the most popular photo uploading service on the web. if their Facebook friends have visited the same location and left comments about their experience. FRIENDS LISTS Launched in December 2007. users can see that information. Launched in September 2004. Friends Lists was updated in September 2011 to compete with circles on Google1. They can also add captions and locations to their photos and identify other users by “tagging” them. An event can include a map location for the address and a host for the event who is also a Facebook user. help users focus on content that they are immediately interested in reviewing. EVENTS The Event feature lets users create an event. Users upload more than 250 million photos on average each and every day. Examples of Groups include family. eliminating the need to wade through mundane updates from those to whom they aren’t as closely connected. Users can use Friends Lists to create Smart lists or Friends and Acquaintances lists to ensure that content from specific friends is given the highest priority on their homepage. NOTIFICATIONS Introduced in May 2009. Facebook Notifications are visual alerts that signal users to activity on their page or within their social graph. PHOTOS AND VIDEOS Originally designed by a single engineer and designer in October 2005. the feature allows users to control the content they share—for example. and comments—via customizable privacy settings. Friends Lists added another layer to the News Feed algorithm. Notifications accumulate and are displayed as numbers within red notification bubbles located on the Facebook page.33 Users can share an unlimited number of photos. calendars. Facebook released a Facebook Camera mobile app that made it easier for mobile users to take pictures and upload them to their account directly from their phone. A new version of Facebook Events was launched in May 2010. Places is a Facebook mobile feature that lets users share their physical location with other users by “checking in. and church groups. pictures. In addition.34 Lists. or the world. messages. depending on their profile’s privacy settings. like Google’s circles.6 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? GROUPS Facebook Groups provide users with an online space to discuss common interests. photo albums. 2012. This feature also provides users with a way to share information privately. and general activity. PLACES Launched in August 2010. sports teams. Separate notifications appear for friend requests. which some considered superior to Facebook’s solution. guests can communicate with each other on the event page. invite other Facebook users to the event. This upgrade made it easier for users to create events from their homepage while adding more details about an event. On May 22. and videos with friends. the ability to share pictures is one of Facebook’s most popular features.35 6 . and track RSVPs for the event.” Users can tag other Facebook users who are with them as well and.

life events. SUBSCRIBE September 2011 brought another new feature to Facebook: Subscribe. we make money to build better services. Mark Zuckerberg stated.” select a gift. CREATING VALUE FOR ADVERTISERS AND MARKETERS Advertisements on Facebook revolve around the creation of a Facebook Page for an organization.. a large number of public and private universities. sponsor content about its business. From then on. Once an organization creates a Facebook Page. insert a message. GIFTS The Facebook Gifts feature was rolled out in December 2012 as a way to capitalize on e-commerce beyond the cut that Facebook takes from game developers on the Facebook platform. but Facebook plans to expand it to other countries. In addition. Facebook Pages allow any individual or group (e. social context. Facebook has identified four value propositions for advertisers and marketers: reach.7 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? PAGES Also launched in late 2007. click “Give Gift. Currently. Users can visit a friend’s Timeline.36 VIDEO CALLING In the summer of 2011. By the end of 2011. Through effective use of pages. photos. When users like a page. public figures. Facebook partnered with Skype (which had been purchased by Microsoft in May 2011) to form Video Calling.g. including ones for most Fortune 500 companies.”37 Such a dismissal of the importance of monetization scares investors. and check advertisement analytics to gauge the success of its campaigns. any time a favorite journalist authors an article. Zuckerberg and Sandberg know that developing an effective business model is crucial to Facebook’s future success. which requires dual acceptance). or organizations) to create a public profile page in order to interact with the Facebook community. the company may launch ads. The Wall Street Journal. colleges. a feature intended to compete directly with the Hangouts feature on Google1. they automatically sign up for any and all content published through that page. Video Calling enabled users to call friends for free directly from Facebook after installing the Skype plug-in. USA Today. The Subscribe feature gives users the option to tailor what they pull into their News Feed.38 7 . Pages operate similarly to the model of Facebook competitor Twitter in that the owner of a Facebook Page need not approve likes from users (unlike a friendship between individual Facebook users. which promotes the further customization of the Facebook experience. Facebook’s Business Areas In a Securities and Exchange Commission (SEC) filing in early 2012. Still. relevance. it is posted to the Facebook user’s News Feed. there were more than 37 million Facebook Pages. an owner can increase his or her exposure by taking advantage of the algorithms associated with the News Feed. this feature is only available in the United States. this content is then posted to the users’ News Feeds. and Forbes. and many national and local celebrities. allowing them to turn on or off comments. a user can subscribe to articles authored by his or her favorite journalists from sites such as CNN. businesses. and engagement. or games from individual Facebook friends. “Simply put: we don’t build services to make money. celebrities. and send a physical gift to that friend.

