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The Lowdown – The Facebook IPO; 46M Monthly Active Users From India In Dec 2011

After all the rumours, Facebook has finally filed for its IPO with the US Securities and Exchange Commission, and intends to raise $5 billion. It has not revealed a starting price yet. Morgan Stanley, JP Morgan, Goldan Sachs, BofAMerrill Lynch Barclays Capital, Allen and company have been appointed the underwriters. The company’s stock symbol would be ‘FB’.

Notes from the S-1 filing:

– Revenue:  Facebook’s revenue in the year 2011 was $3.711 billion, an increase over 2010’s revenue of  $1.974 billion in 2010 and $0.777 billion in 2009. The company clocked net income of $1 billion in 2011, $606 million in 2010 and 229 million in 2009.

– Shareholding: Mark Zuckerberg is the largest shareholder in Facebook with a 28.2% stake in the company. 30.6% shares are listed as subject to voting proxy and Zuckerberg exercises voting control over these shares, which give the ultimate control in his hand. Accel’s James W. Breyer owns 11.4% of the company. Facebook co-founder Dustin Moskovitz owns 7.6% of the company, followed by DST which owns 5.4%. Peter A Thiel, another investor, owns 2.5%.

– Monthly and daily active users: According to the S1, Facebook has 845 million monthly active users as of December 31, 2011, an increase of 39% as compared to 608 million Monthly Active Users (MAU) as of December 31, 2010. It had 483 million daily active users (DAUs) on average in December 2011, an increase of 48% as compared to 327 million DAUs in December 2010. More than 425 million MAUs who used Facebook mobile products in December 2011. Facebook defines an MAU (monthly active user) as a registered Facebook user who logged in and visited Facebook through its website or a mobile device, or took an action to share content or activity with his or her Facebook friends or connections via a third-party website that is integrated with Facebook, in the last 30 days as of the date of measurement.

– User base across geographies: Facebook  had 46 million MAUs in India as of December 31, 2011, an increase of 132% from the prior year. It had 161 million MAUs in the United States, an increase of 16% from the prior year, and 37 million MAUs in Brazil , an increase of 268% from the prior year, as of December 31, 2011.

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Facebook says that it has penetration rates of approximately 20-30% in countries such as India, Brazil, and Germany. In Chile, Turkey, and Venezuela it estimates that it has penetration rates of greater than 80% of Internet users; in countries such as the United Kingdom and the United States it says that penetration rates are approximately 60%;  in countries such as Japan, Russia, and South Korea it estimates that it has penetration rates of less than 15%; and in China, where Facebook access is restricted, it has near 0% penetration.

– Competition: Facebook says that it compete’s with Google’s social networking offerings, including Google+, and also with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. It would also face competition from companies in China such as Renren, Sina, and Tencent if it’s able to access the market in the future. It also names Twitter and Microsoft. It categorically mentions Google and other players and says that they could use strong or dominant positions in one or more markets to gain competitive advantage against Facebook by integrating competing social networking platforms or features into products they control such as search engines, web browsers, or mobile device operating systems; by making acquisitions; or by making access to Facebook more difficult.

– Other usage metrics: The company has revealed that 2.7 billion likes and comments, per day, were posted by users in the three months ended 31st December 2011. The site recorded 250 million daily photo uploads and 100 billion friend connections,  as of December 31, 2011.

– Income through virtual payments:  Facebook said that when users purchase virtual and digital goods from its Platform developers using Facebook’s Payments infrastructure, it receives fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between users and Platform developers are for virtual goods used in social games. In 2011, Platform developers received more than $1.4 billion from transactions enabled by Facebook’s Payments infrastructure.

– Reliance on Zynga: However, one of the risk factors listed in the S1 includes Facebook’s reliance on Zynga. In 2011, Zynga accounted for approximately 12% of Facebook’s revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which Facebook displays ads from other advertisers.

– Revenue from advertising: The substantial majority of Facebook’s revenue is currently generated from third parties advertising on the site. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of Facebook’s revenue.

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 – Growth in mobile usage is risk to ad revenue: Interestingly, Facebook lists ‘Growth in use of Facebook through mobile products’ as one of the risk factors since it does not currently display ads, and says that it may negatively affect its revenue and financial results.

– Risk from Government regulations: Facebook says that it is possible that governments of one or more countries may seek to censor content available on Facebook in their country, restrict access to Facebook from their country entirely, or impose other restrictions that may affect the accessibility of Facebook in their country for an extended period of time or indefinitely. This it says will affect it’s user base and in-turn revenue. It sites examples of China, Iran, North Korea and Syria. India is not named, however, Facebook is party to a court case in one of the Indian courts.


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