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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.

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

In the same way. As Sandberg considered Zuckerberg’s question. Designed initially to replace Harvard’s printed student directory.584 million. she knew that no matter what.2 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? fee. Columbia. and to Stanford. among other things.8 See Exhibit 2 for more information about Facebook’s revenue growth. anyone with a verifiable e-mail address could sign up. Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash.06 billion monthly active users (MAUs). But the method could not be a drastic diversion to the user. In addition to launching Facebook Mobile. Facebook tracks the number of monthly active users (MAUs) and daily active users (DAUs) as a means to assess users’ engagement. received an invite to view it. Joining members were allowed to add a picture. To collect student the Like button. At the same time. Greylock Partners. Zuckerberg opened the platform up to other universities in the Boston area. and PayPal co-founder Peter Thiel invested $27. Zuckerberg and several fellow students officially launched The Facebook in February 2004 (the “The” was dropped shortly thereafter).7 billion likes and comments per day and over 100 billion friend connections by the end of 2011. A Brief History of Facebook While attending Harvard University in the fall of 2003.S. The global footprint Facebook had achieved by 2012 was astronomical. at the very least. By year’s end.7 The growing user base also brought more revenues.7 million in investment from venture capital firm Accel Partners. and an e-commerce payment feature. quickly shut down Facemash and placed Zuckerberg on a six-month academic probation for breach of security. major.4 High school and international school networks were added in the fall of 2005. Zuckerberg began work on a new website—The Facebook—that leveraged some of the features from Facemash. on average. Approximately 80 percent of the site’s users live outside the U. from $731 million to $1.6 Globally. Users who have logged into Facebook within a 30-day period are counted as monthly active users.2 Half of Harvard’s undergraduates had signed up within just over a month of the launch. there were. Realizing the site’s potential. it would always be a hard sell to him. The following semester.1 After a few days. the website was in use at over 800 colleges and universities and received $12. almost all Harvard students had either viewed the site or. Double-digit growth in monthly active users and annual revenue quickly became the norm. daily active users measure the number of users who have logged in within a 24-hour period. attracting 22. DAUs. The increase in MAUs from 2010 to 2012 led to a corresponding increase in revenues. Exhibit 1 shows the MAUs. The site proved popular. More features were added over the next several years to further enhance the site’s user functionality.” Zuckerberg’s Facemash site placed pictures of two female students next to each other and asked fellow students to choose the more attractive person. 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. The only requirement to join was an e-mail address ending in .3 Facebook continued to grow rapidly over the next several years. Facebook had 618 million daily active users (DAUs). Facebook’s investors were growing more restless as they monitored the young company’s share price. respectively. University officials. and hometown to their profile and could link their profile to those of their friends. Meritech Capital Partners. which paved the way for exponential user growth. 2. however. including a developer platform. Zuckerberg and his friends hacked into Harvard’s computer network and copied files from campus houses.5 million in Facebook. and the website is available in more than 70 languages. and Canada. In April of 2006.000 views within its first four hours online. traditional banner and skyscraper advertisements. chat capabilities. In addition to 1. 2 . In May 2005. it hit 12 million MAUs and earned $48 million in revenue. By September. and mobile MAUs from 2009 to 2012. a 30 percent increase over December 2011. and Yale.5 The following year was another strong one for the company. Facebook had achieved $9 million in revenue and accumulated six million monthly active users (MAUs).

Facebook is currently blocked by the government.12 In Russia. but there is still plenty of room for Facebook to grow. where penetration rates are less than 30 percent. and Europe. mobile users. Facebook chooses to focus on average revenue per user (ARPU) as a tool for assessing its ability to monetize its users. which Zuckerberg refers to as a social graph. under the new settings. professional managers. with most of the growth being generated in North America’s well-developed advertisement industry. In Germany. it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and activities.09 billion in sales.9 Google and Yahoo make nearly $88 per user of their search engines. who coded much of the original site and then managed the engineering teams in the next phase. however. This ban leaves a gap in the company’s social network. Facebook reaches anywhere from 60–80 percent of Internet users. whereas Facebook makes only $15 per user account. Facebook brought in $5. it is a social graph that has mapped one-tenth of the world population in less than seven years. The website collects data to map out human relationships and social connectivity. Facebook’s ARPU (Exhibit 5) provides another metric for measuring how well Facebook is capturing value from its user base. Facebook’s equivalent in China is Renren. With his habit of arriving late to work and staying into the middle of the night. Zuckerberg has worn flip-flops and hoodies to meetings with other executives. On several occasions. Facebook operated directly under Zuckerberg. and in China. Facebook is the obvious fusion of Zuckerberg’s academic passions in psychology and computer science at Harvard. Addressing privacy concerns effectively remains in the front of Zuckerberg’s mind as he considers ways to monetize Facebook’s prime audience. A similar situation occurred in 2009. a network with roughly 200 million users. the way the company has tried to juggle user privacy and the monetization during his tenure has opened him up to additional criticism. In most of North America. In the early days. when he stated that “young people are just smarter. This measure has slowly risen over the years. Facebook’s ad revenues are predicted to rise to $7. The company generated 84 percent of its revenue through advertising services and collected the rest through social gaming fees charged to platform developers.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. At times. He even hired a public speech coach. while Google’s Orkut social network competes with Facebook in Brazil (only recently has Facebook surpassed Orkut in usage). has varied. In December 2007.64 billion in 2014 (see Exhibit 4). He received more negative press over comments he made in a speech in 2007. Taken together. Even as Zuckerberg has adapted to his role as a business leader. Zuckerberg’s inexperience and casual appearance have received criticism. Its release prompted condemnation from users and privacy groups alike. Compelled by the company’s vision to connect the world by building a great user experience. despite the fact that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more experienced. however. users are quite concerned about data privacy. Facebook’s Leadership MARK ZUCKERBERG Founder Mark Zuckerberg (nicknamed “Zuck”) remains the CEO and chairman of Facebook.”13 In recent years. some industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO. made public some messages originally thought to be private.10 However. former president Bill Clinton’s speech adviser. when the company released new privacy controls that. Exceptions are Brazil and Germany. Zuckerberg won’t see his ambitions sidelined by an outsider motivated primarily by increasing shareholder value.14 3 . 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. Facebook launched a new advertising mechanism called Beacon. Facebook has ambitious plans for the future. The company has stated that it intends to connect the “more than two billion global Internet users. a 37 percent increase over 2011 (Exhibit 3). Facebook battles VKontakte for dominance.”11 Its success in penetrating different countries. even his work schedule hearkens back to college habits. South America. As Facebook grew out of its start-up phase.