sponsored stories (e. Facebook boasts 680 million mobile MAUs. This type of technology helps Facebook maximize ad revenue. Additional advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising. Relevance is important to advertisers because. Paramount Studios. representing 62 percent of the total worldwide advertising spent.39 Facebook also offers free tools for tracking the performance of ads called the Ads Manager. given the smaller screen size of mobile devices. the Chinese restaurant P. in 2010 IronPlanet Motors (a competitor to eBay Motors) purchased the BMW and Mercedes-Benz Fan Page subscriber lists in order to advertise the launch of its new car auction website to those users. print. Similarly.5 billion to $17.8 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Reach.47 Currently. race. a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. However. and radio— was a $363 billion industry. For instance. In 2010. a wedding photography company based in Minneapolis. reached 65 million fans in one day when it advertised the release of Transformers: Dark of the Moon on Facebook. This enables product differentiation and.42 The targeted campaign led to a substantial increase in revenue during the ensuing 12 months. As of January 2012. With more than one billion MAUs. dynamic ads that include a poll. With Facebook’s help. Users identify themselves based on many demographic factors—for example. Most important. movie studios can notify fans on their page of an upcoming movie release. a friend checking in to a Starbucks) are prominently displayed directly in a user’s News Feed. The social web is an evolving species.41 A good example of a targeted advertising campaign is that of CM Photographics. With the release of Graph Search. on a limited budget of $1. according to a recent Nielsen study. CM Photographics. online advertising. location. Similarly. and Facebook has been a leader in identifying new advertising tactics that improve user engagement. or encourage feedback all improve awareness. through its Facebook page. and special interests—which allows Facebook to deliver targeted ads with a higher success rate than industry averages (90 percent versus 35 percent. targeted recently engaged women aged 24 to 30 who lived in close proximity to CM’s location.44 All of P. it expects its ad revenue to follow suit.F.46 As marketers continue to gravitate toward online advertising. Social ads allow marketers to add context to their ads.544. Companies have the ability to purchase lists of the users who subscribe to the pages of other companies. gender. 40 percent of them were first-time customers. Social Context. Chang’s fans and friends of those fans saw the ad. education level.45 Market Opportunities. Facebook intends to open up a new opportunity for advertisers and marketers: Companies that have a page can be discovered by users as a result of their Graph Search queries based on the information the organization posts on its page.g.48 8 .000 customers took advantage of the offer. Facebook’s mobile app is one of the most popular downloads. increases ad recall by more than 50 percent. hit upon a user’s special interest. if Facebook were a country. As an example.40 Relevance. This is where Facebook can play a vital role. Facebook invests in technology that dynamically decides the best available ad to display to a user depending on that user’s unique attributes. and Facebook’s ad system guarantees a fixed number of ad impressions for a fixed price. in today’s economy.F. Over 50. the mobile path has an added challenge in that greater mobile use generally reduces ads per user. for example. The friend has now automatically become an advocate for the company across his or her social graph. driving company awareness. it would be the third largest in the world by population—that amounts to quite a reach. For example. according to a recent study).. Chang’s offered a free lettuce wrap to all customers during a three-week period.6 billion by 2015. marketers are being asked to do more with less. Facebook ads can display in multiple locations on the screen. With sponsored stories and social ads. and mobile advertising. the global mobile advertising market is expected to grow from $1.43 Engagement. As Facebook continues to expand its advertising offering. which can be used to target a specific audience. Minnesota. age. The system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that type of user. traditional offline advertising—television. Facebook provides a rich social context for advertisers.

Open Graph allows app developers to map the content of their apps and see how users can interact with it. Social Plugins. the Yahoo Social Plugin shares articles directly to Facebook’s News Feed. Login. for example. create an infrastructure for developers to receive funds for the purchase of their virtual and digital goods. the activity feed. Spotify is an excellent example. comments. and devices that take advantage of the Facebook platform. bring together developers.”55 The projected increase in social gaming will undoubtedly provide future revenue for Facebook. Facebook offers significant value to developers.49 The platform is a set of development tools and application programming interfaces (APIs) that enables software and web developers to create innovative experiences for the Facebook community. As an example. the fees collected from Zynga accounted for 12 percent of Facebook’s revenue in 2011. track runs via MapMyRun. The Facebook platform can carry over the social experience from Facebook to any website that has the Facebook social plugins enabled. and the Facepile feature.52 Other examples of developer integration using the platform include the ability for users to listen to music on Spotify. apps. and innovators to collaborate on new websites. Open Graph. Graph API. creator of the game FarmVille and many other wildly popular games. Social channels provide a way for developers to integrate with News Feeds and requests. registration. fees collected from Facebook Payments almost exclusively come from the purchase of virtual goods used in social games. Finally. through the use of Facebook Credits. developers can learn how to connect user Facebook accounts from within their app. According to Facebook’s S-1 filing with the SEC. Developers can also integrate with requests that allow a Facebook user to encourage other friends to use an app. entrepreneurs. payments. which displays thumbnails of friends’ profile pictures. and secure system has streamlined the transactions between users and third-party developers. Through products such as Open Graph. Facebook’s f8 conferences. 9 . Send. Content can be generated from the app and distributed to a user’s News Feed using Social Channels. In this way. This enables users to share personal content generated by the app with their friends on Facebook through their News Feed and Timeline. is currently the largest developer. read news and sports articles on Yahoo. However. This well-established. LinkedIn and Google have deployed similar login methods. but declined in 201251 as the popularity of Zynga’s games declined. could open up new opportunities for Facebook. Social Plugins give website owners the opportunity to broadcast interests from one friend to another non-connected friend. “The worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010.54 Currently. This application programming interface feature of the Facebook platform allows apps to read and write data to Facebook. held near-annually. by allowing users to purchase songs from iTunes that a friend listened to. a user’s current songs are shared through Facebook. Payments. Subscribe.53 Social Plugins. and Login buttons. and Payments. speeding up the registration process. which was first launched in May 2007 with 85 developers and 65 apps. Users can log in to an app or website using their Facebook credentials. extending beyond the core area of gaming. Through Spotify. and use the Nike1  mobile app to share their exercise activity. Social Channels. Social plugins include the Like.9 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? CREATING VALUE FOR DEVELOPERS Approximately 15 percent of Facebook’s revenue is generated through its developer platform. and is forecasted to increase to $15 billion by 2014. safe.50 Zynga.

