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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.

” Zuckerberg answered immediately. “I believe you will change the way we look for answers from the Internet. Zuckerberg unveiled the third pillar: Graph Search. The authors thank Andrea Meyer for her editorial assistance and invaluable case writing guidance. 2015.1 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer MHE-FTR-016 007764506 5 FRANK T. This case is developed for the purpose of class discussion. and all errors and omissions. 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. what are the latest ideas?” countered Zuckerberg. entered the media event room at Facebook headquarters in Menlo Park. Sandberg knew that she and Zuckerberg had a strong professional relationship. 10:03 A. or depiction of efficient or inefficient management. As he stepped in front of the audience. What are the latest ideas? The question stuck in Sandberg’s mind. After the presentation. © by Rothaermel and Taylor. California.M. Today. a Harvard MBA. Zuckerberg would attempt to engage an audience with a new product in a manner similar to Jobs’ flashy introductions of new innovations. Timeline and News Feed. charging users a usage Frank T. casually dressed in his hoodie. to discuss strategies for monetizing Facebook’s data and users. Zuckerberg noticed the numerous glowing white Apple icons arrayed throughout the auditorium. There were many ways to monetize Facebook’s user base of one billion people: ads on the mobile platform and the main site. It could also be a great tool for advertisers—and a way to deliver on the expectations of shareholders. Rothaermel and Seth Taylor (GT-MBA’14) prepared this case from public sources. Facebook’s chief operating officer (COO) and second in command. All opinions expressed. which allows users to query their social network directly. shareholders. the late Steve Jobs. “I think that went very well. but the topic of modifying Zuckerberg’s creation for profit was a subject of debate between them.” referring to the Graph Search press event. “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. Zuckerberg opened with a review of Facebook’s mission and described the structure of the company’s current social ecosystem. “There are options for demonstrating the value of our data. This was Facebook’s first live introduction of a new product. represented two of the three pillars supporting the Facebook ecosystem. Zuckerberg sat down with Sheryl Sandberg. Even some of Facebook’s current challenges were brought about by Jobs’ revolution of the mobile industry. 2013. is a driven businesswoman with a keen sense for shareholder value creation. It is not intended to be used for any kind of endorsement. These two products allow users to view a portion of their social network by continuously answering the questions. advertisers.” Sandberg responded. Mark Zuckerberg. These images very briefly reminded him of his mentor. ROTH AERMEL SETH TAYLOR Facebook (in 2013): Will Wall Street Hit the “Like” Button? JANUARY 15. who played a significant role in his professional development and his company’s success. source of data. are entirely the authors. Two current products. and users!” “So. Zuckerberg is all about building the “best product and user experience. “What’s going on?” and “Who is this?” After reviewing the first two pillars. Sandberg eased into her chair saying. . Ways that can be a win for everyone—you.

received an invite to view it. Exhibit 1 shows the MAUs. and to Stanford. on average. Users who have logged into Facebook within a 30-day period are counted as monthly active users. and Canada.06 billion monthly active users (MAUs). the website was in use at over 800 colleges and universities and received $12. A Brief History of Facebook While attending Harvard University in the fall of 2003. Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash. anyone with a verifiable e-mail address could sign up. there were. 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. University officials.584 million. including a developer platform. and mobile MAUs from 2009 to 2012. Greylock Partners.8 See Exhibit 2 for more information about Facebook’s revenue growth.3 Facebook continued to grow rapidly over the next several years. Facebook had 618 million daily active users (DAUs). In addition to 1. Zuckerberg opened the platform up to other universities in the Boston area. almost all Harvard students had either viewed the site or. and an e-commerce payment feature. 2. The increase in MAUs from 2010 to 2012 led to a corresponding increase in revenues. 2 . The following semester.7 billion likes and comments per day and over 100 billion friend connections by the end of 2011. she knew that no matter what. DAUs.” Zuckerberg’s Facemash site placed pictures of two female students next to each other and asked fellow students to choose the more attractive person. from $731 million to $1. In addition to launching Facebook Meritech Capital Partners. respectively. however. By year’s end. and the website is available in more than 70 languages. In April of 2006. the Like button. daily active users measure the number of users who have logged in within a 24-hour period. Approximately 80 percent of the site’s users live outside the U. and hometown to their profile and could link their profile to those of their friends. But the method could not be a drastic diversion to the user.000 views within its first four hours online.4 High school and international school networks were added in the fall of 2005. In May 2005.6 Globally. Facebook tracks the number of monthly active users (MAUs) and daily active users (DAUs) as a means to assess users’ engagement. traditional banner and skyscraper advertisements.2 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? fee. a 30 percent increase over December 2011.5 The following year was another strong one for the company.1 After a few days. 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).S. chat capabilities. attracting 22. Designed initially to replace Harvard’s printed student directory. As Sandberg considered Zuckerberg’s question. and Yale. Columbia. To collect student images. Zuckerberg began work on a new website—The Facebook—that leveraged some of the features from Facemash. In the same way. More features were added over the next several years to further enhance the site’s user functionality. Facebook’s investors were growing more restless as they monitored the young company’s share price. The global footprint Facebook had achieved by 2012 was astronomical. At the same time. which paved the way for exponential user growth. The only requirement to join was an e-mail address ending in . at the very least.2 Half of Harvard’s undergraduates had signed up within just over a month of the launch. Joining members were allowed to add a picture. By September. Zuckerberg and his friends hacked into Harvard’s computer network and copied files from campus houses. Facebook had achieved $9 million in revenue and accumulated six million monthly active users (MAUs). Realizing the site’s potential. The site proved popular. quickly shut down Facemash and placed Zuckerberg on a six-month academic probation for breach of security. Double-digit growth in monthly active users and annual revenue quickly became the norm. major.7 The growing user base also brought more revenues.7 million in investment from venture capital firm Accel Partners. and PayPal co-founder Peter Thiel invested $27. it would always be a hard sell to him.5 million in Facebook. among other things.

