Internal and external analysis will be performed to analyse the strategies that have been adopted by Facebook based on Facebook Inc. Form 424B4, Form 10-Q3 2012 Report and Facebook Inc. case study.
The reporting currency is US$. Facebook was founded in February 2004 by Mark Zuckerberg, Dustin Moskovitz, Eduardo Saverin and Chris Hughes as a college networking website while they were University Students. On 4th October 2012 Mark Zuckerberg (CEO-Chairman) announced that Facebook have reached 1 Billion users worldwide, which makes it the largest social network on the planet.On May 2012 Facebook was listed on the NASDAQ stock exchange raising $16 billion. The share price for the IPO was $38 and Facebook was valued $104 billion, the largest value in the history for a new listed company. Facebook generates revenue from Advertising and Payments and Fees. Facebook operates two SBUs across four main geographical locations: SBU Geographical Locations Advertising US & Canada Payments and Fees Europe Asia Rest of World 4 1. Financial analysis1 Profitability, Liquidity, Efficiency ? Revenue in Q3 2012 was $1,262m vs $954m Q3 2011.
Revenue is generated by two activities, Advertising and Payments and Fees.Analysts on average estimated revenue of $6. 41 billion for 2013 and $8.
12 billion for 20142 ? ? ? ? Advertising accounts for 86% of revenue while Payments 14% for the nine months to 30th September 2012 US & Canada represent 50. 5% of total Revenue, Europe 27%, Asia 12. 2% and Rest of the World 10. 3% Net sales have grown from $467 in Q3 2010 to $1,262 in Q3 2012, 270% growth. This astonishing increase is due to the exponential increase users3 GP% and OP% have decreased from 76% and 47% as Sep 30 2011 to 72% and 0 as Sep 30 2012 as Cost of Revenue increased by 58% while Revenue increased only by 36%.Furthermore, Total Cost and Expense increased by 232% because of the $1. 388Bn Share-Based Compensation + Payroll Tax related to Share-Based Compensation during Q2 2012 ? ? ? ? ? During the same period Net Profit decreased from $698m to ($11m) ROCE increased from 0.
10% in 2009 to 39. 68% in 2010 and 32. 33% in 2011. Facebook held 10. 45Bn in Cash and Marketable Securities in the BS4. Current ratio has slightly decreased in 2011 Gearing was 8% in 2011 and 17 % in 2010, as September 30 is 3. 74%.Therefore, debt is very low compared to the capital structure of Facebook5 but in line with tech companies Debt Ratio.
Total equity is $14,174Bn and total liabilities $1,864Bn as at 30th September 2012. ? $521m Instagram acquisition consisting of $300 in cash and 12m Facebook vested shares Class B to non-employee stockholders of Instagram 1 2 Appendix A Bloomberg. com 3 See Appendix B 4 This gives Facebook the opportunity for internal financing solutions for investments or building new products 5 Total equity is $14,174Bn and total liabilities $1,864Bn as at 30th September 2012.Due to the large amount of cash and equivalents held within the balance sheet it does not seem to change for the foreseeable future 5 ? ? Mobile revenue as % of Advertising Revenue, Q3 2012 14%, YTD September 30 2012 6% Highest average revenue per user Q3 2012: US & Canada $3. 40, followed by Europe with $1.
37, and Rest of the World with $0. 47 and Asia $0. 58 6 2. Investor Related ? ? ? ? ? ? Market Capitalisation of $59.
54bn as of 8th December 2012 Share Price $27. 49 as of 8th December 2012 peak share price of $45 achieved the day of the IPO6 EPS $0. 19 (ttm)7, Google $31. 1 P/E ratio (ttm) 142. 41, Google 21. 44 Cash flow is efficiently managed, $2.
47Bn as of Sep 30 2012 against $906m same period 2011 due to $6. 76Bn from issue of common stock Share price decreased from $38 at the day of the IPO to $27. 49 as of 8th December 2012 due to a glitch in NASDAQ during the first day of trading. Secondly, share price too high, the company is trading for more than 70 times its diluted earnings per share while 19 for Google and 16 for Apple. Finally the expiration of lock-up period gave the opportunity to earliest investors to sell their shares ? EPS have decreased during Q3 2012 compared to Q3 2011 and comparing the nine months to 30th September 2012 with nine months 2011 No dividend payment8.
