The Facebook IPO is coming! In its latest S-1, the social media company reveals continued user base growth, slowing revenue gains and a dip in profits … along with explanations for all of this. Also, Facebook’s stock exchange choice is official.
Here are the 10 most important points from the Facebook S-1:
1. Still growing the base: Facebook now boasts 901 mn monthly active users, a net increase of 56 mn in only three months. This is an increase of 33 percent YOY (relative to Q1 2011). The number of daily active users has surged 41 percent YOY to 526 mn, and the number of monthly mobile active users is approaching 500 mn (now at 488 mn).
2. What mobile means: why did Facebook publish YOY growth rates for monthly active users and daily active users but not mobile monthly active users? My guess is because growing the mobile user base indicates a significant weakness in the company’s strategy. Increases in mobile usage – especially if they come at the expense of regular browser-based usage – means that there’s no revenue opportunity for the company. Simply put, success along this metric only highlights Facebook’s need to develop and implement a mobile advertising solution.
3. Many more friends: at the end of 2011, Facebook announced in its S-1 that the company had more than 100 bn friend connections. Now, it’s up to 125 bn, a 25 percent increase in only one quarter.
4. Like love: the number of likes and comments generated per day has spiked as well. As of Q1, the daily average reached 3.2 bn.
5. Definitely NASDAQ: the rumors have been confirmed! Facebook is planning to list on NASDAQ, where it will trade under the symbol FB.
6. Zynga dependency update: in Q1, 15 percent of Facebook’s revenue was ‘derived from Payments processing fees from Zynga, direct advertising from Zynga, and revenue from third parties for ads shown on pages generated by Zynga apps.’ This is down from 19 percent for all of 2011, but the change probably doesn’t mean much, as Q4 is the big one for advertising, and we don’t know how the rest of the year will progress. In Q1 2012, Zynga accounted for 11 percent of Facebook’s revenue directly, relative to a 12 percent share for all of 2011.
7. Revenue deceleration: this is to be expected, although probably not desired. For Q1 YOY, Facebook’s revenue increased only 45 percent, compared to 88 percent from 2010 to 2011 (full year). The company picked up just under $1.1 bn in revenue in Q1. Net income, however, is a much different story: it fell YOY from $233 mn in Q1 2011 to $205 mn in Q1 2012. The reason for the slip, the company reports, is ‘due in particular to a significant increase in share-based compensation expense for Post-2011 RSUs [restricted stock units] during the first quarter of 2012, which expense was not significant in the first quarter of 2011 due to the timing of the RSU grants.’ Of course, this isn’t the only reason. Research and development expenses spiked YOY, from $57 mn in Q1 2011 to $153 mn in Q1 2012.
8. Wheeling and dealing: Facebook CEO Mark Zuckerberg may have said that another Instagram-sized acquisition may not happen, but that doesn’t mean Facebook isn’t in the market to make deals. In its latest S-1, the company explaines, ‘As part of our business strategy, we have made and intend to make acquisitions to add specialized employees, complementary companies, products, or technologies.’ It notes that being able to buy and integrate ‘larger or more complex companies, products or technologies in a successful manner is unproven.’ And, it could take ‘significant time and resources, and we may not be able to manage the process successfully.’ For now, it seems, Facebook’s decision to let Instagram operate as a standalone company probably isn’t a bad one.
9. Follow the money: half the revenue Facebook generated in Q1 2012 came from the US and Canada, down from 54 percent a year ago, a slight improvement in diversification of sources. The average revenue per user (ARPU) was $1.21, up 6 percent from Q1 2012. The number of ads delivered increased, largely because of the growth in the user base, as well as the increase in daily active use of Facebook.
10. More bodies: Facebook’s employee population surged 46 percent YOY to 3,539 full-timers by the end of Q1 2012.
Source: Facebook S-1