In most of North America. Facebook battles VKontakte for dominance. Facebook has ambitious plans for the future. On several occasions. Compelled by the company’s vision to connect the world by building a great user experience. a 37 percent increase over 2011 (Exhibit 3). In December 2007. Zuckerberg has worn flip-flops and hoodies to meetings with other executives. whereas Facebook makes only $15 per user account. when he stated that “young people are just smarter. who coded much of the original site and then managed the engineering teams in the next phase. The website collects data to map out human relationships and social connectivity. but there is still plenty of room for Facebook to grow. He received more negative press over comments he made in a speech in 2007. the way the company has tried to juggle user privacy and the monetization during his tenure has opened him up to additional criticism. With his habit of arriving late to work and staying into the middle of the night. which Zuckerberg refers to as a social graph. a network with roughly 200 million users. it is a social graph that has mapped one-tenth of the world population in less than seven years. where penetration rates are less than 30 percent. even his work schedule hearkens back to college habits. Facebook launched a new advertising mechanism called Beacon. Facebook’s Leadership MARK ZUCKERBERG Founder Mark Zuckerberg (nicknamed “Zuck”) remains the CEO and chairman of Facebook. In Germany.10 However.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. A similar situation occurred in 2009. Facebook is the obvious fusion of Zuckerberg’s academic passions in psychology and computer science at Harvard. Facebook reaches anywhere from 60–80 percent of Internet users.12 In Russia. Facebook chooses to focus on average revenue per user (ARPU) as a tool for assessing its ability to monetize its users. He even hired a public speech coach. 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. however. Facebook’s ARPU (Exhibit 5) provides another metric for measuring how well Facebook is capturing value from its user base. Zuckerberg’s inexperience and casual appearance have received criticism. Addressing privacy concerns effectively remains in the front of Zuckerberg’s mind as he considers ways to monetize Facebook’s prime audience. This measure has slowly risen over the years. Facebook brought in $5. Facebook’s ad revenues are predicted to rise to $7.09 billion in sales.”11 Its success in penetrating different countries. under the new settings. and Europe. while Google’s Orkut social network competes with Facebook in Brazil (only recently has Facebook surpassed Orkut in usage). professional managers. despite the fact that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more experienced.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 is currently blocked by the government. it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and activities. Facebook operated directly under Zuckerberg. Even as Zuckerberg has adapted to his role as a business leader. Its release prompted condemnation from users and privacy groups alike. Facebook’s equivalent in China is Renren. South America. users are quite concerned about data privacy. has varied. made public some messages originally thought to be private. when the company released new privacy controls that. As Facebook grew out of its start-up phase.14 3 . with most of the growth being generated in North America’s well-developed advertisement industry.”13 In recent years. The company generated 84 percent of its revenue through advertising services and collected the rest through social gaming fees charged to platform developers. former president Bill Clinton’s speech adviser. some industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO. mobile users. At times. This ban leaves a gap in the company’s social network. and in China. Taken together. Zuckerberg won’t see his ambitions sidelined by an outsider motivated primarily by increasing shareholder value. however. In the early days. Exceptions are Brazil and Germany.64 billion in 2014 (see Exhibit 4).

Given Zuckerberg’s public relations challenges. 2 within the company.” and Fortune places Sandberg as one of the “50 Most Powerful Women in Business. 2012. In that capacity. The three pillars consist of News Feed. and communications prowess.15 Eric Schmidt. while Sandberg brings in the money. working closely with advisers from the institutions underwriting the offering. and Graph Search.000. In both. Timeline.S. held positions with Oppenheimer & Co. Ebersman.25 Three Pillars of a Business Model Mark Zuckerberg’s Graph Search announcement on January 15.19 As COO and Zuckerberg’s second in command at Facebook.23 The search turned up David Ebersman. P. Sandberg speaks about the low number of female leaders in today’s society and how to overcome this situation.20 Zuckerberg sought out Sandberg amid a shake-up of his executive team.22 DAVID EBERSMAN After the departure of Facebook’s chief financial officer Gideon Yu in 2009. public policy. a unit that began with 300 staff but grew to 4. many consider Sandberg the “professional face” of Facebook. under Sandberg’s leadership. who was in his 15th year as CFO at the biotech company Genentech Inc. Google’s CEO at the time. Sandberg focuses on operations. In this way. Morgan. Her TED talk entitled “Why We Have Too Few Women Leaders” has some three million views. 2013. such as when she completed a round of funding for Facebook when its chief financial officer (CFO) left suddenly.S. Sandberg has been a key figure in reshaping Facebook’s business model. To some extent.21 Sandberg is known for her ability to form teams and break deadlocks. the leadership dynamic between the CEO and his COO can be explained in simple terms: Zuckerberg brings in the users. launched the third pillar of Facebook’s social ecosystem. following a six-year stint as Google’s vice president of global online sales and operations. 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. and international reach. 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. she worked with Google’s AdSense and AdWords programs. who received an undergraduate degree in economics from Brown University. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U. even going so far as to blame this decision for the stagnant stock price on the day the IPO was issued. business development. partly because Sandberg recruited Google executives and employees to work for Facebook. 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. 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. or about one-quarter of Google’s work force. and the U.18 and her book Lean In is a bestseller. 4 . Department of Treasury. She has also stepped up in unexpected areas when needed. He was looking for someone who would be comfortable serving as his No. considered her a “superstar.” but tension grew between the companies after her departure. She was also tapped for her sales.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. Inc. Department of Treasury prior to working at Google.” Sheryl Sandberg is a vocal advocate for women in leadership.17 Time magazine considers her one of the “100 Most Influential People in the World. revenue. particularly those at J. bringing an analytics perspective and authentic communication to bear on the issues. The dynamic between the two is respected within both Facebook and its board of directors. Prior to working at Genentech. allowing him to maintain a tight rein on Facebook’s activities.