Future earnings will be used to financing operation and expansion of the business Although the number of users has increased dramatically during the last 5 years, it seems that Facebook have not been able of monetizing accordingly. Losses have been made in 2007, 2008, Q2 2012, Q3 2012. However, it must be said that in Q2 2012 Facebook incurred $986m share-based compensation expense.
The main problem is represented by the difficulty to sell advertise on mobile phones while the number of users connecting via PC is decreasing and users of mobile phones monthly active users (MAU) are increasing on a daily basis. In Q3 2012 mobile users reached 604m while in Q3 2011 they were 376m. 6 7 Appendix C Yahoo! Finance. com . Facebook have underperformed NASDAQ, S&P500 and Google since the IPO. See Appendix D 8 Facebook have never declared or paid any dividend and will not pay any dividend in the foreseeable future. 7 3.
Human Resources Management Analysis ?Mark Zuckerberg Chairman and CEO has 55. 9% of voting power9, Sheryl K. Sandberg COO owns 18.
1 million vested shares10, David A. Ebersman CFO11, CPO Erin Egan ? ? ? ? ? ? ? ? Mission: make the world more open and connected Workforce has increased from 1,218 at the end of 2009 to 4,331 employees worldwide at the end of September 2012 to support the increase of the network Most important roles: software engineers, designers, and product managers recruited according to a very specific and strict company requirements Engineers spend their first six weeks in Bootcamp12.The Hackathons is another crucial step during engineers’ development13. The last step is called Hackamonth14. Everybody can express his own idea and develop a new product, regardless his level One of the best companies to work for15, shares and other benefits are offered to employees16. Average revenue per employee $1,159,688 in 201117, Google $1,167,49318 Remuneration of a software engineers is $123,626, Google $128,336, Apple $114,413, EBay $108,809, Zynga $105,56819 9 Therefore, at the age of 28 he can control the outcome of election of directors, mergers and acquisitions, sale of assets. 0 Sandberg sold about 353,000 Facebook shares, earning $7.
44 million (Huffingtonpost. com). Sheryl Sandberg is 43, obtained an MBA from Harvard University.
She served as chief of staff for the U. S. Treasury Department under President Bill Clinton, and managed Google’s online global sales and operations as a vice president. Forbes List: 10 Power Women (forbes. com) 11 Age 42, Mr. Ebersman holds an A. B.
in economics and international relations from Brown University. Served as CFO at Forbes and previously at Genentech, Inc. , a biotechnology company and as research analyst at Oppenheimer ; Company, Inc.
Forbes. com). Other key employees are: David B Fisher VP Marketing and Business Partnerships, Mike Schroepfer VP Engineering, Ted Ullyot VP General Counsel and Secretary, Bret Taylor (CTO), Chris Cox (VP of Product), Elliot Schrage (VP Global Communications, Marketing and Public Policy), and Andrei Alexandrescu (Research Scientist) 12 For an immersive orientation programme where they are exposed to different teams, learn the culture of the company and start delivering codes during their first week 13 They spend all night developing a code that will be used to create a new product. 4 After having spent a year working in a team, engineers can choose another team to work for. At the end of the month they can choose to carry on working for the new team or going back to the old team. 15 Employees’ Choice -50 Best Places to Work, Glassdoor, 2012” (glassdoor. com) 16 Facebook offers 100% Healthcare premium coverage for employees and 50% for dependants, 401k plan, 4 month paid childbirth or adoption leave, unlimited sick days, paid vacation and holidays.
They offer childcare reimbursement, travel assistance, and 50% reimbursement of gym fees.Other perks include discounts from participating businesses, on site laundry and dry cleaning service, and a Weekly Speaker series where someone from outside the company shares their experiences and passions. 17 ADVFN. com. Return on employee was: $637,931 in 2009, $928,067 in 2010, $809,051 in YTD 2012 18 ADVFN. com 19 (businessweek. com) 8 Facebook have established the “hacker culture”, a work environment that rewards who is capable of solving problem rapidly and in a creative way. Therefore, employees and corporate culture are crucial to Facebook success.