”57 Photo sharing.”64 10 . As of July 30. Users submit a tweet. “We don’t plan on doing many more of these. which is limited to 140 characters in length. Congress members. Semiocast. Professor Tim Loughran of Notre Dame summed it up as follows: “Facebook is in the business of communication. Facebook acquired Instagram for $1 billion. Twitter had over 500 million accounts with 27 percent designated as active users.59 Former vice president of product. And celebrities. 2012. Jason Goldman. the percent change in revenue is expected to decline year over year during that time (see Exhibit 6). and ESPN now use Twitter as part of their broadcasts.S. relevant timelines .5 million.56 On April 9. Twitter has become an extremely popular free micro-blogging and social networking service. While analysts estimate that it will grow to $540 million by 2014. A subscriber to the user’s page (known as a follower) then receives the tweet automatically. Facebook has eliminated a potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android. CEO Kevin Systrom announced that registered Instagram users had nearly doubled from 15 million to 27 million in the previous three months. as Twitter continues to grow.15 billion in 2011 alone. to their profile page. 75 percent of NBA players. Twitter stimulates interaction between complete strangers because users don’t need to approve who follows them. Individuals. Twitter is still growing its business model. Unlike Facebook. Senators are active Twitter users. audience.85 percent (see Exhibit 7).61 Meanwhile. and companies have quickly realized the benefit of this type of interaction: the ability to reach an unlimited. Of all social media site visits in October 2012.63 For the time being.58 Twitter gives users the ability to communicate with friends and family via text-based posts in real time.39 percent. Twitter’s 2011 ad revenue was $139. while Twitter captured only 1. and 85 percent of U. attributes Twitter’s appeal to the fact that it “delivers interesting.10 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Current Competitors INSTAGRAM Instagram. TWITTER Launched in July 2006.S. athletes. however. 82 percent of U. yet targeted. Zuckerberg saw the acquisition as a “milestone” for the company and said.6 percent of worldwide activity. has been a vital element in the company’s success and efforts to drive user engagement. Giving people better information about the world around them and the things they care about has become the cornerstone of the product offering. Anybody who can facilitate a more precise or quicker communication should be perceived as a threat to Facebook. which requires the dual acceptance of friend requests. the chance of users spending more time with it communicating with friends and family will grow as well. TV channels such as CNN. which is one of Facebook’s core features. Facebook captured 62. according to the French analytics firm. . For now. The most popular method of using Twitter’s service has been through the company’s main website. a photo-sharing service for iPhones and Android phones. if any at all. was founded in October 2010 and quickly became a leader in online photo sharing. which is accessed through desktop computers rather than through mobile devices. organizations. Facebook’s ad revenue was $3. In March. MSNBC. Facebook plans to retain Instagram as a separate business unit. 2012. By acquiring Instagram. the largest deal ever for Facebook. Twitter generates only a fraction of the ad revenue and user interest of Facebook. users of Facebook spend significantly more time on the website each month than users of Twitter. but it will be expected to share some of its talent and innovation with the parent company. This accounts for 27.62 In addition. . ”60 Even though mainstream adoption has quickly become a reality. and politicians have accepted the technology as well. about the people and places that matter to you.

is online advertising. Picasa photo software. Microsoft offers a fleet of products 11 .1 percent share of the market. The company’s strategic growth. Translate. In the large $40 billion U. which raised $1. Google1 claimed only 1.S. Google will be able to paint a more complete picture of each of its users. However. Rather than focusing on any single product. Facebook’s one billion active users comprise 62. Analytics. both organically and through acquisitions. Google1 circles allow users to organize the people they are connected to and give them better control over their privacy settings. online advertising market. and others). Google holds a commanding lead over its competitors. Google1 lacks Facebook’s installed base of users as of late 2012.1 percent (see Exhibit 11).72 Now that all of these products and services are linked to Google1. another area of concern is Google1.11 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? GOOGLE Founded in 1998 as a provider of Internet search results. the third-party developer platform associated with Google1 (which is similar to Facebook’s developer platform) is completely free. it is still projected to claim only a 7.65 In 2014. Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. just as with Facebook. beyond its initial core competency of Internet search is evident in its stock performance (see Exhibit 9). Google1 has several improved and additional features over Facebook.68 For Facebook. up from 150 million in June of that same year. However. while Facebook slips to 17. Google. allows for improved video and photo sharing. while Yahoo and Facebook hold 7. Similar to Google. Picasa. a subset of the overall online advertising market.66 In the online display advertising market. Microsoft commands a large percentage of advertising revenue and both online and offline user interaction. respectively (see Exhibit 10). Such fine-grained data will be vital in Google’s push to become the dominant online presence delivering customized advertising. It currently has a 44.4 percent share of the industry. A major driver of revenue for Google. While Facebook is expected to oust Yahoo from its second-place position during that same time. Microsoft remains a Facebook competitor across several market segments. Google1 had 235 million active users at the end of December 2012. The integration of Google1 with YouTube and the image organizer and viewer. 8 percent of Google’s revenues came from the hardware and services of Motorola Mobile. Google is projected to supplant Facebook as the leader in online display ad revenue by 2013 and grow its market share further in 2014.5 percent. MICROSOFT Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 million).7 percent of the market. YouTube. Google has become a leader in cloud computing and advertising.9 percent share of the market.32 percent of social media site visits (Exhibit 7).70 Still. the two companies each hold about 16 percent of the market. Google has seen a boost in click-through rates on some display ads of anywhere from 2 percent to 15 percent due to the additional user information provided by its social media product.71 Google’s drive for Internet dominance and social strategy includes a suite of products and services (e.9 billion on a valuation of $23 billion (see Exhibit 8). by which time it is expected to account for 21. which would parallel Google’s initiative of driving iPhone developers to the Android operating system through more attractive developer commissions. even with this increase.g. which will then have grown to $53 billion.67 Google also added to its revenue by acquiring Motorola’s mobile division—in 2012.. AdWords. Google and Facebook are more evenly Yet.4 percent and 6. What’s more.39 percent of social media site visits. while Facebook charges a 30 percent commission. In this $15 billion industry. Chrome.69 Meanwhile. what matters most to Google is how much time users spend within the Google ecosystem once logged in to their account. particularly since its highly successful IPO in 2004. Google is projected to have a 47. This incentive could drive developers away from Facebook and to the Google1 platform.