allowing him to maintain a tight rein on Facebook’s activities. Department of Treasury. revenue. She has also stepped up in unexpected areas when needed. Department of Treasury prior to working at Google. Timeline. 2012. The three pillars consist of News Feed. 4 . Ebersman. a unit that began with 300 staff but grew to 4. The dynamic between the two is respected within both Facebook and its board of directors. Morgan. and communications prowess. To some extent. 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.18 and her book Lean In is a bestseller.” and Fortune places Sandberg as one of the “50 Most Powerful Women in Business.17 Time magazine considers her one of the “100 Most Influential People in the World. 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. Google’s CEO at the time.S. Prior to working at Genentech. 2013. under Sandberg’s leadership. In that capacity. even going so far as to blame this decision for the stagnant stock price on the day the IPO was issued. Her TED talk entitled “Why We Have Too Few Women Leaders” has some three million views. Given Zuckerberg’s public relations challenges. who received an undergraduate degree in economics from Brown University. and international reach. 2 within the company. while Sandberg brings in the money.22 DAVID EBERSMAN After the departure of Facebook’s chief financial officer Gideon Yu in 2009. launched the third pillar of Facebook’s social ecosystem. the company sought a CFO with public company experience that could help it prepare to go public in the next few years. P. bringing an analytics perspective and authentic communication to bear on the issues.23 The search turned up David Ebersman. held positions with Oppenheimer & Co. Sandberg focuses on operations. partly because Sandberg recruited Google executives and employees to work for Facebook. and Graph Search. In this way. She was also tapped for her sales. Sandberg speaks about the low number of female leaders in today’s society and how to overcome this situation. working closely with advisers from the institutions underwriting the offering. He was looking for someone who would be comfortable serving as his No.19 As COO and Zuckerberg’s second in command at Facebook. In both. She is now working hard to help Zuckerberg find a viable business model that will monetize the company’s mobile users.24 Ebersman was indispensable to the launch of Facebook’s IPO on May 18. business development.S.000.16 Sheryl Sandberg attended Harvard for both her undergraduate (economics) and graduate (MBA) degrees.” but tension grew between the companies after her departure.20 Zuckerberg sought out Sandberg amid a shake-up of his executive team.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 2008.25 Three Pillars of a Business Model Mark Zuckerberg’s Graph Search announcement on January 15. and the U. many consider Sandberg the “professional face” of Facebook. she worked with Google’s AdSense and AdWords programs. the leadership dynamic between the CEO and his COO can be explained in simple terms: Zuckerberg brings in the users. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U. such as when she completed a round of funding for Facebook when its chief financial officer (CFO) left suddenly. who was in his 15th year as CFO at the biotech company Genentech Inc. or about one-quarter of Google’s work force. particularly those at J. considered her a “superstar.” Sheryl Sandberg is a vocal advocate for women in leadership. Inc. Sandberg has been a key figure in reshaping Facebook’s business model. following a six-year stint as Google’s vice president of global online sales and operations.21 Sandberg is known for her ability to form teams and break deadlocks. public policy.15 Eric Schmidt.

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

and church groups. photo albums. or the world. eliminating the need to wade through mundane updates from those to whom they aren’t as closely connected. users can see that information. pictures. making it the most popular photo uploading service on the web. An event can include a map location for the address and a host for the event who is also a Facebook user. NOTIFICATIONS Introduced in May 2009. PHOTOS AND VIDEOS Originally designed by a single engineer and designer in October 2005. A new version of Facebook Events was launched in May 2010. sports teams. PLACES Launched in August 2010. Users upload more than 250 million photos on average each and every day. Examples of Groups include family. and comments—via customizable privacy settings. Places is a Facebook mobile feature that lets users share their physical location with other users by “checking in. Facebook Notifications are visual alerts that signal users to activity on their page or within their social graph. Friends Lists was updated in September 2011 to compete with circles on Google1. the ability to share pictures is one of Facebook’s most popular features.35 6 .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. and general activity. This feature also provides users with a way to share information privately. guests can communicate with each other on the event page. the feature allows users to control the content they share—for example. 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. 2012.34 Lists. This upgrade made it easier for users to create events from their homepage while adding more details about an event. messages. family. calendars. depending on their profile’s privacy settings. if their Facebook friends have visited the same location and left comments about their experience.” Users can tag other Facebook users who are with them as well and. EVENTS The Event feature lets users create an event. Separate notifications appear for friend requests. In addition. They can also add captions and locations to their photos and identify other users by “tagging” them. help users focus on content that they are immediately interested in reviewing. 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. invite other Facebook users to the event. 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. which some considered superior to Facebook’s solution. On May 22. and videos with friends. Launched in September 2004. FRIENDS LISTS Launched in December 2007. like Google’s circles. and track RSVPs for the event.