The development of new product, the optimization of existing ones, and the ability of motivating the workforce is the key for success. The employees are completely free inside a well-defined precinct represented by the management. 9 4. Marketing Analysis Three Products 1: For Users ? ? ? ? ? ? ? Photos and videos (CC+UR)20 News Feed (UR) Messages (UR) Timeline (UR) Groups Events Pages 2: For Developers ? ? ? Open Graph21 Social Plugins22 Payments23 3: For Advertisers and Marketers ? ? ? Facebook Ads Sponsored Stories Facebook Ad System Price ? ? Free for users, advertisers pay a fee.Advertising revenue in Q3 2012 is $ 1,086m On sales of digital goods Facebook takes 30% of the payment24 20 Facebook says that more than 300m photos are uploaded every day. Facebook acquired Instagram, a photo sharing service, and Face.
com, facial recognition group, in 2012 in order to improve even more its photo capability 21 Set of tools that developers use to build apps 22 Like button, recommendations, comments 23 Infrastructure used by Facebook to collect payments 24 This revenue is subject to exchange rate fluctuations due to payments in US $ 0 Promotions ? ? ? Facebook promotes itself through its large network25 In October 2012 the first brand video has been lunched to celebrate 1 billion users26 Marketing and Sales $703m YTD 2012, which represents 158% increases compared to the same period in 2011 due to an increase in payroll and benefits expenses resulting from a 21% increase in employee headcount to support global sales, business development, and customer service, including a $ 15 million increase in share-based compensation expense.The increase in the first nine months of 2012 compared to the same period in 2011 was primarily due to $ 255 million increase in share-based compensation expense ? Most valuable brand in Q3 201227 Facebook’s strategy is to add, retain, and engage users in order to increase revenue through advertisement and payments. The network has grown through users inviting their friends to connect with them.
The Marketing costs supported to increase brand awareness and interest in being part of Facebook community have been relatively low. The network leveraged the number of users to grow instead of using equity or debt finance.It could be called Leveraged Network Model whose drawback is the catastrophic effect that negative reputation could have on it. The market seems at a maturity stage in US ; Canada, almost at maturity stage in Europe28. On the other hand, the BRIC countries and Germany, Japan and South Korea have not been penetrated yet.
Therefore, there is a large market made of about 2. 5bn people to penetrate. 25 26 More than 1bn users worldwide “Thing that connect us”, (Facebook. com) 27 Huffingtonpost. com (2012) 28 Appendix E 11 5.
Operations Analysis Value Network-Primary activities ? ? ? R;D are crucial to Facebook in order to retain its leadership in the social network market29 Vertical Structure and Horizontal Integration with products developed in house and by external developers30 Offered in 70 languages worldwide (CC)31 Value for users is added through the possibility to connect with friends, discover and learn, express your own ideas, control of what you share, experience Facebook across the web, being connected to the web via mobile devices32 (CC) ? Value for developers is represented by The Facebook Platform which enables them to integrate their applications and websites.They can reach 1bn users with their products and being paid through Facebook platform (CC/UR) ? Value for advertisers and marketers is the possibility of using the largest social network data33 on earth to target their potential customers. Furthermore, they can leverage on word of mouth to increase sales and engage with their customers (CC/UR) ? ? ? Brand awareness34 The product offered seems reliable35 Employees36 (CC) 29 R;D expenses as of September 30 were $1,102m which represents 317% increase compared to the same period in 2011 30 Zynga for example is the most profitable external developer for Facebook.
In Q3 2011 and Q3 2012 12% and 7%, respectively, of total revenue came from Zynga. 31 Appendix F 32 Smartphones, tablets, laptops 33 Advertisers and Marketers can, for example, target their customers according to the age, gender, and location 34 Brand awareness has been crucial to Facebook success around the world 35 The management has a great control of the value network which is growing on a daily basis 36 Facebook culture is based on the “hacker culture” which means solving problems rapidly 12 Value Network-Secondary activities ? ? ? ? ? Headquarter in California with offices in US37 and abroad38 Data Canters in US and Europe39 Code of Business Conduct and Ethics40 Partnership with Yahoo! In order to build a search engine41 Corporate Social Responsibility Acquisition of various patents42 Advertisers can target users according to the information provided by the users themselves and users can choose whether or not to buy and from who (for example, buying a game from Zynga rather than another developer). Developers can use the Facebook Platform to build and sell applications andWebsites that integrate with Facebook to reach its global network of users and to build personalized and social products. Advertisers and Marketers can engage with 1 Billion MAUs on Facebook and use information that users have chosen to share with the Company, such as their age, location, gender, or interests.