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

the feature allows users to control the content they share—for example. Notifications accumulate and are displayed as numbers within red notification bubbles located on the Facebook page. depending on their profile’s privacy settings.34 Lists. eliminating the need to wade through mundane updates from those to whom they aren’t as closely connected. and comments—via customizable privacy settings. guests can communicate with each other on the event page. On May 22. and church groups. invite other Facebook users to the event. 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. An event can include a map location for the address and a host for the event who is also a Facebook user. users can see that information. Users upload more than 250 million photos on average each and every day. They can also add captions and locations to their photos and identify other users by “tagging” them. NOTIFICATIONS Introduced in May 2009. family. This feature also provides users with a way to share information privately. Launched in September 2004. calendars. the ability to share pictures is one of Facebook’s most popular features. and general activity. and videos with friends.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. sports teams. FRIENDS LISTS Launched in December 2007.33 Users can share an unlimited number of photos. Friends Lists added another layer to the News Feed algorithm. or the world. if their Facebook friends have visited the same location and left comments about their experience. Places is a Facebook mobile feature that lets users share their physical location with other users by “checking in. photo albums. Friends Lists was updated in September 2011 to compete with circles on Google1. In addition. messages. help users focus on content that they are immediately interested in reviewing. 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. Separate notifications appear for friend requests. making it the most popular photo uploading service on the web. pictures. like Google’s circles. EVENTS The Event feature lets users create an event. PLACES Launched in August 2010. Examples of Groups include family. and track RSVPs for the event. 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.” Users can tag other Facebook users who are with them as well and.35 6 . 2012. This upgrade made it easier for users to create events from their homepage while adding more details about an event. Facebook Notifications are visual alerts that signal users to activity on their page or within their social graph.

sponsor content about its business. this feature is only available in the United States. and send a physical gift to that friend. which promotes the further customization of the Facebook experience. Mark Zuckerberg stated. celebrities. public figures. The Wall Street Journal. it is posted to the Facebook user’s News Feed. Still. the company may launch ads. and check advertisement analytics to gauge the success of its campaigns. CREATING VALUE FOR ADVERTISERS AND MARKETERS Advertisements on Facebook revolve around the creation of a Facebook Page for an organization. USA Today. Video Calling enabled users to call friends for free directly from Facebook after installing the Skype plug-in. photos. or games from individual Facebook friends. colleges. Zuckerberg and Sandberg know that developing an effective business model is crucial to Facebook’s future success. click “Give Gift. relevance. a large number of public and private universities. insert a message. social context. life events. The Subscribe feature gives users the option to tailor what they pull into their News Feed. SUBSCRIBE September 2011 brought another new feature to Facebook: Subscribe. Facebook has identified four value propositions for advertisers and marketers: reach.”37 Such a dismissal of the importance of monetization scares investors.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. they automatically sign up for any and all content published through that page. Once an organization creates a Facebook Page. 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. In addition. 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. Facebook Pages allow any individual or group (e. Users can visit a friend’s Timeline. Currently. allowing them to turn on or off comments.36 VIDEO CALLING In the summer of 2011.38 7 . there were more than 37 million Facebook Pages. or organizations) to create a public profile page in order to interact with the Facebook community. a user can subscribe to articles authored by his or her favorite journalists from sites such as CNN.. Facebook partnered with Skype (which had been purchased by Microsoft in May 2011) to form Video Calling.g. “Simply put: we don’t build services to make money.” select a gift. and Forbes. When users like a page. but Facebook plans to expand it to other countries. From then on. which requires dual acceptance). Facebook’s Business Areas In a Securities and Exchange Commission (SEC) filing in early 2012. including ones for most Fortune 500 companies. any time a favorite journalist authors an article. this content is then posted to the users’ News Feeds. By the end of 2011. and many national and local celebrities. Through effective use of pages. and engagement. we make money to build better services. an owner can increase his or her exposure by taking advantage of the algorithms associated with the News Feed. businesses. a feature intended to compete directly with the Hangouts feature on Google1.

