Re: Report on Facebook
The analysis of Facebook Inc. as a company has been successful. Through the analysis, a number of factors have become known on the competitive and financial health of the company. The following are the findings of the analysis.
The competitive analysis juxtaposes Facebook against its competitors among them Twitter, Microsoft and Google. The findings show that Facebook is the most popular social network with a user base of 1 billion. It also looks at the industry within which Facebook operates; the major competitive features and Facebook’s competitive advantage over its major competitors. Moreover, it analyses the social media industry along traditional benchmarks such as the PEST and Porter’s Five Forces of competition. The competitive analysis therefore delves deeper into the workings of the social media industry and the competition within the industry. This is in addition to an analysis of what each individual social media platform is doing to become the social media platform of choice to consumers, as well as to businesses using social media as a marketing tool.
The financial analysis on the other hand, reviews the company’s financial performance using revenue as the benchmark. It compares the revenue and growth between Facebook and Google, with the conclusion that although there has been remarkable growth in financial performance and company growth, growth is fast slowing down but with increase in revenue for Facebook, while both revenue and growth are on the decline for Google, one of Facebook’s biggest competitors.
Facebook operates in a highly competitive environment. The competition largely comes from other social media and technology companies such as Google and Yahoo! Facebook’s financial performance has been on the rise since the inception of the company, however growth is slowing down as the social media industry slowly begins to mature.
Report on Facebook
Social media has grown over the past few years to become one of the biggest innovations in modern technology (Perez-Latre, Portilla and Blanco 64). Starting from MySpace, the social media industry has seen exponential growth, and has become even bigger especially after the success of Facebook. Currently, Facebook stands as the biggest social media platforms in the world with over 1 billion active users. Seeing the success of Facebook, many other platforms have joined the social media industry as direct competitors to Facebook. Among these are Twitter, LinkedIn, Pinterest and Instagram among others. Each of the social media companies have products and services competing directly with Facebook. Competition in the social media industry continues to grow as more players join the industry bringing more innovative products, while the established players continue to reinvent themselves in a bid to remain relevant within the industry (Perez-Latre, Portilla and Blanco 64). Although these competitors have these products and services competing with Facebook, the company (Facebook) still remains the biggest social media platform with far better traffic, products and strategies.
The social media industry is a fast growing environment with competition at its all-time high. According to a report by the IBIS World on Social Networking Sites, Facebook, LinkedIn and Twitter are the three dominant social networking sites in the industry. At the lead of the industry is Facebook, which continues to dominate the industry with its over 1 billion active users. The industry’s operating environment is particularly rapidly innovational, with companies within the industry continually innovating to remain ahead of the competition, given the industry’s emerging status and a continually investment intensive need as well as technological changes (Standage 22).
Key in the competition in the industry includes the size of the platform’s user base, innovation in the products, services and integration with other websites (IBIS World n.p.). With user base being the baseline in competition, most users and marketers are more inclined to the use of Facebook as the major social media platform in the industry (Stelzner 23). However, Facebook as well as other major players in the industry continue to face competition from newcomers in the industry. Facebook, Twitter and LinkedIn, as the major players, therefore continue to face competition from startups such as Pinterest, Tumblr and Instagram, in addition to new products created by major internet leaders such as Google and Microsoft.
Among the industry’s products include casual social networking (Facebook, Twitter, Pintrest etc.), professional social networks (LinkedIn) and blogging (Tumblr, Blogger, WordPressetc). With this wide range of products, the industry’s users have all been transformed to both consumers and creators of content (Carr and Maier 88). Thus, the industry is characterized by the creation and participation in the creation of the content consumed regardless of time and space. Within the industry, consumers are particularly important in the review of products and services, as well as in the review of social media platforms, with most sharing their experiences with brands or platforms, via the same or different social media platforms (Gensler et al. 246).