The information available to advertisers and marketers it is invaluable in order to maximize their profits and gives them an edge over their competitors. 37 Atlanta; Austin; Detroit; Chicago; Dallas; Los Angeles; Miami; New York; Seattle; Washington, DC; Prineville, Oregon. 8 Amsterdam; Auckland; Brussels; Dublin; Hamburg; Hong Kong; Hyderabad; London; Madrid; Milan; Paris; Selangor; Sao Paulo; Singapore; Stockholm; Sydney; Tokyo; Toronto 39 US: Prineville, Oregon; Forest City, North Carolina; Europe: Lulea, Sweden 40 This code applies to every employee, officer, and director 41 CNET, (cnet. com) 42 $633m acquisition of 615 U. S. patents and other intellectual property rights 13 Value Network Model Supportive Activities – Margin Firm Infrastructure H. R. M.
Technology ProcurementPrimary Activities – Margin Products Increase number of Users which increase number of Developers and Advertisers USERS: News Feed Timeline Messages Photos ; Videos Groups Events Pages DEVELOPERS: Open Graph Social Plugins Payments ADVERTISERS ; M. : Advertisement Sponsored Stories Ads System 14 6. Prioritised Strengths 1. World’s largest Social Network (UR) 2. Data Centres (CC) 3. World brand number one43(UR) 4.
Photos and Videos (UR/CC) 5. Organisational knowledge and expertise (UR and CC) 6. Control of the value network (UR/CC) 7.Cash and Cash Equivalents and Marketable Securities (UR) 8. Mark Zuckerberg 7. Prioritised Weaknesses 1. Mobile Phone Advertising 2.
Data Analytics44 3. Decline of share price 4. Exposed to foreign exchange rates and U.
S. interest rates 5. Dependence on Zynga 6. No restriction for executives to sell shares 7. BRIC countries penetration 8. Low average revenue per user compared to competitors 43 44 Huffingtonpost. com GM ceased advertisement on Facebook because of the difficulty to measure the ROI due to weak data analytics 15 8.
P. E. S. T.
E. L. analysis prioritised Political ? ? ? Foreign Taxation45 Protectionism46 New policies47 VAT increase48 Economical ? ? ? ? ? Large investments in technology to sustain growth Exchange rates, primarily Euro, US Dollar, British Pound49 Uncertainty of financial markets50 Decrease in disposable income51 Weak economy worldwide Socio-Cultural ? ? ? ? ? Changes in trends52 Changes in users preferences53 Company’s reputation54 Users’ satisfaction55 Awareness of company social responsibility 45 46 Starbucks, Google and Amazon criticised for tax avoidance (bbc.
The assertion is based on the fact that the online advertising is growing at a high rate and it will continue in the foreseeable future66. Therefore, if a company which is already in the industry is able to manage its costs and improve the measuring techniques about ROI, there are good opportunities to be profitable.It would be very difficult for a new company to be profitable in this industry due to the High Forces and the Low Force described above. ZenithOptimedia forecasts that internet will grow by 15% a year between 2011 and 2014. Display is the fastest-growing sub-category, with 20% annual growth, thanks to the rapid rise of social media and online video advertising.
Display advertising is now growing substantially faster than paid search67 63 Total visitors for the period: Facebook 62. 89%, YouTube 19. 80%, Twitter 1. 85%, Google+ 1. 35%, Pinterest 1. 27%, Yahoo! Answers 0. 87%, LinkedIn 0.
4%, Tagged 0. 69%, Instagram 0. 43%, MySpace 0. 35% 64 Suppliers might pay a penalty if exit the contract with a buyer 65 Some suppliers offer data regarding different type of users, such as LinkedIn which is dedicated to professionals. 66 Exchangewire. com (online). 67 Exchangewire.
com (online). 19 10. Market and Segment Size Facebook operate in the social network industry where members can be suppliers and customers. The main revenue stream is advertising and fees and payments, 85% and 15% accordingly. It sells virtual or digital goods such as games and apps on behalf of developers.Facebook have 72.
4% of global market share and 48. 8% in the U. S.