according to a recent study). Paramount Studios.42 The targeted campaign led to a substantial increase in revenue during the ensuing 12 months. and radio— was a $363 billion industry.. in today’s economy. 40 percent of them were first-time customers.44 All of P.43 Engagement. location. In 2010. gender. This is where Facebook can play a vital role. driving company awareness. This enables product differentiation and. Most important.5 billion to $17. The social web is an evolving species. Similarly.47 Currently. and Facebook has been a leader in identifying new advertising tactics that improve user engagement. However. Similarly. Minnesota. Users identify themselves based on many demographic factors—for example. through its Facebook page. or encourage feedback all improve awareness. a friend checking in to a Starbucks) are prominently displayed directly in a user’s News Feed. Over 50. 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. it expects its ad revenue to follow suit. the mobile path has an added challenge in that greater mobile use generally reduces ads per user. 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. print. a wedding photography company based in Minneapolis. the global mobile advertising market is expected to grow from $1. With more than one billion MAUs. increases ad recall by more than 50 percent. Facebook’s mobile app is one of the most popular downloads. For example. Chang’s offered a free lettuce wrap to all customers during a three-week period. representing 62 percent of the total worldwide advertising spent. for example. on a limited budget of $1. which can be used to target a specific audience. Additional advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising. targeted recently engaged women aged 24 to 30 who lived in close proximity to CM’s location.40 Relevance. CM Photographics. With Facebook’s help. Facebook invests in technology that dynamically decides the best available ad to display to a user depending on that user’s unique attributes. age. education level.F.46 As marketers continue to gravitate toward online advertising.g. online advertising. With the release of Graph Search. As an example.8 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Reach. movie studios can notify fans on their page of an upcoming movie release. according to a recent Nielsen study. This type of technology helps Facebook maximize ad revenue.544. and Facebook’s ad system guarantees a fixed number of ad impressions for a fixed price.000 customers took advantage of the offer. it would be the third largest in the world by population—that amounts to quite a reach. sponsored stories (e. traditional offline advertising—television. a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. Social ads allow marketers to add context to their ads.48 8 . Companies have the ability to purchase lists of the users who subscribe to the pages of other companies. if Facebook were a country. As Facebook continues to expand its advertising offering. With sponsored stories and social ads. dynamic ads that include a poll. race. Facebook provides a rich social context for advertisers.41 A good example of a targeted advertising campaign is that of CM Photographics.F.45 Market Opportunities.6 billion by 2015. reached 65 million fans in one day when it advertised the release of Transformers: Dark of the Moon on Facebook. hit upon a user’s special interest. the Chinese restaurant P. For instance.39 Facebook also offers free tools for tracking the performance of ads called the Ads Manager. and special interests—which allows Facebook to deliver targeted ads with a higher success rate than industry averages (90 percent versus 35 percent. Facebook ads can display in multiple locations on the screen. Relevance is important to advertisers because. Chang’s fans and friends of those fans saw the ad. Facebook boasts 680 million mobile MAUs. The friend has now automatically become an advocate for the company across his or her social graph. and mobile advertising. given the smaller screen size of mobile devices. Social Context. marketers are being asked to do more with less. The system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that type of user. As of January 2012.

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

TV channels such as CNN. to their profile page.”64 10 . Facebook’s ad revenue was $3. ”60 Even though mainstream adoption has quickly become a reality. By acquiring Instagram. CEO Kevin Systrom announced that registered Instagram users had nearly doubled from 15 million to 27 million in the previous three months. 2012. In March.63 For the time being.S. and 85 percent of U. relevant timelines . Facebook acquired Instagram for $1 billion.56 On April 9.61 Meanwhile. While analysts estimate that it will grow to $540 million by 2014. which is accessed through desktop computers rather than through mobile devices.6 percent of worldwide activity. Twitter is still growing its business model. Zuckerberg saw the acquisition as a “milestone” for the company and said. . a photo-sharing service for iPhones and Android phones. Twitter has become an extremely popular free micro-blogging and social networking service. but it will be expected to share some of its talent and innovation with the parent company. according to the French analytics firm. For now. was founded in October 2010 and quickly became a leader in online photo sharing. MSNBC. which is limited to 140 characters in length. the percent change in revenue is expected to decline year over year during that time (see Exhibit 6). however. 2012. Twitter generates only a fraction of the ad revenue and user interest of Facebook. yet targeted. A subscriber to the user’s page (known as a follower) then receives the tweet automatically. “We don’t plan on doing many more of these. has been a vital element in the company’s success and efforts to drive user engagement. while Twitter captured only 1. which requires the dual acceptance of friend requests. Congress members. Semiocast. Individuals. Senators are active Twitter users. if any at all.58 Twitter gives users the ability to communicate with friends and family via text-based posts in real time. Unlike Facebook.59 Former vice president of product. Twitter had over 500 million accounts with 27 percent designated as active users. audience. . athletes. the largest deal ever for Facebook. Giving people better information about the world around them and the things they care about has become the cornerstone of the product offering. and politicians have accepted the technology as well. Anybody who can facilitate a more precise or quicker communication should be perceived as a threat to Facebook. Professor Tim Loughran of Notre Dame summed it up as follows: “Facebook is in the business of communication. the chance of users spending more time with it communicating with friends and family will grow as well. as Twitter continues to grow. Jason Goldman. And celebrities. 75 percent of NBA players. 82 percent of U. organizations. and companies have quickly realized the benefit of this type of interaction: the ability to reach an unlimited. Twitter’s 2011 ad revenue was $139. which is one of Facebook’s core features. Facebook has eliminated a potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android.39 percent. about the people and places that matter to you. TWITTER Launched in July 2006. This accounts for 27.S.85 percent (see Exhibit 7). attributes Twitter’s appeal to the fact that it “delivers interesting. Facebook plans to retain Instagram as a separate business unit. Users submit a tweet. Facebook captured 62.10 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Current Competitors INSTAGRAM Instagram.15 billion in 2011 alone. Of all social media site visits in October 2012. users of Facebook spend significantly more time on the website each month than users of Twitter. As of July 30.”57 Photo sharing. The most popular method of using Twitter’s service has been through the company’s main website.5 million. and ESPN now use Twitter as part of their broadcasts. Twitter stimulates interaction between complete strangers because users don’t need to approve who follows them.62 In addition.