An analysis of the industry environment, especially in relation to its consumers and suppliers can also follow the PEST and Porter’s Five Forces analysis. This way, it is more exhaustive and gives encompassing images of the social media industry environment at it were. As a stand-alone industry, social media is almost oblivious of the political, social and economic trends. Most of these factors have minimal impact on the working of social media given that the industry is largely a conduit through which individuals express their opinions. Thus, regardless of a falling economy or delving deep into recession, social media remain one of the things that most people will still use. Therefore, while it may be affected in terms of profits to the industry, social media continues to influence the society.
As far as political factors go, only individual countries and governments can have an impact on the use of social media in the respective governments. Most authoritarian governments such as North Korea, Libya and Egypt have/banned the use of social media at some point in the countries. This did not however stop the use of social media in these countries. Concerns over social media, politically, however, have been limited to requesting the removal or blockage inflammatory sentiments, as well as screening of user content by big social media companies (Mezzofiore n.p.). This is as was seen in 2011 when India asked Twitter, Facebook and Google to screen user content from the country and remove any reproachful, incendiary or defamatory content before publication (Timmons n.p.). Although many national governments can ban or block the use of social media in many of their home countries, users always find way of circumventing the government blockage to express their feelings, particularly towards authoritarian regimes.
Technology on the other hand remains a big issue for the industry. The fast changing nature of technology means that social media companies must also fast innovate to remain relevant with the fast changing technology. Innovation is therefore core to the industry, and a constant review of delivery technology, user interface and access to the industry is requisite to remain relevant in the fast changing world of social media. The need for technological innovation is particularly important due to the rapid changing of the mobile and computing industries, the major outlets and interaction points between users and social media.
For the Porter’s Five Forces analysis, it is important to note that the social media industry operates around two business models: business-to-business and business-to-customer. In reviewing the industry’s environment therefore, it is important to look at the forces within the auspices of the two business models. The threat of new entrants into the industry is almost negligible due to the low economies of scale, which therefore allow the new entrants an opportunity to analyze the industry. With low initial investment in the industry as well as low exit barriers, the threat of new entrants is therefore high in the social media industry. The industry therefore is rife with opportunities for new entrants with the right mix of skills and technology.
The current substitutes for social media are Search Engine Optimization and Search Engine Marketing. However, social media has an advantage over these, as it is not only fast, but also cheaper and more effective than the two substitutes available. Competition and substitution for social media is therefore within the social media platforms, that is, individual social media companies such as Facebook, Twitter, LinkedIn and Google+ among others. The competition additionally spills over to the optimization of the platforms in terms of performance and price for the performance.
The proliferation of social media means the industry has a great impact on buyers, who in this case are the industry’s end users. Herein, social media influences buyers’ purchasing decisions with the aim of executing brand positioning. The buyer power is however huge given the exposure that the industry has, in reference to the number of options buyers have in terms of the social media platforms available for their use. Organizations are therefore both customers and sellers within the social media realm, where as buyers, they promote themselves on different social media platforms, and as sellers, promote other brands on the diverse social media platforms available. The buyer power within the social media industry is therefore high within individual social media platforms, most of which try to offer services at a cheaper cost. Cost, and not performance, therefore remains the most dominant feature in the social media buyer power.
The number of suppliers in the industry is low; therefore, suppliers have a high power. Like the buyers, the suppliers face the same setback within individual platforms. The determinant of suppliers in this case is the experience and the confidence that buyers have on the supplier. Individual platforms therefore, battle to be supplier of choice with experience and client satisfaction in services provided being the differentiation point.
From without the industry, competition is relatively minimal as most of the industries including advertising and entertainment industries use social media as a tool for promoting their products and services. The real competition therefore is within the existing competitors in the social media industry. Each individual social media platform competes against the other, most of which apply price-undercutting strategies as a competition strategy. This is however typical of most maturing industries, of which the social media industry falls under. Competition within the industry is normal given the low entry barriers.
A look at the industry’s profile paints an interesting picture. Over the past years, growing from chat messengers, which allowed communication between people and was barely of any monetary value, the current social media industry is valued at approximately $10.7 billion. This is thanks to social media platforms such as Facebook and Twitter, both of which currently trade in the stock markets. Moreover, estimates indicate that social media as an industry generate about $11 billion in revenues annually, with an annual growth rate of 25.4 percent between 2010 and 2015 (IBIS World n.p.).