68. Social networking industry had 1. 2Bn users in 2011, forecasted 1. 85Bn in 201469. The most attractive markets are Brazil, Russia, India, China (BRIC countries), here the market penetration and the average revenue per users is very low compared to US ; Canada and Europe70. Users over 45 represent 46% of total users and 57% of them are women71. A study conducted by Virgin Media Business states that 35% of firms uses social networks to communicate, provide customer service, hire staff and advertise72.Social networking activity is the most popular one around the world, one every five minutes spent online is spent on social networking.
Facebook account for one minute every seven spent online and three minutes for every four spent on social networking. 68 69 Karmasnack. com EMartketer. com 70 See Marketing Analysis 71 Mashabale. com (2012) 72 Key Note (2012) 20 11. Critical Success Factors prioritised ? ? ? ? ? ? ? ? ? Network73 Price74 Users data75 Reliability76 Employees skills77 Brand78 Data centres79 Internet users80 ROI81 73 74The size of network is crucial to Advertisers and Marketers Cost per Click (CPC) or Cost per Impression (CPM) 75 Classification of Users by: age, gender, income, language, and so on 76 Technically reliable, Facebook has never stopped working since its start-up 77 Specific skills as described in HRM section 78 The most valuable brand, see Marketing Analysis/Promotions footnote no. 18 79 Large database guarantee the possibility to manage large amount of data 80 Social Network users are 1.
43bn as of 2012 81 Return on Investment measurable by advertisers according to their advertisement campaign on Facebook 1 12. Opportunities ; Threats Prioritised Opportunities 1. Mobile phone advertising82 2. Creation of new products 3. New strategic alliance 4. Emerging Markets83 5. Users data increase84 6. Brand85 Prioritised Threats 1.
Advertising contributes a high percentage of revenue86 2. Increasing competition87 3. Protectionism88 4.
Exchange rates89 5. Change in users preferences90 6. Reputation91 82 83 Operations/Weaknesses. If this weaknesses is resolved it could increase the revenue Marketing Analysis 84 CSF 85 Operations/Strengths.The Brand can be leveraged to increase the network and consequently the revenue 86 See Financial Analysis 87 Five Forces/Competitive Rivalry 88 P. E.
S. T. E. L.
/Political 89 P. E. S. T. E.
L. /Economical 90 Five Forces/The Power of Suppliers 91 Marketing Analysis/Promotion 22 13. Current Strategy Strategy Position The current horizontal strategy of Facebook is to make the world more open and connected.
The Advertising SBU is positioned at 4 on Bowman’s strategic clock, differentiation strategy.Facebook is a network where everything is intertwined and impossible to be separated in different segments. Therefore, users, advertisers and marketers are part of the same network. The additional value is added by core competencies and unique resources. THE STRATEGIES IDENTIFIED IN THE ANSOFF MATRIX ARE: ? ? ? ? ? Product development through the continuous updates and improvements Market development in new geographical locations92 Market penetration achieved by improvement of target advertising93 Investments in mobile products94 Diversification achieved through advertisement and digital goods95FACEBOOK ALSO USES ACQUISITIONS TO IMPLEMENT ITS STRATEGY: ? ? ? Acquisition of Instagram to improve the photo sharing capabilities Acquisition of Face. com for facial recognition Facebook is seeking an alliance with Yahoo! Facebook adopts a parenting role through the enhancement of the network as a whole and making clear the mission and the objective of the company.
Synergy manager is adopted to improve the capabilities of the SBU. In conclusion it can be said that Facebook is in a very dangerous position regarding the mobile phone advertising matter.If Facebook is not able to overcome this problem it could be seriously harmed in the future from the growth of mobile devices. One SBU, the advertisement, accounts for 85% of Facebook revenue and with the growth of mobile devices, which is one of Facebook weaknesses, there could be serious problem in the near future if this issue is not resolved. 92 93 Mark Zuckerberg went to Russia and China to promote Facebook Each user receives advertisement according to the information given to Facebook 94 Mobile devices are crucial to Facebook survival 95 The only two SBUs in which Facebook is sub-divided 3 14. Future Strategies Proposed Future Strategic Options Advertising SBU 1. Product development: introduce new products 2.
Market penetration: improve the analytics to increase data reliability96 3. Market development: expand into BRIC countries and Germany, Japan, South Korea 4. Revenue: increase the average revenue per user in Asia and Rest of the World Corporate 5. Market penetration: targeting emerging markets 6. Build a mobile device97 7. Buy Sharp Corp. 98 8.
