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Facebook: an investment for the future


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As Facebook announced its upcoming IPO, lots of interrogations are still pending about the relevance of such an important valorization, whereas the website’s revenues are still border line.

This longed-for IPO is the occasion to come back on the short history of this social network and to understand better the bases on which he is developed.

It’s also the occasion to anticipate the issues which it would facing with, to forecast the areas of growth that would enable it to concretize his current success, and see how this company might be a potential source of benefits.

Published in: Technology, News & Politics
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Facebook: an investment for the future

  1. 1. Facebook:     an  investment  for  the  future                              08/05/2012  
  2. 2. A  quick  growth  (1/2)  A  con&nuous  worldwide  growth  of  the  number  of  users…   §  Facebook  was  launched  in  2007   A  quick  growth  of  the  number  of  users   A  worldwide  phenomenon   Millions  of  monthly  acNve  users   Millions  of  monthly  acNve  users   1  000   180   901   153   160   800   140   680   120   600   100   431   80   400   60   44   43   38   197   40   30   200   24   23   20   0   0   Q1  2009   Q1  2010   Q1  2011   Q1  2012   Launched  in  the  USA  Facebook  is  now  available  in  78  languages.  
  3. 3. A  quick  growth  (2/2)  …  spending  lots  of  &me  on  Facebook,  then  genera&ng  an  exponen&al  turnover   Users  are  spending  lots  of  Nme  on  Facebook   An  explosion  of  the  annual  turnover   Comparison  between  Nme  spent  on  Facebook  and  Google   Turnover  (m$)   1200   1090   6  000   +45%   5  380   Facebook   1000   850   Google   5  000   800   4  000   +100%   3  710   600   3  000   400   299   226   1  855   2  000   +139%   200   777   30%   0   1  000   of     Millions  of  users   Millions  of  minutes  spent   margin   §  In  Europe,  12%  of  the  Nme  spent  on  the  web  is  on   0   2009   2010   2011   2012*   Facebook   §  In  France,  users  spent  4h45  per  month  on  Facebook   *  Forecast  based  on  Q1  2012  turnover   Facebook’s  current  turnover  is  4,70  $  per  user  
  4. 4. A  start  of  diversificaNon  Facebook    reduced  by  13%  its  reliance  on  adver&sing   Facebook’s  non  adverNsing-­‐based  revenues  are  increasing     EvoluNon  of  the  turnover  split   2009   2010   2011   2%   3%   5%   12%   AdverNsing   95%   85%   98%   Zynga  (video-­‐game)   $777m   $1,855m   $3,710m   Other   §  96%  of  Google’s  revenues  are  sNll  based  on  adverNsing.   §  Facebook  is  open  to  applicaNons  which  can  provide  it  some  revenues  (e.g.  Zynga  a  social   network-­‐based  video  game)   §  Facebook  allows  brands  to  open  their  own  store  on  the  website  (ASOS,  Groupon,  Pizza  Hut  UK)  
  5. 5. A  latent  potenNal  of  growth  The  number  of  users  might  keep  increasing   In  developed  countries,     Difference  between  Internet  and  Facebook  penetraNon  rate  remains  high   79%   81%   83%   85%   78%   49%   47%   48%   37%   28%   95   12   44   26   23   In  emerging  countries,   Both  Internet  and  Facebook  penetraNon  rates  are  very  low   §  Facebook  is  not  yet  available  in  few   main  emerging  countries:   41%   18%   China  :  460  million  of  Internet  users   19%   8%   9%   4%   Japan  :  104  million  of  Internet  users   Russia  :  70  million  of  Internet  users   41   47   -­‐   Million  of  Internet  users     Facebook  penetraNon  rate   Internet  penetraNon  rate   which  are  not  on  Facebook  
  6. 6. Development  of  social  graph  A  new  organiza&on  of  the  Internet   §  Facebook  introduced  the  concept  of  social  graph  where  users  are  linked  together  because  of   friendship   §  The  next  step  is  the  interest  graph  were  users  are  linked  together  because  they  share   common  interests   §  Based  on  the  interest  graph,  Facebook  aims  to   -­‐  ease  the  organizaNon  of  the  Internet   -­‐  opNmize  the  content  browsing  on  the  Internet     §  Google  has  already  started  to  display  the  contents  published  on  its  own  social  network   Google+  directly  on  its  search  engine   Internet  is  facing  with  a  major  turn  in  the  way  users  are  browsing  it,     and  Facebook  introduced  this  revoluOon  
  7. 7. Mobile  is  the  key  growth  engine  (1/2)  Mobiles  are  the  main  technological  devices   Worldwide,    the  mobile  phones  are  more  spread   In  2011,  mobile  devices  sales     than  Internet  access   overtook  PC  sales   UK   84,8%   Million  of  devices  sold   133,1%   551   Fra 77,5%   nce   99,2%   63   Ger 82,5%   ma 127,7%   Chi 34,4%   na   72,0%   351   Ind 9,1%   29   one 104,8%   Indi 7,8%   488   112   a   80,5%   Bra 40,7%   zil   116,4%   Can 81,4%   210   ada   73,3%   USA   79,3%   92,8%   Mobile  penetraNon  rate   Internet  penetraNon  rate   Mobile  devices   PC   Smartphone   Pad   Notebooks   Desktops   Netbooks   §  50,4%  of  US  consumers  are  using  smartphones  (Q1  2012)  
