12 Juicy Details and Important Facts From Facebook's 197-Page IPO Document
Facebook Inc. filed documents for an initial public offering that could help the social network gain one of the biggest U.S. stock-market debuts of all time.
The Form S-1 prospectus filed with the Securities and Exchange Commission on Wednesday has given investors and competitors a first look of the financials. The prospectus still has blanks, including with respect to the offer share price and the number of shares to be sold at the IPO.
Nonetheless, the 197-page prospectus has helpful and juicy details that are available to the public for the first time:
1. Facebook is extremely profitable. Earnings attributable to shareholders were $668 million last year, ballooning from $372 in 2010 and $122 million in 2009. Net margin in 2011 was 27%, which is higher than the 5% to 10% margins of physical business.
2. The Like button and user growth helped fuel growth. In 2009 Facebook flipped from loss to profit. The introduction of the Like button that February helped to target advertising. Facebook recorded a daily average of 2.7 billion "likes" and comments during the final three months of last year.
3. Its user count could breach the 1-billion mark by this summer. Facebook ended last year with 845 million users, up 39 percent from 608 million at the end of 2010. About 483 million users log in to Facebook every day. Facebook listed its most promising expansion opportunities as Brazil, Germany, India, Japan, Russia and South Korea. The company eventually hopes to make its service available in China, which it describes as a "large potential market." Over 35% of China's 1.33 billion people use the internet. But to eventually enter China, Facebook needs to navigate rules requiring online content to be censored if the Chinese government considers it to be objectionable or obscene. Notwithstanding those opportunities though, Facebook will likely see declining user growth. From a 154% rise from 2009 to 2010, the user count only grew 88% from 2010 to 2011. It acknowledges that when it accesses China, it will have to deal with competition from companies such as Renren, Sina, and Tencent. Other social networks have also penetrated Russia and Korea and Japan.
4. Revenue has ballooned. Revenue was $3.7 billion in 2011, from $1.97 billion in 2010 and $777 million in 2009. The company generates about $4.39 in revenue per user. In contrast, Google generated $30 billion in revenue in 2011, getting an average of $30 per user. Facebook's revenues for 2011 though are about the same as Google's were in 2004, when it filed its S-1. But Facebook's profitability is much higher.
5. Facebook still depends on advertising. The proportion of revenue from advertising in 2009, 2010 and 2011 was, respectively, 98%, 95% and 85% of revenue. The remaining revenue is from in-app purchases like Zynga's Farmville.
6. Zynga is a key partner. "If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected," Facebook disclosed in the Form S-1. In 2011, 12% of Facebook's revenue came from the maker of popular social games like FarmVille and CityVille.
7. Still no revenue from mobile access. Mobile usage of Facebook increased in markets around the globe as smartphone penetration grow rapidly. In December, there were 425 million users who accessed Facebook via a mobile app. But the social network currently does not display ads in the mobile version of the site. "To the extent that increasing usage of Facebook through mobile apps or our mobile website substitutes for the use of Facebook through personal computers where we do show ads, the number of ads that we deliver to users and our revenue may be negatively affected unless and until we include ads or sponsored stories on our mobile apps and mobile website," Facebook said.
8. Mark Zuckerberg has control and will likely keep it. The shares will be split into "A" and "B" shares, in which the latter get 10 votes per share, and the former get one. The CEO and Founder of Facebook owns around 28% of the company and holds 57% of its voting share power. Mr. Zuckerberg will sell shares in the IPO and will use the proceeds to pay taxes.
9. Facebook's founders and employees are going to be very rich. A total of 138 million shares have been issued to employees at $0.83 per share. At the expected price of around $45, the staff would profit $6.2 billion. Excluded among those people is Paul D. Ceglia, who has filed a lawsuit claiming substantial ownership of Facebook based on a purported contract between Mr. Ceglia and Mr. Zuckerberg allegedly entered into in April 2003. Facebook says in the S-1 that "Mr. Ceglia is attempting to perpetrate a fraud on the court" and that the outcome won't likely have a material effect on the business. Aside from the Ceglia lawsuit, Facebook disclosed that the SEC has been conducting an inquiry into secondary transactions involving the sale of private company securities as well as the number of its stockholders of record.
10. Founder to get one dollar a year. In the first quarter of 2012, the company's compensation committee discussed and approved a request by CEO Zuckerberg to reduce his base salary to $1 per year, effective January 1, 2013, according to the Form S-1. But for 2011, the base salary of the key personnel are:
* Mark Zuckerberg $500,000
* Sheryl K. Sandberg $300,000
* David A. Ebersman $300,000
* Mike Schroepfer $275,000
* Theodore W. Ullyot $275,000
Mr. Zuckerberg received $220,500 for a first half 2011 bonus, which reflected the impact of his performance in leading product development efforts, success in growing Facebook's global user base and developing strong developer and commercial relationships.
11. Facebook will continue to evolve. Not everyone loves Timeline and other new changes in Facebook. But Facebook will continue to evolve. "Most great people care primarily about building and being a part of great things, but they also want to make money. Through the process of building a team - and also building a developer community, advertising market and investor base - I've developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems," Zuckerberg said. "Simply put: we don't build services to make money; we make money to build better services."
12. Facebook would be "FB" when it goes public. The company chose "FB" as its ticker symbol. It has yet to decide whether it will trade on the New York Stock Exchange or Nasdaq Stock Market.