Even as other social media startups attempt to enter the industry, cost remains a significant barrier to most startups. Moreover, while there is no guaranteed success in the industry, there is need for construction of a robust foundation before launching of any product (IBIS World n.p.). The products or new platforms therefore need full development to ensure smooth user experience. Moreover, even with a large user base, it is important to monetize the system through subscription to the service or sale of adverts for the success of any of the social media platforms (IBIS World n.p.).
Demographically, a report by BI intelligence indicates that more women than men are likely to use Facebook as the social media of choice. The report on social media adoption discovered that a 10-percentage point skews women skewed towards Facebook than males (Guimaraes n.p.). in the general population, particularly among the teens, Facebook remains the most popular social media platform according to the Report. However, Instagram has more prestige than Facebook and Twitter among young users, with 83 percent of teen from leafy backgrounds having active Instagram accounts (Guimaraes n.p.). According to the report, Twitter is far more popular among men than women are, with 22 percent of men using Twitter in the US, in comparison with 15 percent of females. On the other hand, LinkedIn finds popularity among adults, particularly those between 30 and 49, in addition to the social network being skewed towards the learned (Guimaraes n.p.).
Of all online users, demographics point to more users using Facebook than any other social network. According to Pew Research, 71 percent of social network users use Facebook, 18 percent use Twitter, while Instagram users make up 17 percent of the social media users. Pinterest and LinkedIn on the other hand take 21 and 22 percent of the total number of online users (these make up 73 percent of adult online users who use social media). Across the different platforms, the bulk of the users are between 18 and 29, making 90 percent of the total social media users. Ages 30-49 make up 78 percent of the total social media users, while 46 and 65 percent of ages 65+ and 50-64 respective are active users of social media.
Even with such an impressive profile, the social media industry continues to evolve. One of the trends currently seen in the industry is the move towards anonymity. Much of user data on social media has been used for big data, a move that has generated income for the social media companies through the sale of adverts and user data to other companies. On the same front however, there have been concerns by users over privacy. To answer these concerns, there have emerged platforms that allow complete anonymity. Whisper and Ello are such platforms, while Facebook has Rooms, to allow complete anonymity. One of the most popular of these anonymous social media platforms is Yik Yak, which has so far surpassed, in downloads in the App Store, its competitors such as Whisper and Secrets, as is particularly popular among college students (Schulten n.p.). while the anonymous social networking sites such as Juicy Campus died due to lack of finances to keep them afloat, many of the anonymous social networking sites are receiving funding from investors keen to keep these startups afloat and hoping that they will become as popular as Facebook or Twitter.
Social media is also getting more attention in its use as a marketing tool. Known as social commerce, more companies are using social media to market their products and connect to customers. Given that most consumers have sort of grown immune to traditional marketing and advertising techniques, most business are using social media as a tool for strengthening brand perception through the communication of core values to their audience in social media platforms. Most companies have learnt that through a strong social media presence, they are capable of increasing their awareness across a bigger audience, have an opportunity to start conversations as well as growth business partnership and an expansion of their online community while winning new followers and prospective customers. Even more is that social media has become a tool through which organizations launch their products as well as conduct research on their products, get customer feedback as well as inform customers on new products and services. Moreover, with the increasing competition in the industry, there is a move towards acquisitions by players in the industry. Among the biggest acquisition in the industry has been Facebook’s acquisition of WhatsApp for $19 billion in 2014.
The competition in the industry is a reflection of the industry is working. The basis of social media is to connect individuals by providing a platform for communication, sharing and commenting on individuals in a person’s network (Standage 56). The individual can also create pages as a platform for connecting with their fans if they are celebrities, with an inclusion of companies, which use social media as a marketing tool. With the advent of anonymous social media sites, social media is more than just a tool for sharing and commenting, but also a place for receiving gossips and the latest in the lives of individuals in a community. While many have frowned upon this new development in social media, the idea of user privacy has been the major drive towards anonymous social media.