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

The system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that type of user. location. representing 62 percent of the total worldwide advertising spent. Chang’s offered a free lettuce wrap to all customers during a three-week period.000 customers took advantage of the offer.g. Most important.6 billion by 2015. 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. movie studios can notify fans on their page of an upcoming movie release. if Facebook were a country. and special interests—which allows Facebook to deliver targeted ads with a higher success rate than industry averages (90 percent versus 35 percent. traditional offline advertising—television. For example. The friend has now automatically become an advocate for the company across his or her social graph. However.40 Relevance. Users identify themselves based on many demographic factors—for example. the global mobile advertising market is expected to grow from $1.44 All of P. a wedding photography company based in Minneapolis. increases ad recall by more than 50 percent.F. and mobile advertising. education level. This enables product differentiation and. print. it expects its ad revenue to follow suit. targeted recently engaged women aged 24 to 30 who lived in close proximity to CM’s location. CM Photographics. and radio— was a $363 billion industry. driving company awareness. Minnesota. This is where Facebook can play a vital role. In 2010. Companies have the ability to purchase lists of the users who subscribe to the pages of other companies. Similarly. Relevance is important to advertisers because. Facebook provides a rich social context for advertisers. race. or encourage feedback all improve awareness. the mobile path has an added challenge in that greater mobile use generally reduces ads per user. and Facebook’s ad system guarantees a fixed number of ad impressions for a fixed price. Facebook boasts 680 million mobile MAUs. Similarly. Social Context. marketers are being asked to do more with less. according to a recent study). which can be used to target a specific audience. sponsored stories (e. Facebook ads can display in multiple locations on the screen.F. With Facebook’s help. it would be the third largest in the world by population—that amounts to quite a reach.47 Currently. As an example. a friend checking in to a Starbucks) are prominently displayed directly in a user’s News Feed. for example. dynamic ads that include a poll. Additional advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising.39 Facebook also offers free tools for tracking the performance of ads called the Ads Manager. and Facebook has been a leader in identifying new advertising tactics that improve user engagement. With more than one billion MAUs. Chang’s fans and friends of those fans saw the ad.46 As marketers continue to gravitate toward online advertising. For instance. Social ads allow marketers to add context to their ads. 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. the Chinese restaurant P.48 8 . Paramount Studios.42 The targeted campaign led to a substantial increase in revenue during the ensuing 12 months. hit upon a user’s special interest. online advertising. given the smaller screen size of mobile devices. The social web is an evolving species. in today’s economy.43 Engagement. gender. This type of technology helps Facebook maximize ad revenue.41 A good example of a targeted advertising campaign is that of CM Photographics.8 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Reach. With sponsored stories and social ads. according to a recent Nielsen study. on a limited budget of $1. 40 percent of them were first-time customers.544.5 billion to $17. With the release of Graph Search. As of January 2012. Facebook’s mobile app is one of the most popular downloads. reached 65 million fans in one day when it advertised the release of Transformers: Dark of the Moon on Facebook. age. Facebook invests in technology that dynamically decides the best available ad to display to a user depending on that user’s unique attributes. As Facebook continues to expand its advertising offering. a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. Over 50..45 Market Opportunities. through its Facebook page.

Facebook offers significant value to developers. As an example. Social Plugins give website owners the opportunity to broadcast interests from one friend to another non-connected friend. the Yahoo Social Plugin shares articles directly to Facebook’s News Feed.50 Zynga. Social plugins include the Like. “The worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010. According to Facebook’s S-1 filing with the SEC. In this way. Open Graph. This well-established. for example. Send. and is forecasted to increase to $15 billion by 2014. track runs via MapMyRun. Social Channels. Developers can also integrate with requests that allow a Facebook user to encourage other friends to use an app. and Payments. which displays thumbnails of friends’ profile pictures. Content can be generated from the app and distributed to a user’s News Feed using Social Channels. Payments. Facebook’s f8 conferences. and devices that take advantage of the Facebook platform. fees collected from Facebook Payments almost exclusively come from the purchase of virtual goods used in social games. creator of the game FarmVille and many other wildly popular games. and innovators to collaborate on new websites.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. extending beyond the core area of gaming. the fees collected from Zynga accounted for 12 percent of Facebook’s revenue in 2011. payments. bring together developers. Subscribe. Social channels provide a way for developers to integrate with News Feeds and requests. held near-annually. and the Facepile feature. apps. Users can log in to an app or website using their Facebook credentials. This application programming interface feature of the Facebook platform allows apps to read and write data to Facebook.52 Other examples of developer integration using the platform include the ability for users to listen to music on Spotify. comments. which was first launched in May 2007 with 85 developers and 65 apps. The Facebook platform can carry over the social experience from Facebook to any website that has the Facebook social plugins enabled. the activity feed. This enables users to share personal content generated by the app with their friends on Facebook through their News Feed and Timeline.53 Social Plugins. speeding up the registration process. by allowing users to purchase songs from iTunes that a friend listened to. developers can learn how to connect user Facebook accounts from within their app. Finally. 9 . a user’s current songs are shared through Facebook. However.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. Social Plugins. Login. and Login buttons.”55 The projected increase in social gaming will undoubtedly provide future revenue for Facebook. registration. LinkedIn and Google have deployed similar login methods. and secure system has streamlined the transactions between users and third-party developers. could open up new opportunities for Facebook. but declined in 201251 as the popularity of Zynga’s games declined.54 Currently. and use the Nike1  mobile app to share their exercise activity. safe. Spotify is an excellent example. Graph API. entrepreneurs. read news and sports articles on Yahoo. Open Graph allows app developers to map the content of their apps and see how users can interact with it. create an infrastructure for developers to receive funds for the purchase of their virtual and digital goods. through the use of Facebook Credits. Through products such as Open Graph. is currently the largest developer. Through Spotify.