This incentive could drive developers away from Facebook and to the Google1 platform. is online advertising. particularly since its highly successful IPO in 2004.69 Meanwhile. Facebook’s one billion active users comprise 62. 8 percent of Google’s revenues came from the hardware and services of Motorola Mobile. Chrome. Google1 lacks Facebook’s installed base of users as of late 2012. up from 150 million in June of that same year. AdWords.65 In 2014. Google has become a leader in cloud computing and advertising. However.32 percent of social media site visits (Exhibit 7).1 percent share of the market.68 For Facebook. The company’s strategic growth. Microsoft offers a fleet of products 11 .39 percent of social media site visits.67 Google also added to its revenue by acquiring Motorola’s mobile division—in 2012.70 Still. what matters most to Google is how much time users spend within the Google ecosystem once logged in to their account. Yet. Google1 has several improved and additional features over Facebook. Google1 had 235 million active users at the end of December 2012. YouTube. another area of concern is Google1.66 In the online display advertising market. Google and Facebook are more evenly matched. Translate. while Yahoo and Facebook hold 7. 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. MICROSOFT Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 million). respectively (see Exhibit 10). A major driver of revenue for Google. Such fine-grained data will be vital in Google’s push to become the dominant online presence delivering customized advertising. In this $15 billion industry. Picasa photo software. even with this increase. Microsoft remains a Facebook competitor across several market segments. Google holds a commanding lead over its competitors.7 percent of the market.S. allows for improved video and photo sharing.g. it is still projected to claim only a 7. while Facebook slips to 17. It currently has a 44. Picasa. the third-party developer platform associated with Google1 (which is similar to Facebook’s developer platform) is completely free. However. the two companies each hold about 16 percent of the market. Similar to Google.4 percent share of the industry. Google will be able to paint a more complete picture of each of its users. which would parallel Google’s initiative of driving iPhone developers to the Android operating system through more attractive developer commissions. Rather than focusing on any single product. a subset of the overall online advertising market.. The integration of Google1 with YouTube and the image organizer and viewer. What’s more. which will then have grown to $53 billion. Analytics.5 percent. Google1 circles allow users to organize the people they are connected to and give them better control over their privacy settings.9 billion on a valuation of $23 billion (see Exhibit 8). While Facebook is expected to oust Yahoo from its second-place position during that same time. Google is projected to supplant Facebook as the leader in online display ad revenue by 2013 and grow its market share further in 2014. Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. Google1 claimed only 1. by which time it is expected to account for 21.1 percent (see Exhibit 11). which raised $1.71 Google’s drive for Internet dominance and social strategy includes a suite of products and services (e.4 percent and 6.72 Now that all of these products and services are linked to Google1. beyond its initial core competency of Internet search is evident in its stock performance (see Exhibit 9). Microsoft commands a large percentage of advertising revenue and both online and offline user interaction. online advertising market. just as with Facebook. Google is projected to have a 47.11 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. and others).9 percent share of the market. both organically and through acquisitions. In the large $40 billion U. while Facebook charges a 30 percent commission.

S. Another product.83 percent of all social media site visits in October 2012 (see Exhibit 7). companies can purchase LinkedIn products. Facebook and Microsoft have formed a strategic partnership that enables the two companies to compete directly with Google on several fronts. shopping. Now that Skype is owned by Microsoft. games. making it more akin to a network that allows for professional connections embedded within social interactions. while Facebook brings in only $0. 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. Zuckerberg said. 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. On the other hand.06. and send messages to people with whom users are not connected. see full profiles beyond second-degree connections. LinkedIn brings in $1. Microsoft purchased Skype for $8. sports. getting access to a larger number of services at each level. although LinkedIn users spend much less time on the site than Facebook users do on Facebook. For example.75 Previously mentioned as a competitor in the area of user interaction. the company had more than 150 million members accessing the site from more than 200 countries in 17 languages. LinkedIn’s ad revenue drags behind Facebook’s.78 LinkedIn held its IPO on May 19.77 All Fortune 500 companies have at least one executive with a LinkedIn profile. LinkedIn has grown into the world’s largest professional network. when Microsoft sold $550 million worth of patents and licenses to Facebook. Premium services enable users to see who has viewed their profile. Windows Mobile. and is projected to increase to $405. LinkedIn Sales Navigator.5 billion and soon after partnered with Facebook to challenge Google1’s videoconferencing capabilities.”74 The truth of this statement seemed evident in May 2012. at a price of $45 per share. In May 2011.91 million. helps salespeople build better prospect lists. 2011. and videos) all drive traffic away from Facebook and Google. At the beginning of 2012. “We have a really good relationship with Microsoft. online advertising revenue and was projected to remain third behind Google and Facebook over the next several years (see Exhibit 10). users have a choice of three subscription levels. which equates to a very healthy price-to-earnings ratio (P/E) of approximately 850.73 At the time of the deal. For their part.12 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? and services that competes directly with Facebook. the company recorded $522 million in revenue with earnings of $11. This partnership will compete directly with Google1 and Google. 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. the Xbox 360.6 million in 2011. that help them find qualified employees and contact those individuals directly. The stock quickly jumped to over $90 per share.81 Meanwhile. and MSN (a portal to news.6 million by 2014 (see Exhibit 12).80 However. It was $154. the Bing search engine. LinkedIn offers premium products to individuals as well as to companies. In 2012 alone.83 Still.30 per user-hour spent on its site. in which it offers its core product for free but then charges for premium services. Moreover. LinkedIn operates on a business model called freemium. LINKEDIN Started in 2002 in co-founder Reid Hoffman’s living room. LinkedIn has added more user-friendly features.S. Bing is now the default search engine within Facebook.7 percent of search results.76 In February 2012.84 In addition. and 82 Fortune 100 companies use the recruiting tools provided by LinkedIn.82 In addition. Microsoft accounted for 5. LinkedIn site visits accounted for only 0.15 billion in 2011. such as LinkedIn Recruiter Corporate. making the company worth around $9 billion (see Exhibit 9). Bing search queries conducted within Facebook are not directly accessible to Google for further data analysis. 12 . do premium searches that let them build job leads. Facebook’s ad revenue was $3.79 In 2011. 60 percent of LinkedIn members live outside the U.