Social media platforms on the other hand, work based on presentation of content in such a way that users are able to find the content interesting and stay engaged on the platform (Standage 60). User engagement is specifically important for social media, as only through such engagement can such platforms generate income. Income sources are largely through advertising, although the wealth of information collected by the social media platforms remains one of the strongest strengths of social media, with a particular consideration of targeted advertising, which delivers better results than traditional advertising.
In looking at the platforms, Facebook remains the most popular social media platform with Twitter and Google+ following (IBIS World n.p.). With more than 1 billion active users, the site commands great power in comparison with its closest rival, Twitter, which has about 700 million active users. Given its position, the site has invested in innovation and in so doing framed the workings of most of the social media platforms. The fact that users can upload, share, watch and even comment on photos, videos and status updates sets the network apart from its competition (Perez-Latre, Portilla and Blanco 67). The Twitter platform, while allows sharing and commenting, has a limitation in the number of characters users can use in commenting, and at the same time does not allow users to watch videos directly from the site. Such features, among others, therefore set Facebook apart from its competition, with an even greater advantage in its user numbers.
Social media is a growing phenomenon, and competition in the industry continues surging. Largely, competition is on the user base, and the industry remains actively innovative to not only attract new users, but also maintain the current users. Facebook has grown from a college social networking tool to become the biggest social media network in the world. With an IPO in 2012, the company’s financial health has been looking up. Facebook Inc. has experienced growth over the past 5 years in both revenue and user base, making it better in terms of growth with Google, one of its major competitors. Through acquisitions, Facebook Inc. has been able to grow its asset base, especially in intangible assets such as patents and other successful companies including WhatsApp and Instagram. Although the company sits at the top of the social media industry with heavy reliance on advertising for its revenue, innovation and keeping up with the trends and customers’ demands are among the strategies the company needs to adopt to stay afloat in the increasingly competitive and sophisticated social media industry.
Carr, Nanci, K. and Maier, Steven, P. “Social Media Policies: Managing Risks in a Rapidly Developing Technological Environment.” Mustang Journal of Law and Legal Studies, (2013): 87-108
Gensler, Sonja et al. “Managing Brands in the Social Environment.” Journal of Interactive Marketing, 27 (2013): 242-256
Guimaraes, Thiago. “The Social-Media Demographics Report: The Unique Audience Profile of Every Social Network.” Business Insider, 2014.Web. 5 May 2015
IBIS World.Social Networking Sites in the US: Market Research Report. IBIS World, 2015
Mezzofiore, Gianluca. “India Threatens Twitter with Nationwide Block over Ethnic Hate Messages.” International Business Times, 2012. Web. 23 May 2015
Pérez-Latre, Francisco Javier, Idoia Portilla, and Cristina Sánchez Blanco. “Social Networks, Media and Audiences: A Literature Review.” Comunicación y Sociedad 24.1 (2011): 63-74. ProQuest. Web. 14 May 2015
Schulten, Katherine. “Are Anonymous Social Media Networks Dangerous?” The New York Times, 2015. Web. 23 March 2015
Standage, Tom. Writing on the Wall: Social Media—The First 2,000. New York: Bloomsbury, 2013
Stelzner, Michael, A. 2014 Social Media Marketing Industry Report. Social Media Examiner, 2014
Timmons, Heather. “India Asks Google, Facebook to Screen User Content.” The New York Times, 2011. Web. May 23 2015
Facebook has shown strong financial performance from the time of its inception. As a publicly traded company, Facebook continues to show growth in its financial performance, an indication that the company’s business is strong and growing (Facebook n.p.). Aside from its financial performance, the company has also made significant acquisition of assets, and as it is customary with businesses, the company also has significant amounts of liabilities. The company’s financial performance can be considered stellar from the financial reporting that has shown growth in revenues. What however, is the financial health of the company, and do its liabilities outweigh its assets? Here, by analyzing Facebook’s annual financials over the past five years, we are able to tell the financial health of the company, as well as its assets and liabilities.