  8. 8. Mobile  is  the  key  growth  engine  (2/2)  Facebook  developed  few  ini&a&ves  to  improve  mobile  experience   §  During  the  Q1  2012,  500  million  of  users  were  connected  through  mobile  applicaNons   §  Facebook  developed  mobile  applicaNons  on  most  famous  OS  (Androïd,  iOS)   §  In  Africa,  Orange  launched  a  special  access  to  Facebook  for  non-­‐smartphone  users   –  Based  on  USSD  technology   –  Payment  per  cession   –  Simplified  profile     §  For  the  Nme  being,  Facebook  gets  no  revenues  from  mobile  users  (no  adverNsing  on  the   mobile  applicaNons)   §  But,  Facebook  planed  to  launch  sponsored  post  on  its  mobile  applicaNons  to  improve   adverNsing  display  on  mobile  devices   §  Recently,  Facebook  bought  Instagram  and  Glancee  which  were  successful  mobile   applicaNons   To  ensure  revenues  growth,  Facebook  will  have  to  moneOze  its  mobile  audience  
  9. 9. DiversificaNon  of  revenues  To  keep  growing  Facebook  has  to  find  new  sources  of  income   Facebook  got  into  partnerships     New  opportuniNes  to  moneNze  the  audience   to  opNmize  content  sharing   §  Music   §  Facebook  might  take  a  percent  of  the   revenues  generated  through  its  website  on     the  applicaOon  connected  to  it  (it’s  already     the  case  with  Zynga)   §  Video       §  Facebook  is  working  on  developing  the   adverOsing  on  mobile  applicaOons     §  Video  on  demand   §  Facebook  plans  to  develop  its  own  currency   (the  “F-­‐money”)  which  could  be  used  both     on  its  website  and  through  the  Internet   §  Newspaper   To  sustain  its  growth,  Facebook  is  improving  its  current  growth  engines   and  developing  new  ways  to  moneOze  its  audience  
  10. 10. A  huge  data  base  Facebook  collected  more  data  than  a  website  has  ever  done   §  With  900  million  users,  Facebook  has  a  lots  of  data  based  on:   -­‐  Personal  informaNon  (pictures,  videos,  …)   -­‐  Users’  behaviors  (likes,  localizaNons,  exchanges,  …)   §  Facebook  developed  “Social  Ad”  instead  of  Google’s  on-­‐words  based  adverNsing     §  “Social  Ad”  is  based  on  the  analysis  of  personal  data   §  This  analysis  refines  customers  targeNng   §  Facebook  developed  a  wide  range  of  Ad  products   -­‐  Normal  Ad  displayed  on  the  website   -­‐  Premium  Ad  displays  your  firends’  like  (which  is  more  expensive)   §  Facebook  would  be  able  to  improve  its  product  development  based  on  its  customers’  need   Facebook  has  an  advantage  as  data  collecOon  and  analysis     becomes  the  key  of  the  Internet  evoluOon  
  11. 11. A  strong  compeNNon  The  Internet  is  becoming  more  and  more  social   The  World’s  Internet  leader     Worldwide  segmented  social     is  pushing  its  own  social  network   networks  are  thriving   §  Professional     §  Google  has  more  than  1  billion  users   §  Photography  sharing  (Instagram)   §  In  June  2011,  Google  launched  its  own  social   network  Google+     §  Micro-­‐blogging  (Twi`er)   §  Google+  is  based  on  circles  interacOon   §  +90  million  users  (Q1  2012)   §  In  China,  RenRen  has  +200  million  users   §  Google  plans  to  use  the  Google+  contents  to   (96,2%  are  Chinese)   enrich  its  search  engine  results   Facebook  is  facing  with  both  a  big  compeOtor  and  numerous  small  actors  
  12. 12. Analysis  of  the  IPO  valuaNon  Facebook’s  IPO  is  over  the  benchmark   §  Facebook  is  supposed  to  be  valuated  between  $77  billion  and  $96  billion   §  Facebook’s  IPO  valuaNon  raNo  is     -­‐  between  15x  and  19x  its  turnover   -­‐  between  $85  and  $106  per  user   EvoluNon  of  the  stock  prices  of  the  last   Benchmark  of  3  tech  companies   introduced  Internet  companies   §  Google  is  the  famous  Internet  leader   §  Groupon  :  -­‐50%  (since  nov.  2011)     §  Amazon  is  the  most  famous  entertainment   §  Zynga  :  -­‐18%  (since  dec.  2011)   contents  seller     §  LinkedIn  :  +10%  (since  may  2011)   §  Apple  :  the  most  famous  technological   devices  maker   =>  Bencharmk  is  roughly  5x  the  turnover  
  13. 13. SensiNvity  table  Evolu&on  of  the  turnover  per  user   §  Based  on  a  raNo  of  5x  the  incomes   §  Depending  on  the  evoluNon  of  the  number  of  users   §  Depending  on  the  evoluNon  of  the  valuaNon  (vs.  $80  billion  of  IPO’s  price)   Evolu&on  of  the  number  of    users   Evolu&on  of  the  valua&on   Whithout  any  change  in  the  number  of  users  and  the  valuaOon,     Facebook  has  to  increase  its  turnover  per  user  by  5  Omes  to  be  in  the  benchmark  
  14. 14. Bibliography   §  Wikipedia   §  Orange  Actu   §   §   §   §   §  Challenges   §  Réfé   §  The  Economist   §  Financial  Times   §  Le  Journal  du  Net   §  Techcrunch   §  CheckFacebook   §  The  Next  Web   §  INSEE   §  Etude  Canalys   §  Rapport  de  ZenithOp&media   §  Inside  Facebook   §  ParisTech  Review   §  Google  Public  Data   §  Perspec&ve.Usherbrooke  
  15. 15.