Facebook's IPO and Future Growth Strategies
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Case Details:
Case Code : FINC081
Case Length : 14 pages
Period : 2011-2012
Pub. Date : 2013
Teaching Note : Not Available
Organization : Facebook
Industry : Information Technology; Social Networking
Countries : Global
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"We have a young company, Facebook, flush with cash, led by a young, inexperienced CEO, who treats this cash as if it were something he won in a game show. So I expect this to end badly."
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-Rob Enderle, Analyst at Enderle Group in May, 2012.
"People are waiting for a really huge growth moment in revenue, advertising, dollars per user. People had expected that Facebook is going to revolutionize advertising. ... We think it's still a definite possibility, but maybe further down the road."
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-Alex Ashby, Research Analyst at Global X Funds in July, 2012.
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In May 2012, Facebook raised US$ 16 billion through its Initial Public Offering (IPO), valuing the company at US$ 104.2 billion. Facebook embarked on the IPO to meet regulatory requirements as well as raise the requisite funds for its future expansion. It planned to use the funds raised through the IPO to develop new technologies, make acquisitions, and recruit the talented people needed for its future expansion. Facebook was facing heightened competition from rivals like Google Inc. (Google) which had started its own social network, 'Google+'. Facebook could not successfully expand itself into other internet services despite its attempts to provide new services like email.
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So, it decided to focus more on social networking to expand its business. Facebook started to concentrate more on increasing its revenues through mobile advertising as more and more people were accessing the internet through their mobile devices like smartphones. It started a new initiative for mobile devices called 'sponsored stories' where business organizations and individuals could pay Facebook to highlight stories related to their businesses.
Facebook also started to focus more on emerging markets as its growth rate in the developed markets was nearing saturation point. The company was getting more users from developing markets like India and Brazil. It started attracting more software developers to develop applications for emerging markets. To meet the problem of low PC penetration in the emerging markets, Facebook planned to make its services more accessible on low-end mobile devices. It had entered into a global partnership with MediaTek, Inc. (MediaTek) in November 2011 to integrate Facebook into MediaTek's mobile platform for low-end feature phones. It also acquired the mobile application developer Snaptu to bring the Facebook application to more feature phones around the world. Despite the initiatives taken by Facebook, its share price underperformed after it came out with its IPO, an indication of low investor confidence in its future growth prospects.
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