Facebook's IPO and Future Growth Strategies

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Excerpts

To meet its expansion needs, Facebook started raising money through various channels, the most important among them being private placement of its shares. In one such important deal, Goldman Sachs and Digital Sky Technologies invested US$ 500 million in Facebook in January 2011. The money raised by such private placement of shares was used by Facebook to acquire smaller companies, recruit talented staff, and develop new products. Facebook's shares started becoming increasingly popular in the private market. This popularity made Zuckerberg realize that it would have more than 500 shareholders by the end of 2011...

In a letter written to potential investors by Zuckerberg at the time of the IPO, he said that Facebook was started with the social mission of making the world a more open and connected place. He hoped to achieve this by strengthening the way people related to each other. He further said in the letter that Facebook worked to build tools to help people easily connect with others they liked and share what they wanted. Another task highlighted by Zuckerberg in the letter was improving how people connected to the business and the economy. After emerging as the top social network in the world, Zuckerberg started expanding Facebook to ensure it would emerge as a leader on the internet...

Another area on which Facebook was focusing to increase its revenues was mobile advertising. After the advent of the latest high-end smartphones, more and more people were using these phones to connect to the internet. Mobile ads were a growing niche in the online advertising space. Nearly half of the Facebook users accessed the social network through their mobile phones in 2012. And that number was expected to swell further in future as even more people, mostly from developing countries, started using their mobile phones to access the internet...

As Facebook had already emerged as the undisputed leader among all the social networking sites, there was not much scope for increasing its user base at least in the developed countries. Facebook's growth rate in the US and some parts of Europe was nearing saturation point. Traditionally, nearly 25 percent of Facebook's new users used to come from the US. But by the end of 2010, only 5 percent of its new users were from the US...

Despite all its expansion plans into other areas, a major chunk of Facebook's total advertising still came from display advertising. If users spent more time on Facebook, they ended up clicking on more advertisements which would resulted in more revenue. As the new user additions in developed countries slowed, making its existing users spend more time on its site was another way Facebook was looking to maintain its growth rate. Facebook started some initiatives like offering new features to make its existing users spend more time on the site...

Exhibit I: Timeline of Facebook
Exhibit II: Top 10 Social Networks
Exhibit III: Key Internet Services Provided by Google, Microsoft, and Facebook
Exhibit IV: Selected Consolidated Financial Data of Facebook (in US$ millions)
Exhibit V: Consolidated Balance Sheet Data of Facebook (in US$ millions)
Exhibit VI: Top 10 Largest US IPOs
Exhibit VII: Share Price of Facebook from IPO Date to November 2012

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