which equates to a very healthy price-to-earnings ratio (P/E) of approximately 850. Facebook and Microsoft have formed a strategic partnership that enables the two companies to compete directly with Google on several fronts. the company had more than 150 million members accessing the site from more than 200 countries in 17 languages. Zuckerberg said. In 2012 alone. getting access to a larger number of services at each level.06. at a price of $45 per share. 60 percent of LinkedIn members live outside the U.7 percent of U. Windows Mobile. Microsoft purchased Skype for $8. making it more akin to a network that allows for professional connections embedded within social interactions. and send messages to people with whom users are not connected.76 In February 2012.73 At the time of the deal. there were more than two million LinkedIn Company Pages (which are similar to Facebook Pages) and almost one million online job applications originating from within LinkedIn.75 Previously mentioned as a competitor in the area of user interaction. For example. It was $154. On the other hand.”74 The truth of this statement seemed evident in May 2012. Another product. Microsoft accounted for 5. The stock quickly jumped to over $90 per share. At the beginning of 2012. LinkedIn offers premium products to individuals as well as to companies. users have a choice of three subscription levels. Premium services enable users to see who has viewed their profile.91 million.12 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? and services that competes directly with Facebook.79 In 2011. helps salespeople build better prospect lists. online advertising revenue and was projected to remain third behind Google and Facebook over the next several years (see Exhibit 10). and is projected to increase to $405.S. the Bing search engine. the company recorded $522 million in revenue with earnings of $11. Facebook’s ad revenue was $3. LinkedIn Sales Navigator. This partnership will compete directly with Google1 and Google. LinkedIn brings in $1. do premium searches that let them build job leads.83 Still. 2011. in which it offers its core product for free but then charges for premium services.82 In addition. when Microsoft sold $550 million worth of patents and licenses to Facebook.77 All Fortune 500 companies have at least one executive with a LinkedIn profile.6 million in 2011. shopping. and videos) all drive traffic away from Facebook and Google. although LinkedIn users spend much less time on the site than Facebook users do on Facebook. search results. while Facebook brings in only $0. Now that Skype is owned by Microsoft. “We have a really good relationship with Microsoft. that gives us the sense of stability that it’s going to be with a company we can trust—that we know we have a longstanding relationship with. LinkedIn has grown into the world’s largest professional network.S. LINKEDIN Started in 2002 in co-founder Reid Hoffman’s living room. games. 12 . sports. the Xbox 360. Microsoft’s Bing search engine has also formed an alliance with Facebook in an effort to improve the breadth and depth of its social search data. LinkedIn has added more user-friendly features. companies can purchase LinkedIn products.6 million by 2014 (see Exhibit 12).84 In addition.78 LinkedIn held its IPO on May 19. LinkedIn’s ad revenue drags behind Facebook’s. Bing search queries conducted within Facebook are not directly accessible to Google for further data analysis.30 per user-hour spent on its site. LinkedIn site visits accounted for only 0.15 billion in 2011. LinkedIn operates on a business model called freemium. see full profiles beyond second-degree connections.83 percent of all social media site visits in October 2012 (see Exhibit 7).5 billion and soon after partnered with Facebook to challenge Google1’s videoconferencing capabilities.80 However. and 82 Fortune 100 companies use the recruiting tools provided by LinkedIn. Bing is now the default search engine within Facebook.81 Meanwhile. such as LinkedIn Recruiter Corporate. that help them find qualified employees and contact those individuals directly. For their part. and MSN (a portal to news. In May 2011. making the company worth around $9 billion (see Exhibit 9).

Morgan. Morgan Stanley. and $42. Facebook was valued by several companies—Yahoo offered $1 billion for the company. equated to a high P/E of 104 for Facebook. strong competitive moat. Microsoft invested in October 2005 at a valuation of $15 billion. Another glitch occurred once trading started. After one month of public trading. while LinkedIn grew at roughly the same rate as the NASDAQ 100 over the same period. analyst ratings remained optimistic about Facebook’s future. and Goldman Sachs led funding at a $50 billion valuation in January 2011. The market cap as of August 16 was $48 billion. dwarfing even that of Google in 2004. Google grew much faster than the NASDAQ 100 in its first six months. In 2011. P. and early investors suffered significant losses.4 billion through its IPO. and Goldman Sachs rated the stock as a “buy” and gave price targets of $38.92 In the months following the IPO.71 billion in revenue and $1 billion in net income. the NASDAQ exchange.S. Accel Partners sold its stake at a $35 billion valuation in November 2010. history.33. problems arose just moments before Facebook’s initial public offering. when investors were unable to check the size or value of their trades because confirmations on orders from the NASDAQ system were delayed three hours. UNDER SCRUTINY Discussions over the declining stock prices put Morgan Stanley. $45. and unwavering focus on the user experience position the company to significantly improve monetization over time and to become an enduring.88 The accuracy of Facebook’s pre-IPO assessments was to be tested as Wall Street determined the market-driven public value of the social network.91 Facebook stock continued its downward trend in July and August of 2012 (Exhibit 9). These shares and prices were set at the far upper end of 13 . To match these expectations. citing his concern about Facebook’s advertising revenue. combined with Facebook’s lofty valuation. Daniel Salmon at BMO Capital Markets.89 J. The calamitous opening may have cost firms as much as $500 million in investments.85 With an IPO price set at $38 per share. These valuations and the hype around Facebook’s IPO made it one of the most anticipated public offerings to date (see Exhibit 13). leaving many investors with an unpleasant feeling about Facebook stock. STUMBLING OUT OF THE GATE As if signaling future disaster. was one of the largest in U. called for an underperform rating and gave a price target of $25.90 Only one analyst. These recent earnings. and Facebook executives under great public scrutiny. Morgan Stanley and Facebook’s CFO have been criticized for making changes to the price and number of shares just before the offering. Google sits at 21. P.87 Errors of this variety and magnitude had never occurred during an IPO and made it appear as though fate was against a publicly traded Facebook.13 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Facebook’s Initial Public Offering (IPO) Facebook’s IPO on May 18. In comparison. respectively (see Exhibit 14). 2012. Facebook was valued at $104 billion and planned to raise approximately $18. Facebook knew it would have to grow its earnings quickly in 2013 and beyond. Facebook far underperformed its closest comparable IPOs: Google and LinkedIn. J. blue-chip company built for the long term.2 percent ($56.33.86 Facebook valuations historically have been optimistic. and Microsoft is at 11. the stock price had fallen from $38 to $32. Before its IPO. other large-cap NASDAQbased companies have much lower P/Es: Apple has a ratio of 18.8 billion) less than the IPO market cap. Despite the suffering stock price. 54. Even investors who anticipated that Facebook would perform no worse than LinkedIn were disappointed.2. believing that the company would lead an Internet revolution and estimating that its user base would grow 70 percent by 2014. To start. the NASDAQ exchange’s system entered an automated loop that delayed trading by 30 minutes. Facebook had earned $3. Morgan’s Doug Anmuth wrote: We believe Facebook’s virtual ownership of the social graph.