A review of the financial health of Facebook shows a good financial health. Using the company’s annual financial as the benchmark, Facebook’s financial performance has been on the rise over the past five years. The review herein will also compare Facebook’s with one of its major competitor, Google, as a benchmark for which the company’s performance will be pegged. The same has been for the company’s overall growth, which has followed the same trend as growth in the revenue, although in a slowing manner (Gross 18). Facebook earned $3.71 billion in 2011, in comparison with $1.97 billion in 2010. This represented an 87.99 percentage growth in the company. In 2012, the company earned $5.09 billion in revenue, with a 37.13 percentage increase in growth. The trend has continued throughout the five-year period with revenues of $7.87 billion and $12.27 billion in 2013 and 2014 respectively. Growth for the two years stood at 54.69 and 58.36 percent.
While growth may be the case of Facebook, Google as its competition, has shown decline in growth over the last five years, although the company has reported increase in revenue. For the fiscal year ended 2010, the company had $29.12 billion in earnings. This is a huge difference between the company and Facebook, which earned $1.97 billion over the same period. Important to not however is that Google had already become a publicly traded company, while Facebook had not. Google’s 2011 revenue jumped to $37.86 billion, with a 30.03 percentage growth. This is in comparison to Facebook’s $3.71 billion. The years 2012, 2013 and 2014 saw Google increase its revenue from $49.96 billion to $59.73 billion and $65.83 billion. In comparison, Facebook earned much lesser as mentioned above although they exponential growth during the same period. Google’s growth over the three years (2012-2014) declined to 10.21% in 2014, down from 19.56% in 2013 and 31.95% in 2012.
On the other hand, according to Bloomberg Business, the company has shown growth in its revenue year over year from $7.9 billion to $12.5 billion. Additionally, the company has also been able to “reduce the percentage of sales devoted to cost of goods sold, SGA expenses and income tax expenses” (Bloomberg n.p.). The result of such good financial health has been growth in the company’s bottom line growing rom $1.5 billion to $2.9 billion (Bloomberg n.p.). The company’s total revenues have also seen growth moving from the $3,711 million mark in 2011 to the $12, 466 million the company reported in 2014. Through the four years, the revenues have grown each year ($5,089 million in 2012 and $7,872 million in 2013).
Facebook’s gross income, like its revenue, has shown significant growth over the past five years. As of 2010, the company’s growth income stood at $1.48 billion. Over the next year (2011) however, the company was able to grow its gross income to $2.85 billion, representing 92.51 percent growth in gross income. The company’s gross income however showed a 61.85 percentage decrease in 2012 in comparison to 2011. It recorded 30.66 percent in gross income totaling to $3.73 billion. While it was an increase in gross profit, it showed a decrease in the percentage growth. For 2013 however, Facebook earned $6.11billion in gross income, representing a 64.13 percent increase in gross income growth. This shows an upward trend in the company’s operations. In 2014, the company recorded a 68.12 percentage growth in gross income growth, totaling $10.28 billion in gross income. The gross profit margin for 2014 therefore stood at 82.46 percent (Market Watch n.p.). Facebook’s gross income over the past five years shows significant improvements in the company’s financial performance. The improved financial performance points to a well-managed company as well as the maturity of social media as an industry. Being the first among social media companies to go public, it is indeed a show of the seriousness in business that social media is currently becoming.
In comparison, Google’s gross profits are much higher than Facebook’s over the past five years. Perhaps this is due to the relative size of Google, as well as the fact that it had begun trading in as a public company way before Facebook. Moreover, Google has a wide range of diversified products and subsidiaries, way bigger than Facebook. Google’s gross income in 2010 stood at $18.7 billion, this is in comparison with Facebook’s $1.48 billion. For 2011, Google recorded $24.67 billion in gross income, representing a 31.94 percentage growth. Facebook on the other hand recorded $2.85 billion with a 92.51 percentage growth in gross income. For 2012, Google recorded $29.45 billion in gross income, representing 19.37 percent in gross income growth. For the same year, Facebook recorded $3.73 billion in gross income representing 30.66 percent in gross income growth. This was however, a drop from the previous year, perhaps due to the IPO and the uncertainty of investors over the performance of the company in the stock market.