Anybody who can facilitate a more precise or quicker communication should be perceived as a threat to Facebook. Facebook plans to retain Instagram as a separate business unit. Jason Goldman. if any at all. Zuckerberg saw the acquisition as a “milestone” for the company and said.”57 Photo sharing. As of July 30. the chance of users spending more time with it communicating with friends and family will grow as well.61 Meanwhile. the largest deal ever for Facebook. Twitter generates only a fraction of the ad revenue and user interest of Facebook. Senators are active Twitter users. Facebook’s ad revenue was $3. A subscriber to the user’s page (known as a follower) then receives the tweet automatically. relevant timelines . the percent change in revenue is expected to decline year over year during that time (see Exhibit 6). organizations. according to the French analytics firm. yet targeted. While analysts estimate that it will grow to $540 million by 2014. athletes. .S. Semiocast. Facebook captured 62. TV channels such as CNN. MSNBC. Twitter has become an extremely popular free micro-blogging and social networking service. In March. Users submit a tweet. which is limited to 140 characters in length.63 For the time being. The most popular method of using Twitter’s service has been through the company’s main website. while Twitter captured only 1.S.58 Twitter gives users the ability to communicate with friends and family via text-based posts in real time. Facebook has eliminated a potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android.15 billion in 2011 alone.59 Former vice president of product. which requires the dual acceptance of friend requests. however. a photo-sharing service for iPhones and Android phones. For now. but it will be expected to share some of its talent and innovation with the parent company.62 In addition.10 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Current Competitors INSTAGRAM Instagram. attributes Twitter’s appeal to the fact that it “delivers interesting. 2012. “We don’t plan on doing many more of these. which is accessed through desktop computers rather than through mobile devices. Facebook acquired Instagram for $1 billion. And celebrities. Unlike Facebook. Professor Tim Loughran of Notre Dame summed it up as follows: “Facebook is in the business of communication. TWITTER Launched in July 2006. 75 percent of NBA players. Congress members. 2012. CEO Kevin Systrom announced that registered Instagram users had nearly doubled from 15 million to 27 million in the previous three months. Of all social media site visits in October 2012. and ESPN now use Twitter as part of their broadcasts.85 percent (see Exhibit 7).6 percent of worldwide activity. . audience. Twitter had over 500 million accounts with 27 percent designated as active users. as Twitter continues to grow.5 million. and 85 percent of U. and companies have quickly realized the benefit of this type of interaction: the ability to reach an unlimited. This accounts for 27. has been a vital element in the company’s success and efforts to drive user engagement. Twitter stimulates interaction between complete strangers because users don’t need to approve who follows them.39 percent. By acquiring Instagram. about the people and places that matter to you. and politicians have accepted the technology as well. ”60 Even though mainstream adoption has quickly become a reality.56 On April 9. users of Facebook spend significantly more time on the website each month than users of Twitter.”64 10 . which is one of Facebook’s core features. Individuals. Twitter is still growing its business model. Twitter’s 2011 ad revenue was $139. was founded in October 2010 and quickly became a leader in online photo sharing. Giving people better information about the world around them and the things they care about has become the cornerstone of the product offering. 82 percent of U. to their profile page.

The integration of Google1 with YouTube and the image organizer and viewer. up from 150 million in June of that same year.. 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. which will then have grown to $53 billion.32 percent of social media site visits (Exhibit 7). another area of concern is Google1. even with this increase. AdWords.66 In the online display advertising market. allows for improved video and photo sharing.69 Meanwhile.4 percent and 6. In the large $40 billion U.9 percent share of the market.67 Google also added to its revenue by acquiring Motorola’s mobile division—in 2012. Google1 had 235 million active users at the end of December 2012.1 percent (see Exhibit 11).65 In 2014. both organically and through acquisitions.g. by which time it is expected to account for 21. while Yahoo and Facebook hold 7. This incentive could drive developers away from Facebook and to the Google1 platform.9 billion on a valuation of $23 billion (see Exhibit 8). Such fine-grained data will be vital in Google’s push to become the dominant online presence delivering customized advertising. just as with Facebook. Google holds a commanding lead over its competitors. Microsoft remains a Facebook competitor across several market segments. Chrome.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. However.5 percent. a subset of the overall online advertising market. What’s more.S. beyond its initial core competency of Internet search is evident in its stock performance (see Exhibit 9). It currently has a 44. Google is projected to have a 47. Similar to Google. Microsoft commands a large percentage of advertising revenue and both online and offline user interaction. Google will be able to paint a more complete picture of each of its users. MICROSOFT Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 million). is online advertising. Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. In this $15 billion industry. particularly since its highly successful IPO in 2004. Google1 claimed only 1. Google1 lacks Facebook’s installed base of users as of late 2012. which raised $1. respectively (see Exhibit 10). Google is projected to supplant Facebook as the leader in online display ad revenue by 2013 and grow its market share further in 2014. The company’s strategic growth.39 percent of social media site visits. Picasa photo software. which would parallel Google’s initiative of driving iPhone developers to the Android operating system through more attractive developer commissions. Yet. and others). 8 percent of Google’s revenues came from the hardware and services of Motorola Mobile. while Facebook charges a 30 percent commission. it is still projected to claim only a 7. Microsoft offers a fleet of products 11 .68 For While Facebook is expected to oust Yahoo from its second-place position during that same time. Translate. YouTube. Google1 circles allow users to organize the people they are connected to and give them better control over their privacy settings.4 percent share of the industry.72 Now that all of these products and services are linked to Google1. Rather than focusing on any single product. Google. online advertising market. Google1 has several improved and additional features over Facebook. Google has become a leader in cloud computing and advertising. the two companies each hold about 16 percent of the market.7 percent of the market. Picasa. Google and Facebook are more evenly matched. However. the third-party developer platform associated with Google1 (which is similar to Facebook’s developer platform) is completely free.1 percent share of the market. A major driver of revenue for Google. while Facebook slips to 17. Analytics. what matters most to Google is how much time users spend within the Google ecosystem once logged in to their account.70 Still.71 Google’s drive for Internet dominance and social strategy includes a suite of products and services (e. Facebook’s one billion active users comprise 62.