Developing a 3D application99 9. Selling photos to third parties100 10. Do nothing, continue present strategies 96The improvement of data analytics would improve the ability of Facebook to calculate the ROI obtained by advertisers, which would improve further advertisement campaign and finally revenue 97 Facebook could build a phone or a mobile device to address the weakness regarding the mobile advertisement revenue 98 Sharp Corp. has the resources and competencies to the specific need. Build a television fully integrated with internet (FaceTV) in order to revolutionise the advertisement industry, the internet industry, and the television industry.
Every single user could potentially receive a specific advertisement based on the data held by Facebook.The probable consequences would be an increase of people watching advertisement instead of changing channel because the ad would be about a subject they are interested in, it would be part of the show they are already watching 99 A 3D application to scan the human body so that users could scan themselves and buy clothes, through Facebook, that perfectly suit them; they could virtually try on the garments even before buying them. Facebook would be the largest and perhaps the only website containing the data regarding the perfect size of 1bn people.This would increase the revenue from advertisement and Payments 100 Facebook could sell photos to third parties, previous authorisation of users, returning the majority of profit to users and retaining a fee on the transaction. Flickr, for example, is in partnership with Getty Images to sell photos held in its database 24 15. Selection of The Winning Strategy Feasibility Test: ? ? Options 2, 3, 6, 8, 9 passed suitability test101 Options 2, 8, 9 passed the acceptability test102 Financial Substantial investment. It can easily be founded due to the huge amount of cash and marketable securities held in the statement of financial position.
Break-even should occur quickly due to the retaining of existent advertisers and increase of future ones. Huge investment needed. It could be financed by cash held. Break-even would occur in long period Moderate investment funds will be required. It could be internally financed by cash held. Break-even should occur quickly due to the huge number of photos held and network effect which would probably occur. Resource Development Use internal core competencies together with strategic alliances.
Marketing expenses would increase to promote the improvement of the existent product. Option 2 8 9Use of unique resources and core competencies are not at threshold level. External competencies should be brought in. Use of unique resources and core competencies are not at threshold level. External competencies would be needed to set-up a new department. Although all the above strategies are acceptable the winning strategy is 2. 101 102 Appendix G Appendix H 25 16. Winning Strategy Description and Risk Assessment Strategy 2 offers the opportunity to improve the analytics and consequently the possibility for advertisers to calculate accurately the ROI regarding the advertising campaigns they run on Facebook.
The value added to Facebook is represented by the retaining of the existent customers and the gain of new ones. Advertising account for 85% of the total revenue, therefore, it is crucial to Facebook to improve this SBU before investing in the other two strategies. Once this issue is solved the other two strategies can be taken into account in order to diversify the portfolio increasing the revenue stream from these products without damaging the advertising revenue. Furthermore, the share price would likely increase as a result of advertisers and marketers investments.RISK High investment together with high competencies needed could result in the failure of the project. Consequently, customers will likely leave the company and divert their investment to competitors.
Huge investment and a complete new department are required for this ambitious project. It is uncertain that the company is able to realise it. A new “stock photo agency” department is required to implement this strategy. It is uncertain that the company is able to carry on this project. ADDRESS RISK Acceptance: Use unique resources and core competencies at utmost capacity.This strategy is in line with Facebook mission.
Reduction: A strategic alliance with a search engine will reduce the risk of failure. Reduction: Use of internal resources together with external competencies from clothing industry and maximum secrecy are required. Transfer: Outsourcing or Sub-contracting could be used to reduce the risk of failure. 26 List of References About. com, (2012). “Facebook Jobs” [Online] Available at: http://jobsearch. about.
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exchangewire. om/blog/2012/10/02/zenithoptimedia-global-advertisingreport-4-6-growth-in-2013-led-by-developing-markets-digital-media/ [Accessed 03/12/2012] Word Count: 3,237 28 APPENDICES Appendix A – Financial Ratios Profitability, Liquidity, Efficiency Year Revenue Operating ($m) Profit ($m) 153 (124) 272 (55) 777 262 1,974 1,032 3,711 1,756 954 110 1,262 (187) 2,580 3,504 1,209 15 GP Margin (%) 73. 20 54. 41 71. 30 75.
03 76. 83 43. 40 29.