Most investors shied away from Facebook’s stock as the company supposedly delivered an unexpected first financial report after its going public (Sengupta n.p.). According to Sengupta, “The disillusionment of investors was clear in after-hours trading, and when the market opened on Friday the depth of the disappointment was even more pronounced.” Most investors had expected better financial performance from the company. However, when this was not the case, they felt disappointed over the decline of the stock. This had an effect on the company’s financial performance at the end of the year. Moreover, the company had a leap in expenses as the company boosted its staff and dealt with the cost of its employees’ stock options. The drop is additionally a result of the company’s $1 billion purchase of Instagram (Dembosky n.p.). The year 2012 therefore marked the first time the company’s revenues and growth declined over consecutive quarters. For the year therefore, the company’s revenues fell “nearly 7 per cent to $1.06bn in the first quarter. Year on year, growth slowed from 55 per cent in the final months of 2011 to 45 per cent in the first months of 2012” (Dembosky n.p.). The company’s expenses had particularly spiked over the year as the company went on a hiring spree, its employees’ number for the standing at 3,539 from the 2,431 employees the company had the previous year. Moreover, the company also invested in technical infrastructure as well as $550 million the company spent buying 650 patents from Microsoft.
In 2013, while having an increase in gross income, Google’s gross income growth took a dip (Market Watch n.p.). At $33.91 billion in gross income, the company had 15.12 percent in gross income growth. In comparison, Facebook had a 64.11 percent growth in gross income, with gross earnings of $6.11 billion. For 2014, Google recorded $40.52 billion in gross earnings, representing a 19.50 percentage growth in gross income growth. This was however, a growth percentage below their highest growth percentage in 2011, which stood at 31.94 percent. In comparison, Facebook had $10.28 billion in gross income, with a 68.12 percentage growth in gross profit income (Market Watch). Finally, Google’s gross income in 2014 stood at $40.52 billion, representing a 19.50 percentage increase in gross income growth. In comparison, Facebook earned $10.28 billion, representative of 68.12 percent increase in gross income growth. These numbers show that Facebook is already making progress in its financial performance away from its all-time low experienced in 2012 after the IPO.
The difference in growth between Facebook and Google can largely be attributed to the industries within which the two operate. The search industries as well as software development industries (Google develop software such as Android and Chrome; browser and operating system) are mature industries, whose growth is not as exponential as growing industries. Social media is a growing industry and thus the reason for the difference in exponential growth for Facebook and only minimal growth for Google. Moreover, from the current rate of growth of the company (Facebook) it is possible to forecast growth in gross income in future. The company has shown growth in its revenues, a trend that is expected to continue in the future.
An analysis of the ratios indicates that the company’s profitability is taking a beating, mainly due to the company’s increased expenses. Spending for the company is largely on research and development, general and administrative expenses as well as on the increased headcount and infrastructure development, purchase and hiring (Facebook n.p.). Although the company’s ratios have a downward growth trend, they are still far better than the reported industry average. Thus, while the social media industry profitability points to the negative, the company’s profitability ratios are positive.
From its IPO in 2012, the company has shown strong liquidity (Standage 70). The increase in liquidity is largely due to the influx in equity. The company’s current ratio has increased twofold in the previous years, standing at 10.71 as of 2014; this is approximately three times the industry average (Facebook n.p.). Still reeling from the IPO, the company has an average solvency, with Times interest falling to 10.54 from its start point of 41.80. The debt ratio on the other hand, has dropped, while the cash flow remains positive increasing by 420 percent from $68.58 million to $872 million.
Facebook’s financial health is upward looking regardless of increase in its expenses towards infrastructure and hiring of personnel. According to its financial reporting in 2014, the company’s income from operations stood at $1.08 billion, this representing a 188 percent increase in comparison with the $373 million earned in the previous year (Facebook n.p.). The future is therefore looking up for the company as advertising revenue continues to grow. Moreover, mobile advertising is picking up as mobile penetration continues to grow. Moreover, with new assets and acquisition, as well as the diversification of its income streams, the company’s financial health well beyond industry estimates (Facebook n.p.).