the company recorded $522 million in revenue with earnings of $11. the company had more than 150 million members accessing the site from more than 200 countries in 17 languages. For example.83 percent of all social media site visits in October 2012 (see Exhibit 7). and send messages to people with whom users are not connected. getting access to a larger number of services at each level.78 LinkedIn held its IPO on May 19. in which it offers its core product for free but then charges for premium services. 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. Premium services enable users to see who has viewed their profile.79 In 2011.6 million in 2011. Now that Skype is owned by Microsoft. LinkedIn site visits accounted for only 0.91 million. while Facebook brings in only $0.30 per user-hour spent on its site. LINKEDIN Started in 2002 in co-founder Reid Hoffman’s living room. the Bing search engine. users have a choice of three subscription levels. although LinkedIn users spend much less time on the site than Facebook users do on Facebook. LinkedIn Sales Navigator. the Xbox 360. Windows Mobile. when Microsoft sold $550 million worth of patents and licenses to Facebook. LinkedIn operates on a business model called freemium.77 All Fortune 500 companies have at least one executive with a LinkedIn profile. that help them find qualified employees and contact those individuals directly. At the beginning of 2012. Microsoft accounted for 5. Facebook and Microsoft have formed a strategic partnership that enables the two companies to compete directly with Google on several fronts. and videos) all drive traffic away from Facebook and Google. 12 . For their part. It was $154.80 However. Zuckerberg said. making it more akin to a network that allows for professional connections embedded within social interactions. LinkedIn brings in $1.73 At the time of the deal. This partnership will compete directly with Google1 and Google. 2011. 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 offers premium products to individuals as well as to companies. making the company worth around $9 billion (see Exhibit 9). Facebook’s ad revenue was $3. helps salespeople build better prospect lists. and is projected to increase to $405. Microsoft purchased Skype for $8. Moreover.”74 The truth of this statement seemed evident in May 2012. The stock quickly jumped to over $90 per share.84 In addition. do premium searches that let them build job leads. LinkedIn has grown into the world’s largest professional network.82 In addition. games. “We have a really good relationship with Microsoft. which equates to a very healthy price-to-earnings ratio (P/E) of approximately 850. Another product.15 billion in 2011.83 Still.5 billion and soon after partnered with Facebook to challenge Google1’s videoconferencing capabilities. Bing is now the default search engine within Facebook. 60 percent of LinkedIn members live outside the U. at a price of $45 per share. Bing search queries conducted within Facebook are not directly accessible to Google for further data analysis. companies can purchase LinkedIn products. and 82 Fortune 100 companies use the recruiting tools provided by LinkedIn.6 million by 2014 (see Exhibit 12). On the other hand. online advertising revenue and was projected to remain third behind Google and Facebook over the next several years (see Exhibit 10). In May search results. 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.7 percent of U.S.06. shopping. In 2012 alone. LinkedIn has added more user-friendly features.12 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? and services that competes directly with Facebook. sports. and MSN (a portal to news. LinkedIn’s ad revenue drags behind Facebook’s. such as LinkedIn Recruiter Corporate. see full profiles beyond second-degree connections.76 In February 2012.75 Previously mentioned as a competitor in the area of user interaction.81 Meanwhile.S.