denying development of a Facebook phone and hinting at future work with search engines. has been fielding questions about Facebook’s advertising strategies and pointing to positive signals and moves.”96 Facebook also monitors user reactions to make sure the ads are adding value and not alienating users. 2012. “We’re looking at the social context to make sure it’s really relevant.95 For her part. he issued formal responses to rumors. which are sponsored stories that show up in a user’s News Feed. Facebook’s mobile days may be its brightest if it can replicate Twitter’s recent success. whom many have perceived as an untested CEO.100 Digital marketing research company eMarketer cites a marketing campaign launched by P. chief operating officer. Zuckerberg did explain how the task of monetizing Facebook mobile products was up to the product development teams. P.93 As a result. Since Facebook’s services have already captured 600 million of 5 billion mobile Internet users.”99 In addition.” Sandberg said. saying. Sandberg said. and they know how to set up their profiles and timelines. If they see messages from other businesses.” because they are more like a recommendation from a friend. adding that “local is the Holy Grail of Internet. they can imagine ads working for their businesses as well. While there was no mention of immediate opportunities in the mobile market.5 million to $259. DEFENSIVE MEASURES After a disappointing start. Sandberg added that “sponsored stories perform multiple times better than ads in Facebook’s sidebar. Chang’s as the reason Twitter’s ad revenue jumped from $139. Another advantage that Sandberg sees for Facebook is in the area of local business advertising. and “more than 40 percent of them have no web presence at all. because News Feed is so core to the user experience. Zuckerberg and other company executives had indicated on September 5.F.94 Perhaps the sharpest criticism may have been offered against Mark Zuckerberg. that they would not sell more shares than were necessary to cover their tax liabilities. This measure was taken as a statement of faith in the company’s future. Zuckerberg said the company would concentrate on native applications for mobile devices going forward. Facebook also sought to protect its stock prices by buying back 101 million shares before the lockup periods expired and more shares become available for sale.14 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? the limit for the company. the NASDAQ faces a review of its systems and procedures by the SEC. Even so. This gives Facebook an advantage because many business owners are Facebook users in their private lives. After admitting that Facebook had made a mistake in its early mobile strategy by focusing development on HTML5.F. saying. Sheryl Sandberg. and take big companies and make them social. as investors prepared for the release of a large portion of public shares scheduled to hit the market in late November (see Exhibit 15). At Facebook’s first earnings call after its IPO. concerns about Facebook’s stock price deepened in the fall of 2012. Local businesses represent a “huge” opportunity for Facebook.9 million in 2012.101 14 . employees remained motivated by their desire to “[build] stuff they are proud of. Sandberg called Facebook a platform company. Chang’s Lunar New Year advertisement generated one million clicks—70 percent of which were from mobile devices—in just four days. Sandberg has noted Facebook’s commitment to scrutinizing sponsored stories.”97 Local businesses are typically not very tech-savvy.98 In an interview with Michael Arrington at TechCrunch’s Disrupt conference on September 11. which are very similar to business pages. More important.” Her approach highlighted the growth that Facebook was seeing in its social ads. Zuckerberg publicly confessed to feeling disappointed in Facebook’s stock performance and conceded that it wasn’t good for company morale. “We want to take social companies and make them big. he revealed the strategic focus for Facebook’s future: mobile devices. 2012. Zuckerberg reassured shareholders.

What business model and monetization strategy should she propose? 15 . Can the market size make up for the lower per-user revenues? What effect might local competitors have in foreign markets? And what about Instagram? Is there a way to monetize that acquisition to a larger degree? Are there other acquisitions that Facebook should make? Sandberg remembers how quickly MySpace lost its first-mover advantage after focusing too much on monetization. substantially. Google’s revenue stream. To many people. but revenues per user are lower than in the U. relies on advertising more than anything else. or would charging users open the door to a no-fee competitor? Facebook users would face high switching costs due to the network of connections they’ve established. and the timeline activities they’ve shared on the site. and Sandberg has strong relationships with large advertisers from her Google days. Sandberg needs to come up with a business model that will generate sufficient income to justify this valuation.102 For Facebook to follow such a path.15 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? A New Business Model? Facebook’s IPO has put tremendous pressure on Sandberg and the Facebook team to come up with a strategy to justify Facebook’s $100 billion valuation in the stock market. Facebook has enviable relevance and reach to offer its advertisers. Expanding Facebook’s mobile advertising has been vital for Facebook to stay current. She sees competitors like LinkedIn using a combination of freemium and subscription business models.S. but mobile advertising generates less revenue compared to desktop advertising because fewer ads are shown. Overall advertising revenues for Facebook are growing. Should she focus on convincing advertisers to pay higher ad rates for the precision and social benefits they’re getting from Facebook? Are there ways to expand mobile revenues? Sandberg has seen how utilities like electric and gas companies use the pay-as-you-go business model. The clock is ticking. which currently sits at $15. the photos they’ve uploaded. Facebook is almost as vital as electricity—it’s a communication tool that users have come to rely on daily. Would they give it up if Facebook started to charge them? Sandberg is also pushing to expand to other countries. in contrast. She wants to ensure that Facebook does not encounter a similar fate. These markets have vast numbers of potential users. it generates $88 in advertising revenue per user. Do users value Facebook enough to pay to use it. it would need to increase its advertising revenue per user.