The growth in the company is not tied to its revenue alone. According to the company’s financial reporting of the first quarter of 2014, the operational highlights show an increase in the company’s daily active users. The report indicated that the company saw a 21percent year-over-year increase with an average of 802 million daily active users (Facebook n.p.). This number represents the total number of users (both computer and mobile). The bulk of the traffic today however comes from mobile users, who totaled 609 million on the first quarter, representing a 43 percent year-over-year increase. For its monthly active users, the company saw a 15 percent year over year increase during its 2014 financial reporting, reaching 1.28 billion users, while monthly mobile users totaled 1.01 billion, representing a 34 percent year-over-year increase.
Perhaps the best manifestation of the company’s financial health is in its assets and liabilities. As at the end of the 2014 financial year, the company’s assets far outweigh its liabilities. The company’s assets particularly increased at the end of the IPO. Facebook’s liquid assets specifically multiplied from this activity, leading to a lower debt ratio. According to Bloomberg Business, Facebook’s assets have been growing from 2013. The company’s assets were worth $6,331 million in 2011, growing to $15,103 million in 2012, $17,895 million in 2013 and as of December 31 2014, the company’s total assets stood at $40,184 million. The assets herein include cash and its equivalents, short-term investments, account receivables and other receivables and prepaid expenses. Others include gross property plant and equipment, accumulated depreciation, good will and other intangibles, all making up the total assets of the company. The money from the IPO as well as revenue from operations has enabled Facebook make large investment on assets. Among the most notable of the company’s asset is its purchase of Instagram in 2012 for $1 billion (Rusli n.p.). Another of the company’s asset acquired in 2014 is WhatsApp, a messaging company that Facebook acquired for $19 billion (Covert n.p.).
With a value of $19 billion and an estimated $20 million in annual revenues, WhatsApp adds to Facebook’s asset portfolio. Moreover, the messaging service company has a growing user base. According to Russolillo, WhatsApp, with an estimated 450 million users, adds about 25 million users monthly, almost twice the number of users Twitter adds in a month. Another considerable asset is Instagram, whose 300 million users have given the company a valuation of $35 billion. Further estimates indicate that with programs to monetize the company, it is possible that Instagram could earn $2 billion annually in revenue if Facebook succeeds in rolling out it monetization program of Instagram whose user base is fast growing and therefore shows potential for revenue streams through advertisement.
From the company’s balance sheet, both the current and long-term assets have been growing over the past five years. Looking at the financials, the company’s total current assets stood at $2.2 billion in 2010. This increased to $12.06 billion in 2011. However, from the reasons aforementioned (IPO, increased infrastructural investment and hiring spree) the company’s current assets dipped in 2012 to $11.27 billion. Growth has however been constant through the subsequent years, growing to $13.07 billion in 2013 and $13.67 billion in 2014 (Market Watch n.p.). The company has also had similar growth in its tangible assets, which have grown from a valuation of $2.99 billion in 2010, to the current (2014) $40.18 billion valuation. Growth over the years has been considerably exponential from $2.99 billion in 2010 to $13.79 billion, representing a 361 percentage in asset growth. The company experienced another exponential growth in assets in 2014 moving from $17.9 billion in 2013 to $40.18 billion in 2014, representing 124.55 percent growth in the company’s total assets.
Facebook’s intangible assets are perhaps the company’s biggest assets. Apart from the acquisitions, Facebook has purchased several patents from startups and other companies such as Microsoft. Estimates indicate that the social networking company has purchased about 1,300 patents from both Microsoft and IBM. The company’s IBM purchases total 750, most of which cover software and networking. The patent purchases from IBM were particularly important for Facebook at it was facing lawsuits form Yahoo! over its (Facebook) patent infringement (Julie n.p.). At the time of the purchase, Facebook only owned 56 of its total patents, with Yahoo! claiming ownership of 10 patents which the social networking site had infringed (Julie n.p.).