strong competitive moat. Despite the suffering stock price.33. and $42. P. and Goldman Sachs led funding at a $50 billion valuation in January 2011. history. Google grew much faster than the NASDAQ 100 in its first six months. 54. Accel Partners sold its stake at a $35 billion valuation in November 2010. Morgan Stanley.92 In the months following the IPO.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.4 billion through its IPO.8 billion) less than the IPO market cap. Google sits at 21. called for an underperform rating and gave a price target of $25. The calamitous opening may have cost firms as much as $500 million in investments. J. To start. the NASDAQ exchange. Before its IPO. P. other large-cap NASDAQbased companies have much lower P/Es: Apple has a ratio of 18. and unwavering focus on the user experience position the company to significantly improve monetization over time and to become an enduring. The market cap as of August 16 was $48 billion. In comparison. Microsoft invested in October 2005 at a valuation of $15 billion.85 With an IPO price set at $38 per share. and Facebook executives under great public scrutiny. dwarfing even that of Google in 2004. blue-chip company built for the long term. equated to a high P/E of 104 for Facebook. and Goldman Sachs rated the stock as a “buy” and gave price targets of $38. while LinkedIn grew at roughly the same rate as the NASDAQ 100 over the same period. was one of the largest in U. Morgan’s Doug Anmuth wrote: We believe Facebook’s virtual ownership of the social graph. To match these expectations. After one month of public trading.71 billion in revenue and $1 billion in net income. 2012.89 J. believing that the company would lead an Internet revolution and estimating that its user base would grow 70 percent by 2014.2 percent ($56. Facebook was valued at $104 billion and planned to raise approximately $18. STUMBLING OUT OF THE GATE As if signaling future disaster.91 Facebook stock continued its downward trend in July and August of 2012 (Exhibit 9).S. Morgan. problems arose just moments before Facebook’s initial public offering. Facebook far underperformed its closest comparable IPOs: Google and LinkedIn. These shares and prices were set at the far upper end of 13 .86 Facebook valuations historically have been optimistic. citing his concern about Facebook’s advertising revenue.2. analyst ratings remained optimistic about Facebook’s future.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. Facebook had earned $3. the NASDAQ exchange’s system entered an automated loop that delayed trading by 30 minutes. 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. combined with Facebook’s lofty valuation.33. 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. Facebook knew it would have to grow its earnings quickly in 2013 and beyond.90 Only one analyst. Morgan Stanley and Facebook’s CFO have been criticized for making changes to the price and number of shares just before the offering. Another glitch occurred once trading started. and early investors suffered significant losses. UNDER SCRUTINY Discussions over the declining stock prices put Morgan Stanley. respectively (see Exhibit 14). Facebook was valued by several companies—Yahoo offered $1 billion for the company. In 2011. Daniel Salmon at BMO Capital Markets. the stock price had fallen from $38 to $32. and Microsoft is at 11. These recent earnings. Even investors who anticipated that Facebook would perform no worse than LinkedIn were disappointed. $45.13 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.

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

S. Do users value Facebook enough to pay to use it.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. Sandberg needs to come up with a business model that will generate sufficient income to justify this valuation. 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. substantially. which currently sits at $15. She wants to ensure that Facebook does not encounter a similar fate. 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. What business model and monetization strategy should she propose? 15 . and the timeline activities they’ve shared on the site. Facebook has enviable relevance and reach to offer its advertisers. but mobile advertising generates less revenue compared to desktop advertising because fewer ads are shown. Expanding Facebook’s mobile advertising has been vital for Facebook to stay current. The clock is ticking. in contrast. These markets have vast numbers of potential users.102 For Facebook to follow such a path. it would need to increase its advertising revenue per user. Facebook is almost as vital as electricity—it’s a communication tool that users have come to rely on daily. and Sandberg has strong relationships with large advertisers from her Google days. the photos they’ve uploaded. but revenues per user are lower than in the U. Google’s revenue stream. Would they give it up if Facebook started to charge them? Sandberg is also pushing to expand to other countries. She sees competitors like LinkedIn using a combination of freemium and subscription business models. Overall advertising revenues for Facebook are growing. To many people. 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. relies on advertising more than anything else. it generates $88 in advertising revenue per user.

& 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 .Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 1 Facebook’s Global Usage.000% 900% 800% 700% 600% 500% U.100% 1.S. & 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.S. 2009–2012 (in millions) Panel 1: Monthly Active Users (MAUs) 1.

& 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 .usa. EXHIBIT 2 Facebook http://1.17 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.S. 2010–2012 (in $ millions) $1.200 Asia $1. http://1.400 Advertising Rest of the World $1.usa.000 Europe $800 & Canada $600 Payments & Other Fees Rest of the World $400 Asia $200 Europe U.

331 15.7% $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.18 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 3 Facebook Financial Data.2% 60.974 3.089 Cost of goods sold 354 537 720 Selling. EXHIBIT 4 Facebook Ad Revenues. and equipment – total (net) 574 1.432 3.711 5.348 Stockholders’ equity – total 2.103 29 63 65 367 398 1. except EPS data) Fiscal Year 2010 2011 2012 Cash and short-term investments 1. plant.000 53 Net income (loss) 606 1.15 2011 2012 2013 Facebook ad revenues % change 40% 13.8% $3. 2012. 3. February 22.47 0. http://bit. 2011–2014 (in billions with % change) 100% $10 $8 $7.72 60% $5.626 373 547 1.000 53 Earnings per share (basic) excluding extraordinary items 0. 18 .187 Income taxes 402 695 441 Income before extraordinary items 606 1.47 0.” eMarketer.899 11.06 32. general. 2010–2012 (in $ millions.908 9.162 4.990 6. and amortization (accumulated) 246 450 882 2.991 Receivables – total Inventories – total Assets – total Accounts payable – trade Long-term debt Liabilities – total 828 1.02 Earnings per share (diluted) excluding extraordinary items 0.02 Source: Compustat. and administrative expense 449 1.755 Sales (net) 1.64 68.095 3.28 0.6% $6 $4 $6.391 Depreciation.28 0.170 0 0 0 Property.475 2.

84 $2.43 $1.60 Se $2 Source: Authors’ depiction of data in Facebook’s SEC filing.50 $1.56 11 $0.69 c- pSe n- 1 -1 M ar cDe $1.26 Asia $1. 2010–2012 $5 $4 $4. & Canada $3.37 $1.20 $2.26 $0.47 $0.53 M $0.54 $1.40 $1.31 $0.19 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).71 $1. EXHIBIT 6 Twitter Ad Revenues.38 $ $1. LinkedIn to see solid ad revenue growth.49 Rest of the World $0. 2012.43 10 $0 $1. 19 .28 $0.33 Ju $1 $1.5 35% $45.40 $1.08 U.25 $1. http://1.40 $3 $3.54 11 $0.44 $1.20 $2.29 $0.0 210% $500 $399.” eMarketer.56 c- p- De Ju n- 2 12 $0.77 Europe $3.44 $0.5 $400 $300 $0 % change $259.0 2010 2011 2012 2013 2014 Source: Authors’ depiction of data from “Twitter.55 ar $0.37 12 $0.58 -1 $0.24 $0. 2010–2014 (in millions with % change) $600 $540.21 $0.90 $2.19 De $1.9 86% $200 $100 Twitter ad revenues 54% $139.41 12 $0.33 $1.80 Worldwide $2.14 $0.38 11 $1. January 31.