S. 2009–2012 (in millions) Panel 1: Monthly Active Users (MAUs) 1.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 1 Facebook’s Global Usage.S.000% 900% 800% 700% 600% 500% U. & Canada Europe Asia Rest of the World 200% 100% 0% Ju nSe 09 pDe 09 cM 09 ar Ju 10 nSe 10 pDe 10 cM 10 ar Ju 11 nSe 11 pDe 11 cM 11 ar Ju 12 nSe 12 pDe 12 c12 16 (continued) 16 . & Canada Europe Asia Rest of the World 400% 300% 200% 100% Ju nSe 09 pDe 09 cM 09 ar Ju 10 nSe 10 pDe 10 cM 10 ar Ju 11 nSe 11 pDe 11 cM 11 ar Ju 12 nSe 12 pDe 12 c12 0% Panel 2: Daily Active Users (DAUs) 700% 600% 500% 400% 300% U.100% 1.

200 Asia $1.usa.17 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 1 (Continued) Panel 3: MAUs on Mobile Devices 700% 600% 500% 400% 300% 200% 100% Se p10 De c1 M 0 ar -1 1 Ju n11 Se p11 De c1 M 1 ar -1 2 Ju n12 Se p12 De c12 10 Ju n- 09 -1 M ar 09 cDe 09 n- pSe Ju 0 0% Source: Authors’ depiction of data in Facebook’s SEC filing.400 Advertising Rest of the World $ http://1. & Canada $600 Payments & Other Fees Rest of the World $400 Asia $200 Europe U. 2010–2012 (in $ millions) $1.usa.000 Europe $800 U. http://1.S. EXHIBIT 2 Facebook Revenues.S. & Canada cDe pSe 12 12 12 nJu M ar -1 2 11 cDe Se p- 11 11 Ju n- 1 -1 ar M De c- 10 $0 Source: Authors’ depiction of data in Facebook’s SEC filing. 17 .gov/14GKFGS.

47 0. depletion.02 Earnings per share (diluted) excluding extraordinary items 0.8% $3.” eMarketer. February 22.170 0 0 0 Property.755 Sales (net) 1.626 373 547 1.15 2011 2012 2013 Facebook ad revenues % change 40% 13.899 11.187 Income taxes 402 695 441 Income before extraordinary items 606 1.103 29 63 65 367 398 1.28 15.475 2. plant. 2010–2012 (in $ millions.089 Cost of goods sold 354 537 720 Selling.974 3.432 3. and amortization (accumulated) 246 450 882 2.18 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 3 Facebook Financial Data.000 53 Net income (loss) 606 1.2% 60.348 Stockholders’ equity – total 2.391 Depreciation. except EPS data) Fiscal Year 2010 2011 2012 Cash and short-term investments 1.785 3.095 3.6% $6 $4 $6. 2012.990 6.000 53 Earnings per share (basic) excluding extraordinary items 0.47 0.162 4.7% $2 $0 80% 2014 20% 0% Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.991 Receivables – total Inventories – total Assets – total Accounts payable – trade Long-term debt Liabilities – total 828 1. and equipment – total (net) 574 1.06 32.711 5. http://bit. EXHIBIT 4 Facebook Ad Revenues. and administrative expense 449 1.72 60% $5.64 68. 2011–2014 (in billions with % change) 100% $10 $8 $7.908 9. 18 . general.28 0.02 Source: Compustat.

54 11 $0.5 35% $45.S. 2010–2014 (in millions with % change) $600 $540.26 $0.80 Worldwide $2. http://1.54 $1.21 $0.40 $3 $3.08 U.5 $400 $300 $0 % change $259.38 11 $1.40 $1.60 Se $2 Source: Authors’ depiction of data in Facebook’s SEC filing.usa.26 Asia $1.9 86% $200 $100 Twitter ad revenues 54% $139. 2010–2012 $5 $4 $4. & Canada $3. 19 .20 $2.50 $1. January 31.77 Europe $3.53 M $0.56 11 $0.33 Ju $1 $1.20 $2.31 $0.33 $1.44 $ Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 5 Facebook Average Revenue per User (ARPU). EXHIBIT 6 Twitter Ad Revenues.29 $0.34 $1.41 12 $0.0 2010 2011 2012 2013 2014 Source: Authors’ depiction of data from “Twitter.69 c- pSe n- 1 -1 M ar cDe $1.47 $0.44 $1.24 $0.71 $1. LinkedIn to see solid ad revenue growth.40 $1.19 De $1.58 -1 $0.55 ar $0.84 $2.43 $1.49 Rest of the World $0.37 $1.90 $2.25 $1. 2012.43 10 $0 $1.0 210% $500 $399.28 $0.14 $0.” eMarketer.56 c- p- De Ju n- 2 12 $0.38 $1.37 12 $0.

November 25. EXHIBIT 8 Various IPOs and Market Cap. 20 12 20 11 20 10 20 09 20 08 07 20 20 06 20 05 04 20 20 03 20 02 01 20 20 00 99 20 19 98 97 19 96 19 95 19 19 94 $0 19 20 . in billions Google (GOOG) $250 Facebook (FB) Amazon (AMZN) $200 LinkedIn (LNKD) $150 Groupon (GRPN) Yahoo (YHOO) $100 eBay (EBAY) $50 Netflix (NFLX) Source: Authors’ depiction of data drawn from Bloomberg.” Statista Industry Statistics. 2012. 1994–2012 (in billions) $300 Market Cap.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 7 Social Media Site Visits in October 2012 70 Percent Share of Visits 60 50 40 30 20 10 es m Cl In as st sm at ra ed ag gg Ta Li Ya ho o! Pi An nk sw ed er In s t er nt og le es 1 er itt ub uT Tw Go Fa Yo ce bo ok e 0 Source: Authors’ depiction of data from “Most popular social media websites in the United States in October 2012.

and Google Post-IPO Stock Performance Panel 1: Google NASDAQ: 100 NYSE: GOOGLE 1- 05 rAp 1- M ar -0 5 05 1- 1N Fe 11Oc t-1 1 Ja b- 05 n- c1- 1- De No v- 04 04 4 t-0 1- 1- 1- Oc pSe Au g- 04 04 140% 120% 100% 80% 60% 40% 20% 0% 220% Panel 2: LinkedIn NYSE: LINKEDIN NASDAQ: 100 12 Ja n1- 1D ec -1 1 1 ov -1 1 Se p1 1- 1 g1 1Au 1 l-1 Ju 1- 1 n1 Ju 1- 1Ma y- 11 40% 30% 20% 10% 0% 210% 220% 230% 240% (continued) 21 .21 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 9 Facebook. LinkedIn.

