Year 12/13 – Business Growth – Motives, Objectives and Conflicts: Facebook Floatation

Facebook launched its much anticipated floatation on the NASDAQ stock market in the summer of 2012, with the social networking giant valued at a worth of around $100billion ($38 per share).

Back in 2012 the site made a small profit bringing in £1billion in revenue, or £312million in net profit. Indeed, FB admitted that generating a profit from the site’s mobile phone users in particular, is an “uncertain” process which “will take time” to master. In addition FB received a lot of flak for what was perceived on many fronts to be a grossly overvalued floatation.

With hindsight, these worries appear to have been unfounded. For the full year for 2013, Facebook reported profits of $1.5bn and said its daily active users grew by 22%. “It was a great end to the year for Facebook,” said Mr Zuckerberg in a statement. And it looks like the company is getting even stronger. Its Q1 2014 earnings show it beat expectations, earning $2.5 billion in revenue. It now has 1.28 billion total monthly users, 802 million daily users, and 609 million daily mobile users. Facebook continued its march to become a mobile ad company with 59% of ad revenue coming from portable devices. Wall Street had expected $2.36 billion in revenue and earnings of 24 cents per share.

Compared to Q4 2013, Facebook’s total user count is up 4% from 1.23 billion total monthly users, total daily user count is up 5.9% from 757 million, and daily mobile user count is up 9.5% from 556 million. Mobile ads made up 53% of ad revenue in Q4, the first time they peaked over 50%, and now account for 57% of ad revenue.

Total ad revenue hit $2.27 billion, up 82% from a year ago. Payments revenue including games and apps reached $237 million this quarter, down slightly from $241 million during the holiday Q4. GAAP costs and expenses reached $1.43 billion, up 32% YOY, driven by headcount and infrastructure expenses. Capital expenditures reached $363 million in Q1 2014.

Task 1

Facebook “floated” in 2012 or in other words embarked on an “IPO”. In your own words what exactly do these terms mean?

Task 2

Thinking of the reasons why firms may be interested in floating, briefly outline how firms are owned and controlled from sole proprietor to multinational PLCs including the main motivations for changing ownership status.

Task 3

After reading the following articles and watching the related video clips, answer the questions below.

Facebook buys Instagram for $1bn

Facebook to make billionaires as float draws close

Facebook valued at $104bn as share price unveiled

Facebook loses adverts from General Motors

Facebook raises float price after being ‘swamped’ by investors

Microsoft’s $240 million equity stake in Facebook

a)     Define stakeholder

b)     Who are the principal stakeholders in the Facebook float

Task 4

There has been a lot of criticism about FB’s IPO and the way it was handled.

Some claim there was a conflict of interest between various stakeholders in the deal and questions about ethical business practice has been raised.

Read the following articles and then explain in your words what short selling means and in the FB example, which stakeholders does it involve?

Facebook’s IPO: Morgan Stanley’s Conflict of Interest

Short selling – What on earth does this ACTUALLY MEAN?

Short Sellers Find Friends in Banks

Task 5

There has been a lot of press coverage in recent months of another conflict of interest.

The return of the activist shareholder

Shareholder activism and the banks: A new kind of outrage

The ratio of CEO to worker compensation – Are they worth it?

a)     Outline the details of this particular “conflict”.

b)     Read the article below, in particular “Reason number 5”. Why does FB supposedly hate its shareholders?

5 signs Facebook hates its shareholders

Task 6

Watch and read the following video links and answer the questions below:

Takeovers and Mergers: Facebook & Instagram in News Clips

a)     What were the proposed motives behind the deal?

b)     Where did FB intend to gain revenues from the deal?

Task 7

a)     Facebook’s overheads are made up of fixed and variable costs. What’s the difference?

b)     What’s the formula for FC, VC, TC. Plot them on a graph

c)      What’s the formula for AFC, AVC and ATC. Define and plot them on a graph.

d)     Where possible, under each of these cost categories, provide examples of the costs that FB faces.

e)     In your own words explain why they are shaped as they are.

Task 8

In the light of what you have read, evaluate the effectiveness of the float 2 years ago on the fortunes of FB’s customers and investors.

Use the sources below.

Present your argument in the form of a PPT or Prezi presentation.

Additional Sources

Facebook timeline: the social network’s life story

Facebook IPO: as it happened

Facebook Has Spent $22 Billion on Acquisitions. That’s Equal to the GDP of Uganda.

The Facebook economy

Facebook Floatation – Advantages and Disadvantages of Facebook Advertising Platform

Google and Facebook’s Fight for the Future of Tech

Facebook will Introduce Ads to Mobile Apps

7 Controversial Ways Facebook Has Used Your Data

Criticism of Facebook

Facebook Beats In Q1 With $2.5B In Revenue, 59% Of Ad Revenue From Mobile, 1.28B Users

 

 

 

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