2012. 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. EXHIBIT 8 Various IPOs and 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. 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 . 1994–2012 (in billions) $300 Market Cap.” Statista Industry Statistics. November 25.

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. 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 .

2% 5.4% 2.5 $52. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.9% 68.4% Yahoo! 9.0% 44.4% 6. 2012.2% 2.8 * 2.4% 6. February 22. 2011–2014 2011 2012 2013* 2014* Google 41.7% 5.0 $39.5 $46.7% 6. Online Ad Revenue.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.1% Total Top 5 64.4% 66. EXHIBIT 10 Percent Net U.S.7% Total Internet (billions) $32.” eMarketer.0% 6.1% 7.6% 47. 22 .1% Microsoft 5.6% Facebook 5.5% 7.9% 46.5% AOL 2. http://bit.5% 7.1% 68.

8% $0.29 17.S. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.7 $226.68 19.5% Microsoft $0.1% $1.8% $3.91 *Projected.73 14.4% AOL $0.5% $3.5% $0.4% $0.71 13.40 $15.67 4. Online Display Ad Revenue.35 10. 2011–2014 (in $ billions) 2011 2012 2013* 2014* Facebook $1.98 53. LinkedIn to see solid ad revenue growth.8% $9.4% $7.57 54. 2012.7% Total Top 5 $5.1% Google $1.81 3.88 47.64 7.3% $0.80 4.92 Total Online Display $ 8.” eMarketer.7% $3.23 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.0 $154.7% Yahoo! $1. February 22.76 21.8% $2.39 $18.1% $1.” eMarketer.8% $4. January 31. http://bit.6 95% $310. 23 .71 3.62 4.0% $0.54 16.56 4. http://bit.7% $11.8% $1.75 17.96 4. 2012.4% $21.53 4.58 16. EXHIBIT 12 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 LinkedIn Ad Revenues (millions and % change) $405.40 9.3% $0.6 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 “ A3mdNS.0% $2.81 50.

wsj. June 27.00 BMO Capital Markets Daniel Salmon Underperform $25.00 J. http://on.0 $35.8 Opening price for IPO ($ ZX1r4W. 2012.wsj.00 Barclays Anthony DiClemente Equal-weight $35. 2012 Bank Analyst Rating Price Target Morgan Stanley Scott Devitt Overweight $38. P.” The Wall Street Journal.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 $1.00 Credit Suisse Spencer Wang Neutral $34. June 27.00 BofA-Merrill Justin Post Neutral $38. Kevin Kopelman Neutral N/A Pacific Crest Evan Wilson Sector Perform Oppenheimer & Co.” The Wall Street Journal. Jason Helfstein Ouperform N/A $41.0 before IPO $15. 24 .00 RBC Capital Markets Andre Sequin Outperform $40. 2012. Morgan Doug Anmuth Overweight $45.00 Goldman Sachs Heather Bellini Buy $42.00 N/A $41. EXHIBIT 14 Analyst Ratings of Facebook Stock. August 17.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 13 Valuation History (in billions) $104.00 per share) $80.0 after IPO $10.00 Wells Fargo Jason Maynard* Outperform $37.00 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.00 Citigroup Mark Mahaney Neutral $35. http://on.0 2005 24 Source: Authors’ depiction of data from “Facebook investors cash out. com/VE9P23.0 $50.00 Source: Authors’ depiction of data from “Analysts hit the tepid button on Facebook.

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 2.944 2. ZX1r4W.000 149 47 1.000 55 271 500 421 421 692 747 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. August 17.500 2.500 1.197 1.” The Wall Street Journal. http://on.wsj. 25 .

27. “Facebook overview. S. 3.” The Wall Street Journal. March 5. “Facebook IPO filing puts high value on social network.” The Wall Street Journal. (2010).com/134nYvE. February 2. 21. (2013). Ibid. Ibid. “Facebook CEO seeks help as site grows up—Google veteran to be Zuckerberg’s no.wsj. 22.html. “Facebook: One billion and counting. 4.” eMarketer. 2010. http://1. http://bit. 13. Helft. 2012. 28.” 12. July 24. http://econ. “Mark Zuckerberg’s most valuable friend. http://bit. 26. “Facebook Form S-1 registration statement. October 2. 2012. June 30. 2012.” 29.” 5. “Inside fumbled Facebook offering. February 22. February 4. 18. Ibid. “Facebook hires finance chief. “Facebook seeks a new finance chief as Yu leaves. “Graph search event video. July 21. Ibid. 24. M. Sandberg. The Social Network [Film].” 30. 2007. 2009. “Graph search event 2012. http://www. 20. 8.” 23. http://on. http://on. Ibid. 2.26 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Endnotes 1. http://on. December 15. 26 .” The New York Times. May 23.” SEC. “The acceptable face of Facebook. “A brief history of Facebook.” Time magazine. “Why we have too few women leaders. 6.” The Wall Street Journal. 25.” The Economist. “Floating Facebook: The value of friendship.” The “Facebook CEO seeks help as site grows up. 10. 2008.” TEDWomen.” The Wall Street Journal. 16. “Facebook overview. 2. “Person of the Year: Mark Zuckerberg.” The Wall Street Journal. 11. 2012. “Facebook Form S-1 registration statement.” USA Today. Sandberg. December. January “Google edges closer to Facebook as US display advertising becomes two-horse race. S. Ibid.” Facebook Newsroom. (2010). http://usat.wsj. April 1. 2011. October 5. May 16. “Facebook IPO filing puts high value on social network. 15. http://bit.” The Economist. http://on. Lean In (New York: Knopf).” Facebook. http://econ.wsj. 9.