2. Another glitch occurred once trading started. strong competitive moat. The calamitous opening may have cost firms as much as $500 million in investments. $45. Despite the suffering stock price.71 billion in revenue and $1 billion in net income. Morgan Stanley. Morgan’s Doug Anmuth wrote: We believe Facebook’s virtual ownership of the social graph.85 With an IPO price set at $38 per share. Facebook was valued at $104 billion and planned to raise approximately $18. combined with Facebook’s lofty valuation. UNDER SCRUTINY Discussions over the declining stock prices put Morgan Stanley. Facebook was valued by several companies—Yahoo offered $1 billion for the company. called for an underperform rating and gave a price target of $25. dwarfing even that of Google in 2004. P. citing his concern about Facebook’s advertising revenue. Morgan. respectively (see Exhibit 14). After one month of public trading. In 2011. Before its IPO.33. Even investors who anticipated that Facebook would perform no worse than LinkedIn were disappointed. STUMBLING OUT OF THE GATE As if signaling future disaster. problems arose just moments before Facebook’s initial public offering. Morgan Stanley and Facebook’s CFO have been criticized for making changes to the price and number of shares just before the offering.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. and unwavering focus on the user experience position the company to significantly improve monetization over time and to become an enduring. Accel Partners sold its stake at a $35 billion valuation in November 2010. These valuations and the hype around Facebook’s IPO made it one of the most anticipated public offerings to date (see Exhibit 13). Daniel Salmon at BMO Capital Markets.8 billion) less than the IPO market cap. 2012.13 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 early investors suffered significant losses. Facebook knew it would have to grow its earnings quickly in 2013 and beyond. Facebook far underperformed its closest comparable IPOs: Google and LinkedIn. and Microsoft is at 11. equated to a high P/E of 104 for Facebook.90 Only one analyst.89 J.4 billion through its IPO. history.S. To match these expectations. and Facebook executives under great public scrutiny. leaving many investors with an unpleasant feeling about Facebook stock.33. Facebook had earned $3. 54. These shares and prices were set at the far upper end of 13 . 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. and $42. the stock price had fallen from $38 to $32. The market cap as of August 16 was $48 billion. analyst ratings remained optimistic about Facebook’s future. and Goldman Sachs rated the stock as a “buy” and gave price targets of $38. J.92 In the months following the IPO. These recent earnings.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. other large-cap NASDAQbased companies have much lower P/Es: Apple has a ratio of 18. Google sits at 21. In comparison.86 Facebook valuations historically have been optimistic. blue-chip company built for the long term. was one of the largest in U. Google grew much faster than the NASDAQ 100 in its first six months. the NASDAQ exchange’s system entered an automated loop that delayed trading by 30 minutes. P. Microsoft invested in October 2005 at a valuation of $15 billion. the NASDAQ exchange.2 percent ($56. and Goldman Sachs led funding at a $50 billion valuation in January 2011. believing that the company would lead an Internet revolution and estimating that its user base would grow 70 percent by 2014. To start.91 Facebook stock continued its downward trend in July and August of 2012 (Exhibit 9). while LinkedIn grew at roughly the same rate as the NASDAQ 100 over the same period.

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

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. 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 Sandberg has strong relationships with large advertisers from her Google days. in contrast. but revenues per user are lower than in the U. She sees competitors like LinkedIn using a combination of freemium and subscription business models. Facebook has enviable relevance and reach to offer its advertisers. Overall advertising revenues for Facebook are growing. which currently sits at $15.102 For Facebook to follow such a path. Sandberg needs to come up with a business model that will generate sufficient income to justify this valuation. Do users value Facebook enough to pay to use it. What business model and monetization strategy should she propose? 15 . Facebook is almost as vital as electricity—it’s a communication tool that users have come to rely on daily. These markets have vast numbers of potential users. it generates $88 in advertising revenue per user. it would need to increase its advertising revenue per user. The clock is ticking. Expanding Facebook’s mobile advertising has been vital for Facebook to stay current. Would they give it up if Facebook started to charge them? Sandberg is also pushing to expand to other countries. the photos they’ve uploaded. 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. To many people.S. substantially. She wants to ensure that Facebook does not encounter a similar fate. relies on advertising more than anything else. Google’s revenue stream. and the timeline activities they’ve shared on the site. 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. but mobile advertising generates less revenue compared to desktop advertising because fewer ads are shown.

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. & 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. & 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 .100% 1.000% 900% 800% 700% 600% 500% U.

gov/14GKFGS.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 EXHIBIT 2 Facebook Revenues. http://1. http://1.usa.000 Europe $800 U. & 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.S. 17 . 2010–2012 (in $ millions) $1.400 Advertising Rest of the World $1.S.200 Asia $1. & Canada $600 Payments & Other Fees Rest of the World $400 Asia $200 Europe U.

432 3.15 2011 2012 2013 Facebook ad revenues % change 40% 13.28 0.170 0 0 0 Property.47 0.089 Cost of goods sold 354 537 720 Selling. EXHIBIT 4 Facebook Ad Revenues.06 32. 2011–2014 (in billions with % change) 100% $10 $8 $7.72 60% $5.475 2.47 0.187 Income taxes 402 695 441 Income before extraordinary items 606 1.103 29 63 65 367 398 1.2% 60.626 373 547 1.785 3.331 15.991 Receivables – total Inventories – total Assets – total Accounts payable – trade Long-term debt Liabilities – total 828 1.28 0. except EPS data) Fiscal Year 2010 2011 2012 Cash and short-term investments 1. 18 .000 53 Earnings per share (basic) excluding extraordinary items 0.391 Stockholders’ equity – total 2.000 53 Net income (loss) 606 1. http://bit.711 5. and administrative expense 449 1.899 11.095 3.755 Sales (net) 1. general.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.6% $6 $4 $6. and equipment – total (net) 574 1.8% $3.18 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 3 Facebook Financial Data. and amortization (accumulated) 246 450 882 2.990 6.02 Source: Compustat. February 22.64 68.908 9. 2010–2012 (in $ millions.974 3.” eMarketer.162 4.02 Earnings per share (diluted) excluding extraordinary items 0. depletion. plant. 2012.