8 *Projected. February 22.0% 6.4% Yahoo! 9.5% 7.5 $52.9% 68.2% 5.5% AOL 2. 2012. 2011–2014 2011 2012 2013* 2014* Google 41.8% 2.1% Microsoft 5.S.” eMarketer.5 $46.4% 2.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 9 (Continued) Panel 3: Facebook NYSE: FACEBOOK NASDAQ: 100 13 1- Ja n- 12 De 1- 1- No v- c- 12 2 t-1 Oc 1- Se 1- Au 1- p- g- 12 12 2 l-1 Ju 1- nJu 1- M ay -1 2 12 20% 10% 0% 210% 220% 230% 240% 250% 260% 270% 1- 22 Source: Authors’ depiction of data from Yahoo.0% 44. http://bit.1% 7.4% 66.5% 7.9% Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.7% 5.1% 68.1% Total Top 5 64.7% 6. EXHIBIT 10 Percent Net U.2% 2.4% 6.7% Total Internet (billions) $32.4% 6. 22 . Online Ad Revenue.6% 47.0 $39.6% Facebook 5.

54 16. 2012. EXHIBIT 12 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 LinkedIn Ad Revenues (millions and % change) $405.8% $2.4% $21.6 95% $310. LinkedIn to see solid ad revenue growth.1% $1.67 4.96 4.35 10.7% Yahoo! $1.98 53.39 $18.” eMarketer. Online Display Ad Revenue.7% $ A3mdNS.5% $3.71 3.91 *Projected.50 8.23 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 11 Net U. 23 .7% $11.40 9.4% $0.1% $1.8% $9.4% AOL $0.S.8% $4.81 3.4% $7.81 50.3% $0.1% Google $1.8% $1.3% $0. http://bit.92 Total Online Display $12.73 14.62 4.5% Microsoft $0.68 19.64 7.80 4.8% $0.75 47. 2012.58 16.” eMarketer.7% Total Top 5 $5.53 4.0% $2.56 4.0% $0. January 31.7 $226.29 17.5% $0.0 $154. http://bit.76 21.71 13.8% $3. February 22. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.6 46% 37% 2011 2012 2013 31% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% LinkedIn ad revenues % change 2014 Source: Authors’ depiction of data from “Twitter. 2011–2014 (in $ billions) 2011 2012 2013* 2014* Facebook $1.40 $15.57 54.

00 Citigroup Mark Mahaney Neutral $35.0 before IPO $15. 2012. com/VE9P23.00 BofA-Merrill Justin Post Neutral $38.00 RBC Capital Markets Andre Sequin Outperform $40.00 Lazard Capital Markets William Bird Neutral Piper Jaffray Gene Munster Overweight Raymond James Aaron Kessler Market Perform N/A Stifel Nicolaus Jordan Rohan Hold N/A William Blair Ralph Schackart Outperform N/A Cowen & Co. Morgan Doug Anmuth Overweight $45.00 J.00 Barclays Anthony DiClemente Equal-weight $35.00 per share) $80. June 27. http://on.00 Goldman Sachs Heather Bellini Buy $42. 2012.00 Credit Suisse Spencer Wang Neutral $34.00 Wells Fargo Jason Maynard* Outperform $37.00 Source: Authors’ depiction of data from “Analysts hit the tepid button on Facebook. EXHIBIT 14 Analyst Ratings of Facebook Stock.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 13 Valuation History (in billions) $104.” The Wall Street Journal. June 27.8 Opening price for IPO ($38.0 $35. August 17.wsj.wsj.00 N/A $41.0 $50.” The Wall Street Journal. 2012 Bank Analyst Rating Price Target Morgan Stanley Scott Devitt Overweight $38.0 18-Dec-2012 18-Nov-2012 18-Oct-2012 18-Sep-2012 18-Aug-2012 18-Jul-2012 18-Jun-2012 2012 18-May-2012 2011 2010 2009 2008 2007 2006 $1. Kevin Kopelman Neutral N/A Pacific Crest Evan Wilson Sector Perform Oppenheimer & Co. P. Jason Helfstein Ouperform N/A $41.0 after IPO $10. 24 .0 2005 24 Source: Authors’ depiction of data from “Facebook investors cash out.00 BMO Capital Markets Daniel Salmon Underperform $25. ZX1r4W.

” The Wall Street Journal.000 149 47 1.000 55 271 500 421 421 692 747 1.25 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 15 History of Facebook Public Shares Available (in millions) Shares New public shares 2.500 1.093 May 2012 Aug 2012 Oct–Nov 2012 Nov 2012 Dec 2012 May 2013 0 Source: Authors’ depiction of data from “Facebook investors cash out. http://on.wsj. 2012.944 2.500 ZX1r4W. 25 . August 17.197 1.