54. “Facebook Form S-1 registration statement.” The Los Angeles Times. Ibid. “Introducing Graph Search: Help people discover your business. “Twitter shares active user numbers.” Facebook. 2012. 48. April 10. Ibid. “Insta-Rich: $1 billion for Instagram. Ibid. 49.” eMarketer.” Facebook. 40.” 53.” 34. Ibid. “Twitter. http://bit. 2012. 2012. “Twitter VP Jason Goldman steps down.” Facebook. http://lat. September 8. 60. http://on. 59. 2013. 58. September 11. http://bit. Ibid.wsj .” 42. “Facebook annual report. http://tcrn.” The Wall Street Journal.” TechCrunch. 32. July 31. “Facebook overview. 57. 2010. 46. September 47. 36. Ibid. 55.facebook. 2013. 2012. 2012 52. 41. 2011. Ibid.wsj. “Twitter may have 500M1 users but only 170M are active. “Facebook IPO filing. 39. Ibid. 43.wsj. “Facebook to organize friends into” The Wall Street Journal. “Facebook on collision course with Google on web searches. January 31. Ibid.” The Wall Street Journal. http://bit. 45. January 16.” 38. 44. Ibid. https://www. 27 . 33. January 15. “Facebook overview. Ibid. Ibid. 61. http://on. LinkedIn to see solid ad revenue” 37. Ibid. “Facebook Form S-1 registration statement.” The Wall Street Journal.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? “Facebook annual report. “f8 conference. http://on. 2011. “Facebook Form S-1 registration statement. 56. Ibid. December 8.” 50.” Facebook-Studio.

” 63. “The mounting minuses at Google1. 80. June 29. June 28. “Facebook IPO hasn’t hit Nasdaq volumes. February 22. 90. “Google edges closer to Facebook as US display advertising becomes two-horse race. http://press.” 84. July 7. 66. 2012.28 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 62. Ibid. 2012. 2011.wsj.” The Wall Street Journal. 92. Ibid.linkedin. February 2.” Puget Sound Business Journal. 88. 2012. “About” Google Inc. http://bit. May 17. 2012. 67.” 72. http://fxn. http://bit. 2012. 75. http://on.” The Wall Street Journal.” The Wall Street Journal. “Facebook prices IPO at record noRRYd. February 28. “Microsoft. Ibid. http://onforb. http://bit. May 4. 2012. February 28.usa. August http://on.” Forbes. http://onforb. 2012. 2012. 2012. 2012.wsj. http://1. January 3. February 2. “SEC could seek Nasdaq upgrading. “About LinkedIn.wsj. 87. 76. “Microsoft to acquire Skype. “Analysts hit the tepid button on Facebook.” The Wall Street Journal.” The Wall Street Journal. 77. 69. 65. “Form 10-K. “LinkedIn IPO” The Wall Street Journal. http://bit..” “Facebook Form S-1 registration statement. Ibid.” The Wall Street 85. 68. 89. 86. “Twitter. 78.” 83. Ibid. “Facebook sets historic IPO. http://on.wsj. feeding web boom. 2011. 79.” 82. “There’s no avoiding Google1.” The Wall Street Journal.” LinkedIn. 74. LinkedIn to see solid ad revenue growth. “What keeps Facebook up at night.” The Wall Street Journal. 2012. May 10.” Microsoft.wsj. 2012. “There’s no avoiding Google1. E. “Google edges closer to Facebook as US display advertising becomes two-horse race. 71. 91. “The mounting minuses at Google1.” 28 .” Fox Business. (2012).” Forbes.” 81. “Why Wall Street likes LinkedIn more than Facebook. “Why it doesn’t matter that Google1 users only spend three minutes a month on the site. 2011. “Why the Facebook-Microsoft alliance should worry Google. http://on. June 29. Parkhurst. 73.wsj. February 28. “Facebook Form S-1 registration statement.” The Wall Street Facebook get cozy as competitors hover. http://bit. 64. “The mounting minuses at Google1. May 20.

ly/1bknWSy. “Zuckerberg admits to June 29. 99. 2012. “Stock traders to Mark Zuckerberg: Do you hear us now?” Forbes.wsj. 2012. June 28. http://on. 2012. 2012. 101.29 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.wsj. “SEC could seek Nasdaq upgrading.” 94. “Facebook: One billion and counting. Ibid.wsj. 102.” Facebook.” The Wall Street Journal. “Facebook plays October 5. 2012. “Facebook: One billion and counting. “Twitter’s mobile ads begin to click.” The Wall Street Journal. http://bit.” The Wall Street Journal. 96. http://on. 97. September 5. http://on. July 26. 95.wsj.” 29 . “Analysts hit the tepid button on Facebook.” The Wall Street Journal.” The Wall Street Journal. 2012. http://onforb. September 11. “Facebook Q2 2012 earnings call. July 31. 100.

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