29 $0.20 $2. http://1.41 12 $0.34 $1.71 $1.19 De $1.S.21 $0.9 86% $200 $100 Twitter ad revenues 54% $139.19 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).56 11 $0.60 Se $2 Source: Authors’ depiction of data in Facebook’s SEC filing. & Canada $3.25 $1. 2012.47 $0.56 c- p- De Ju n- 2 12 $0.44 $0.49 Rest of the World $0.84 $2.90 $2.54 11 $0.14 $0.5 35% $45.26 $0.33 $ LinkedIn to see solid ad revenue growth.5 $400 $300 $0 % change $259. EXHIBIT 6 Twitter Ad Revenues.0 210% $500 $399.40 $1.80 Worldwide $2. 2010–2014 (in millions with % change) $600 $540.69 c- pSe n- 1 -1 M ar cDe $1.20 $2.31 $0.08 U.58 -1 $0. 2010–2012 $5 $4 $4.40 $3 $3.24 $0.37 $1.50 $1.40 $1.55 ar $0. 19 .43 10 $0 $1.33 Ju $1 $1.” eMarketer.28 $0.26 Asia $1.44 $1.0 2010 2011 2012 2013 2014 Source: Authors’ depiction of data from “Twitter.77 Europe $3.54 $1.43 $1.37 12 $0. January 31.38 $1.usa.53 M $0.38 11 $1.

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.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. 2012. EXHIBIT 8 Various IPOs and Market Cap. 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 .

Online Ad Revenue.8 *Projected.9% 68.4% 6.5% 7.9% 46.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.5 $46.6% 47.5% 7.4% Yahoo! 9.4% 6.1% Microsoft 5.1% 7.” eMarketer.8% 2.4% 66.6% Facebook 5. 2011–2014 2011 2012 2013* 2014* Google 41. 2012.0% 44.4% 2. http://bit. 22 . EXHIBIT 10 Percent Net U.2% 2.5% AOL 2.0% 6.S.7% 6.7% 5. February $52.1% Total Top 5 64.2% 5.1% 68.7% Total Internet (billions) $32.0 $39. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.

5% $3.92 Total Online Display $12.88 47.81 3.4% $7.5% Microsoft $0. February 22.4% $0.7 $226.62 4. EXHIBIT 12 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 LinkedIn Ad Revenues (millions and % change) $405.40 $15.67 4.23 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. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.76 A3mdNS.S. Online Display Ad Revenue.0% $ 16.” eMarketer.71 3.8% $4.8% $1.6 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.0% $2. 23 .98 53.7% $3.8% $3. January 31.81 50.80 4.29 17.3% $0. http://bit.64 7. LinkedIn to see solid ad revenue growth.56 4.96 4.8% $0.4% AOL $0.91 *Projected.4% $21.75 17.53 4.8% $9.6 95% $310.73 14.40 9.7% $11.1% $1.57 54. 2012.1% $1.58 16.39 $18.71 13.0 $154.50 8.5% $0.68 19. 2011–2014 (in $ billions) 2011 2012 2013* 2014* Facebook $1. http://bit.7% Yahoo! $1.8% $2.” eMarketer. 2012.1% Google $1.3% $0.35 10.7% Total Top 5 $5. ZX1r4W.0 $35.8 Opening price for IPO ($38.00 Barclays Anthony DiClemente Equal-weight $35.00 Goldman Sachs Heather Bellini Buy $42.00 per share) $80. 24 . EXHIBIT 14 Analyst Ratings of Facebook Stock.00 RBC Capital Markets Andre Sequin Outperform $40.” The Wall Street Journal.00 Credit Suisse Spencer Wang Neutral $34.wsj.0 after IPO $10.0 before IPO $15.00 Source: Authors’ depiction of data from “Analysts hit the tepid button on Facebook. Kevin Kopelman Neutral N/A Pacific Crest Evan Wilson Sector Perform Oppenheimer & Co. com/VE9P23.0 $50. 2012 Bank Analyst Rating Price Target Morgan Stanley Scott Devitt Overweight $38. June 27. http://on.00 BofA-Merrill Justin Post Neutral $38. P.00 Citigroup Mark Mahaney Neutral $35.00 J.0 2005 24 Source: Authors’ depiction of data from “Facebook investors cash out. August 17. Jason Helfstein Ouperform N/A $41. 2012.00 BMO Capital Markets Daniel Salmon Underperform $25.0 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.” The Wall Street Journal.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. http://on.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 13 Valuation History (in billions) $104.00 N/A $41.00 Wells Fargo Jason Maynard* Outperform $37. 2012. June 27.

2012.” The Wall Street Journal.000 149 47 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.500 1. 25 .197 1. http://on.944 ZX1r4W.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.wsj.000 55 271 500 421 421 692 747 1. August 17.500 2.

“The acceptable face of Facebook.” 23. 2010. (2010). December. 9. “Why we have too few women leaders. March 5. (2010). 14.” 29.” The Economist. “Facebook CEO seeks help as site grows up—Google veteran to be Zuckerberg’s” 12. 21. 2012. Ibid. May 16. 2012. 2009. 13. 20.” The Wall Street Journal. M. “Person of the Year: Mark Zuckerberg.” The Wall Street Journal. http://bit. “Facebook IPO filing puts high value on social network.26 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Endnotes 1. http://www.” The Guardian. “Facebook Form S-1 registration statement.” Time magazine. 2012. “Facebook seeks a new finance chief as Yu leaves. 7. http://econ. 15. http://bit. “A brief history of Facebook. Lean In (New York: Knopf). http://on. “Facebook: One billion and 2013. 24. “Facebook CEO seeks help as site grows up.” The Economist. 8. http://1.” “Google edges closer to Facebook as US display advertising becomes two-horse race. “Facebook hires finance chief. February 22.” Facebook Newsroom. Helft. “Graph search event” TEDWomen.” The Wall Street Journal. Sandberg.usa. Sandberg. http://on. http://bit. The Social Network [Film]. 3. 2008. 2012. 2010. (2013).” The Wall Street Journal. “Mark Zuckerberg’s most valuable February Ibid. 2.wsj. October 2. 2009. December http://usat. 4.” eMarketer. http://on. S. http://econ. “Facebook IPO filing puts high value on social network.html. Ibid. 27.” SEC. October 5. May 23. 28. July 24. S. 2. January 15.” Facebook.” 5. “Facebook overview.” The New York Times. “Floating Facebook: The value of friendship. June 30. 26. 22. 16. 11.ted. 2012. 18.” USA Today. Ibid. “Inside fumbled Facebook offering.wsj. “Facebook Form S-1 registration http://on. “Facebook overview. 2011. 17.wsj. July 21. Ibid. April 1. February 4. http://bit. 26 . “Graph search event video.” The Wall Street Journal. 10. http://nyti.