2012. http://usat. http://1.” 29. 15. 27. http://econ. http://bit. “Facebook CEO seeks help as site grows up—Google veteran to be Zuckerberg’s no.” Facebook Newsroom. “A brief history of Facebook. 22. Ibid. December 15. Ibid. “Why we have too few women leaders. 28. 2012. http://econ. 20. May 23. “Floating Facebook: The value of friendship.” The Economist.” TEDWomen. http://bit.” The Economist. http://bit. 26. 2. February 22.” USA Today. 2013. http://on. October 5. October 2. 2010.” The” 5. “Graph search event video. http://on.” Facebook. 4. (2010) March 5. “Google edges closer to Facebook as US display advertising becomes two-horse race. http://on. “Inside fumbled Facebook offering. (2010). June 30. 2011. Helft. 26 . Ibid.” The Wall Street Journal.” eMarketer. “Facebook: One billion and counting. S.” The Wall Street Journal.” The Wall Street Journal. (2013).com/134nYvE. Ibid. http://on. “Facebook CEO seeks help as site grows up.wsj. “Facebook seeks a new finance chief as Yu leaves. S. “Facebook hires finance chief. 21. 18. “Facebook http://on.wsj. 16. “Facebook Form S-1 registration statement. “Person of the Year: Mark Zuckerberg. 25.wsj.ted. Sandberg. 14. February 4. January M. February 2. “Facebook IPO filing puts high value on social network. 6. 2012.” SEC. The Social Network [Film].” 30.” The New York Times. 2010. 13. 2012. “The acceptable face of Facebook. 7. “Facebook Form S-1 registration statement.usa.” The Wall Street Journal.” 12.wsj. 2012. “Mark Zuckerberg’s most valuable friend. 3. 24. 2009. July 24.” 23.26 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Endnotes 1. “Facebook IPO filing puts high value on social network. 8. http://bit. “Graph search event video. July 21.” The Wall Street Journal. April 1. 9. http://www. Ibid. 2012.” Time magazine. 17. “Facebook overview. May 16. Ibid. 11. Lean In (New York: Knopf).

2010. 59. Ibid.” Facebook. Ibid. January 16. 55. 48. 35. https://www.” 53. 2012. 39. 46. 2012. 2011.” The Wall Street Journal. Ibid. Ibid.” The Los Angeles Times. 33. Ibid. 51.” Facebook. http://bit. “Twitter. LinkedIn to see solid ad revenue growth. “Twitter shares active user numbers. Ibid. Ibid. 44.” The Wall Street Journal. http://tcrn. Ibid. “Facebook Form S-1 registration WcKyPl. 47.” Facebook-Studio. http://bit. 60. July 31. http://on. September 11. Ibid. “Facebook annual report. September 13. 61. “Facebook to organize friends into lists.” 37. 54. 2012 52. September 8. Ibid. “Introducing Graph Search: Help people discover your business. 49. January 15.wsj. http://on. “Facebook overview. 40. “f8 conference. Ibid. 2011. 2013. 58. “Twitter VP Jason Goldman steps down. “Facebook IPO” 38. 56.27 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 31. “Facebook Form S-1 registration statement. 36. Ibid.” “Facebook http://lat. “Facebook annual report. 43. Ibid. 2013. 2012. “Facebook Form S-1 registration” TechCrunch. http://bit.” The Wall Street 27 .” Facebook. 57.” 42. April 10. January 31. “Twitter may have 500M1 users but only 170M are active. 45.” 50.” The Wall Street Journal. “Facebook on collision course with Google on web searches. Ibid.” eMarketer.. “Insta-Rich: $1 billion for Instagram.facebook. Ibid. December 8. 2012.wsj . 2012.

“What keeps Facebook up at night. February 28. 78.” The Wall Street Journal. July 7. Ibid. http://on. 80. 2012. 2012.wsj.” The Wall Street Journal. 89.linkedin.” The Wall Street Journal. http://on.wsj. “The mounting minuses at Google1.” 83.” The Wall Street” LinkedIn. 2012. 77. “Facebook Form S-1 registration statement.28 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 62. http://bit.” 81.” The Wall Street Journal.. August 4. “Form 10-K. Parkhurst. http://onforb. 85. “Facebook Form S-1 registration statement. http://fxn. 73. E. May 20. http://on.” Forbes. May 10. 2012. http://1. 2012. feeding web boom. http://press.” Google Inc. 70. Ibid. http://bit. “Analysts hit the tepid button on Facebook. 68. “ “Why the Facebook-Microsoft alliance should worry Google.” 28 .com/J0D5tn. February 28.wsj. “There’s no avoiding Google1. http://bit. “Why Wall Street likes LinkedIn more than Facebook.” 82. May 4. (2012). “Microsoft to acquire Skype. 69.” eMarketer.usa.” 2011. 2012. 87. Facebook get cozy as competitors hover.” The Wall Street Journal. “Facebook IPO hasn’t hit Nasdaq volumes.” Puget Sound Business Journal. 71.” The Wall Street Journal. 92. http://on. http://bit.” Forbes. 64.wsj.” Microsoft. http://onforb. February 2. “Facebook sets historic “Twitter. 76. June 28. “About LinkedIn. http://bit. “The mounting minuses at Google1. 75. “The mounting minuses at Google1. “Google edges closer to Facebook as US display advertising becomes two-horse race. Ibid. “There’s no avoiding Google1. 2012. 2012. 90.” The Wall Street Journal. Ibid. 88. June noRRYd.” The Wall Street Journal. 74. http://on. LinkedIn to see solid ad revenue growth. January http://bit. Ibid. 79. 66. 65.” 84. February 28.” Fox June 29. February 22. February 2..wsj. 67.” 72. “Why it doesn’t matter that Google1 users only spend three minutes a month on the site. “Google edges closer to Facebook as US display advertising becomes two-horse race. 2012. “SEC could seek Nasdaq “About LinkedIn.” The Wall Street Journal. http://on. “Facebook prices IPO at record value. 91. 86.wsj. “LinkedIn IPO soars. May 17. http://on. Ibid.

“Facebook plays defense. 2012.” The Wall Street Journal. 100. June 28. 97. “Twitter’s mobile ads begin to click. July 26.wsj.” Facebook.wsj. http://on. 96. “Facebook Q2 2012 earnings call. http://onforb. http://on. July 31.” The Wall Street Journal. 2012. Ibid.wsj. 99. “SEC could seek Nasdaq upgrading. “Facebook: One billion and counting. “Stock traders to Mark Zuckerberg: Do you hear us now?” Forbes.wsj.” The Wall Street Journal. “Analysts hit the tepid button on Facebook. “Zuckerberg admits to missteps.” The Wall Street Journal.29 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 93. http://bit.” The Wall Street Journal. September 5.wsj. 2012. 2012. 2012. 95. “Facebook: One billion and 102. 98.”” 29 . June 29. http://on. October 5. September 11.

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