In addition to the IBM patent purchases, Facebook purchased patents worth $550 million from Microsoft. Thus, while Facebook failed to win the AOL bids for the patents, it was able to purchase them from Microsoft (Ovide and Fowler n.p.). The deal left Facebook with 650 patents, some of which cover emailing, web-search ranking, browsers, instant messaging, video conferencing, mobile technology, e-commerce and online advertising. Therefore, apart from the purchased patents, Facebook had about 56 patents issued to it, with an additional 503 patents filed for application as of 2012. Moreover, the company had 33 corresponding patents, with an additional 149 patents filed for application in foreign countries. Such purchases that form the intangible assets put the company at a good financial position. Moreover, the stores of data that the company has perhaps are the most invaluable data. With users’ personal data streaming from their use of the social media’s services, the company can develop new ways of delivering adverts to these users. Most companies would therefore easily pay for the data that Facebook has on its users, making the data one of the most invaluable assets that the company owns at the moment.
Like the assets, Facebook’s liabilities have also been on the increase. According to Bloomberg Business, the company’s total liabilities stood at $1,432 million in 2011. This jumped to $3,348 million in 2012, and then reduced to $2,425 million in 2013 and later to $4,088 million in 2014. The bulk of the liabilities are other non-current liabilities, as well as capital leases, accrued expenses and current portion of capital lease obligation. With the growth of the company, the liabilities have also grown over the years. In 2010, the company’s total liabilities were valued at $823 million. This increased to $1.23 billion in 2011. Following the IPO however, Facebook’s liabilities jumped to $3.35 billion (Market Watch n.p.). Most of the activities involved in the IPO are responsible for the sudden jump in the company’s liabilities. The year 2013 saw a drop in the liabilities to $2.43 billion, perhaps due to stabilization after the IPO, decreased purchases through debt and increased revenue from the IPO and business operations. For 2014, the company experienced a jump in its liabilities. This followed the $19 billion purchase of WhatsApp, an investment that required huge investment in borrowing.
Facebook’s financial statement shows that the company has and will continue to have a stellar performance in the stock market. With a healthy balance sheet and a wide range of assets, the company will continue in its upward trend in earning revenue. Among the most important of the company is its wide range of assets. Some of these are revenue earners, although they operate as independent entities. Both WhatsApp and Instagram, as companies owned by Facebook operate independently. Instagram currently has not begun streaming revenues to the company. However, Facebook is working on ways of monetizing the company given its recent $35 billion valuation with its 300 million active users. With only 55 full-time employees, WhatsApp is poised to be one of the most profitable acquisitions Facebook has made due to the favorable revenue to employee ratio. The real value of the company however comes from its intangible assets that include user data and patents. These come in handy (especially patents) in attracting investors and earning revenue from their sale or licensing. Thus, with fewer liabilities, Facebook indeed has one of the best financial health in the social media industry.
Bloomberg Business. “Facebook Inc-a.” Bloomberg Business, 2015.Web. 7 May 2015
Covert, Adrian. “Facebook buys WhatsApp for $19 billion.” CNN Money, 2014.Web. 7 May 2015
Dembosky, April. “Facebook profits dip before IPO.” Financial Times, 2012. Web. 23 May 2015
Facebook. Facebook Reports First Quarter 2014 Results. Facebook, 2014
Gross, Daniel. “Has Financial Globalization Peaked?” The International Economy 25.3 (2011): 18-20. ProQuest. Web. 14 May 2015
Julie, Beck. “Facebook buys 750 patents from IBM.” Inside Counsel, 2012. Proquest. Web. 23 May 2015
Market Watch. “Facebook Inc. CI A.” Market Watch, 2015. Web. 23 May 2013
Ovide, Shira and Fowler, Geoffrey, A. “Facebook Buys AOL Patents from Microsoft for $550 million.” Wall Street Journal, 2012. Proquest. Web. 23 May 2015
Rusli, Evelyn, M. “Facebook buys Instagram for $1 Billion.”The New York Times, 2012.Web. 7 May 2015
Russolillo, Steven. “How to Value Facebook’s $19 Billion WhatsApp Deal.” The New York Times, 2014. Web. 23 May 2015
Sengupta, Somini. “Facebook Delivers an Earnings Letdown.” The New York Times, 2012. Web. 23 May 2015
Standage, Tom. Writing on the Wall: Social Media—The First 2,000. New York: Bloomsbury, 2013