Move Over 800 lb Gorilla. Here Comes the Elephant in the Room.


By Carl Weiss

If you have been keeping up with the rhetoric surrounding the impending Facebook IPO slated to launch this Friday, you have definitely gotten entertained.  Everything from wardrobe gaffes by Mark Zuckerberg (apparently Wall Street bankers don’t like hoodies), to co-founder Eduardo Saverin renouncing his US citizenship in the hopes of avoiding taxes on something on the order of $1 billion post IPO, was bandied about by the press.  This has made the pre IPO coverage something that would make even PT Barnum blush.   In order to try and make some sense of the three ring circus over this long awaited public offering, below I have sorted out the facts.

Show Me the Money

When one compares the first quarter of 2011 with the first quarter of 2012, Facebook increased its user base from less than 600 million to more than 901 million, which represents an increase of 33 percent.  Subsequently their revenues also rose from $731.5 million in the first quarter of 2011 to $1.058 billion in the first quarter of 2012.  So when you hear pundits lament that Facebook’s net income dropped in the first quarter from that of the previous year, you need to take into account several factors:

 1.  Facebook’s costs and expenses grew more than revenue, due in part to a significant increase in share-based compensation expenses not incurred in 2011.
 2.   Facebook had $1.21 average revenue per user in the first quarter of 2012, an increase of 6% from the same period in 2012.
3.  Facebook also paid $300 million in cash and 23 million shares of stock to acquire Instagram in the first quarter of 2012.  I don’t care how deep the pockets, a billion dollar purchase is going to take a bite out of anybody’s wallet in the short term.  The question is whether the acquisition is going to make a decided difference to the bottom line over the long haul.  (Remember that Google paid $1.6 billion to acquire YouTube in 2005, in a move that was unquestionably their best buy to date.)

To put Facebook’s revenues into perspective, let’s not forget that in all of 2009, FB’s revenues amounted to only $740 million.  2012 estimates put this year’s ad revenues at $5.74 billion, a six-fold increase from three years ago.  So excuse me if I don’t quake in my boots regarding a slide in net revenue.  I mean, how many businesses can boast a 600% increase in revenues in less than 4 years? 

Send in the fashion police

That brings us to the much ballyhooed IPO Road Show.  Not since Janet Jackson’s “wardrobe malfunction” during the halftime show of Superbowl XXXVIII has a fashion faux pas gotten so much media attention as when Mark Zuckerberg chose to wear a hoodie to his first Facebook road show event in NYC.  You’d have thought that Mark mooned the investment bankers.  Talk about much ado about nothing.  That a 27 year old CEO considers himself above the stodgy fashion norms set down by his elders is not without precedent.   If you Google Steve Jobs, you will find precious few photos of him wearing a suit.  And when it came to building big businesses, everyone agrees that he was a rock star.  How many rock stars do you know that go onstage in a suit and tie?

Love him or hate him, when it comes to helming one of the world’s most popular online destinations, Zuckerberg is most certainly driving the bus.   And this bus is going places, IPO profits notwithstanding.  While a number of analysts have compared Facebook’s IPO to those of Zynga, LinkedIn and Groupon, this is like comparing a Chihuahua to a Great Dane.  As Google proved to their competitor's chagrin in 2004, when it comes to staying power SIZE matters.

900 million users can’t be all wrong

So, no matter the outcome of the IPO, from an online marketing point of view, giving Facebook a $60-100 billion war chest means that its online muscle is only going to increase.  That and nearly a billion users is going to make even the 800lb gorilla named Google sit up and take notice of the elephant in the room. 

Carl Weiss is president of W Squared Media Group, an online marketing firm that specializes in cutting edge Internet technology.  He also co-hosts Working the Web to Win every Tuesday at 4pm Eastern on http://blogtalkradio.com/workingthewebtowin  He also owns http://jacksonville-video-production.com


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