“Facebook on collision course with Google on web searches. https://www.wsj . Ibid. 46. January 15. “Facebook IPO filing. LinkedIn to see solid ad revenue growth. 56. 58. January 31. “Facebook overview. “Facebook Form S-1 registration statement. 35.wsj. “Twitter may have 500M1 users but only 170M are active.” 38. 40. 2012.” eMarketer. September 11. “Twitter shares active user numbers. 2010. January 16.” Facebook.”” TechCrunch. Ibid. “Facebook annual report.” 42. 2012 52. 32. 2012. 2013. “f8 conference. Ibid. “Facebook annual report.” The Wall Street Journal. 55.” The Wall Street Journal.. Ibid. “Facebook Form S-1 registration “Facebook to organize friends into lists. http://bit. 2012. 33. 36.” The Wall Street Journal. http://bit. 43. 48. 60. 2012.” 37. http://on.” The Wall Street Journal. Ibid. 47. 49.” Facebook-Studio.” Facebook. Ibid. April 10. http://on. “Twitter VP Jason Goldman steps down. 51.” The Los Angeles Times. September 8. 44.” 34. http://lat.” 53. 27 . Ibid. Ibid. 2011. 2011. http://bit. http://on. “Introducing Graph Search: Help people discover your business.” WcKyPl. 45. http://tcrn.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. 2012. “Facebook Form S-1 registration statement. 54. “Insta-Rich: $1 billion for Instagram. September 13. 59. Ibid. Ibid. “Twitter. 57. Ibid. “Facebook July 31. Ibid.wsj. 41. Ibid. 2013. Ibid. December

June 28. http://on. February 28.. 2012. “Facebook prices IPO at record value.” 82. Parkhurst. January 3. 2012.” 81. 86. 90.” The Wall Street Journal. 74. “Google edges closer to Facebook as US display advertising becomes two-horse race. “Why the Facebook-Microsoft alliance should worry 2012. February” 63. http://on.” The Wall Street Journal. http://on. http://bit. 2011. August 4.linkedin. Ibid. http://on.” Fox 2012. 76. “There’s no avoiding Google1.wsj.” Forbes. http://bit. http://1. Ibid. “SEC could seek Nasdaq upgrading.” Microsoft. http://bit. 91.” The Wall Street “The mounting minuses at Google1.” 83. http://on. Ibid. 2012. LinkedIn to see solid ad revenue growth.” The Wall Street Journal. 75. “What keeps Facebook up at night. 71. 88. http://bit.” eMarketer. 2012. Ibid. 69. 70. “Why it doesn’t matter that Google1 users only spend three minutes a month on the site.” LinkedIn. “Microsoft to acquire Skype. 64.usa.28 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 62. “About LinkedIn. June 29. 80. 66. “The mounting minuses at Google1. February 28.” Puget Sound Business Journal.” Forbes. “Twitter. 85. Ibid. 68. “About LinkedIn.” The Wall Street Journal. (2012). “Facebook Form S-1 registration statement. “LinkedIn IPO soars. E.. 78. July 7. May 10. “Microsoft. Ibid. 2012. 89.” The Wall Street 65. Facebook get cozy as competitors hover. 87. 2012. May 4. February 2. 2011. “There’s no avoiding Google1.” The Wall Street Journal. May February 79.” 28 .” The Wall Street Journal. feeding web boom. February 2.” Google Inc.” 72. “Facebook IPO hasn’t hit Nasdaq volumes. 2012. June 29.” The Wall Street Journal. “The mounting minuses at Google1. http://onforb. “Google edges closer to Facebook as US display advertising becomes two-horse race. “Why Wall Street likes LinkedIn more than Facebook. http://on.” 84.wsj. Ibid. “Facebook Form S-1 registration http://bit. “Analysts hit the tepid button on Facebook. “Facebook sets historic IPO. “Form 10-K. May 17.” The Wall Street Journal. 2012. 2011. http://bit. http://on. http://fxn.wsj. 67. 77.

July 31. http://on. 100. “Zuckerberg admits to missteps. “Stock traders to Mark Zuckerberg: Do you hear us now?” Forbes. 98. 97. June 96. 102. 2012. September 11. http://onforb.wsj.wsj. http://on. “Twitter’s mobile ads begin to click.” The Wall Street 99. “SEC could seek Nasdaq upgrading.” Facebook.wsj. 2012. September 5. “Analysts hit the tepid button on Facebook.” 94. “Facebook Q2 2012 earnings call.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. 2012. “Facebook plays defense. July 26.” The Wall Street Journal.” The Wall Street Journal. 95. “Facebook: One billion and counting.” The Wall Street Journal. June 28. “Facebook: One billion and counting.wsj. 101. October 5. http://on. http://on. 2012.” 29 . 2012.” The Wall Street Journal. http://on. http://bit.

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