87 76. 24 72. 40 OP Margin (%) (81. 05) (20. 22) 33. 72 52. 28 47.
32 11. 53 (14. 82) 46. 86 0. 43 ROCE (%) Asset T/O (times) 0. 34 0.
54 0. 70 0. 66 0. 9 Current Ratio (times) 2007 2008 2009 2010 2011 Q3 2011 Q3 2012 9 Months to Sep 30th 2011 9 Months to Sep 30th 2012 Debt Year 0. 10 39. 68 32. 33 5. 77 5.
12 Interest Expense ($m) Interest Cover (times) Gearing (%) Net Cash Flow ($m) 2007 2008 2009 2010 2011 Q3 2011 Q3 2012 9 Months to Sep 30 2011 9 Months to Sep 30 2012 16. 98 8. 12 10 11 26 41.
4 34. 27 46. 5 633 1785 1512 906 35 0. 4 2,478 29 Investor Related Year 2007 2008 2009 2010 2011 2012 Q3 2011 Q3 2012 9 Months to Sep 30 2011 9 Months to Sep 30 2012 Profit after Tax ($m) (138) (56) 229 606 1,000 227 (59) 698 (11) EPS Basic ($) (0. 6) (0. 06) 0. 12 0. 34 0.
52 0. 11 (0. 02) 0. 36 (0. 01) EPS Diluted ($) (0.
16) (0. 06) 0. 10 0. 28 0. 46 0. 10 (0.
02) 0. 32 (0. 01) Formulae Gross Profit Margin Operating Profit Margin ROCE Current Ratio Gearing Interest Cover (times) N/A Asset Turnover = Gross Profit/ Sales Revenue*100 = PBIT/Sales Revenue*100 = Operating Profit/Capital Employed*100 = Current Assets/Current Liabilities = Debt/Equity = PBIT/Interest Payable (times) = Not Applicable = Turnover/Total Assets Capital Employed=Total Assets less Current Liabilities 30 Revenue illions of $ $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $$(500) Q3 2012 $(59) Revenue Q3 2011 9 Months to Sep 30 9 Months to Sep 30 2012 2011 Net (loss) income $227 $(11) $1,262 $954 $698 $2,580 $3,504 P&L millions of $ 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000 3,504 2,580 2,537 1,967 1,262 954 377 414 -540 -967 -613 -885 Revenue Cost of Revenue Gross Profit 2012 Q3 9 Months to Sep 30 2012 2011 Q3 9 Months to Sep 30 2011 31 Appendix B – Facebook reached 1Bn users 32 Appendix C – Facebook Share Price Share Price: from IPO 18th May 2012 to 07/12/2012 Source Yahoo!Finance 33 Appendix D – Facebook vs NASDAQ vs S&P 500 vs Google Share Price: from IPO 18th May 2012 to 07/12/2012 Source Yahoo! Finance 34 Appendix E – Lifecycle Analysis of the Business Introduction BRIC countries Germany, Japan, South Korea Growth Europe Maturity US & Canada Decline 35 Appendix F – Largest Social Network in the World offered in 70 languages 36 Appendix G – Suitability test Advertising SBU Option Strengths 1. World’s largest Social Network 2. Data Centres 3. World brand number one 4. Photos & Videos 5.
Organisational knowledge and expertise 6. Control of the Value Network 7.Cash and Cash Equivalents & Marketable Securities 8. Mark Zuckerberg Weaknesses 1. Mobile Phone Advertising 2. BRIC countries penetration 3.
Low average revenue per user compared to competitors 4. Decline of share price 5. No restriction for executives to sell shares 6. Exposed to foreign exchange rates and U. S. interest rates 7.
Dependence on Zynga 8. Data Analytics Could overcome 1, 7 Could worsen 6 (+1) Could overcome 1, 2, 3, 8 (+4) Opportunities 1. Mobile Phone Advertising 2.
Creation of New Products 3. New Strategic Alliance 4. Emerging Markets 5. Users Data Increase 6.
Brand Threats 1.Advertising Contributes a high percentage of revenue 2. Increasing Competition 3. Protectionism 4. Exchange Rates 5. Change in users preferences 6. Reputation Accept or Reject 1 Utilises 5, 7, 1 2 3 4 Takes advantage Exposed to 1, 2, of 2, 3, 4 3, (+3) (+3) (-3) Utilises 5,7 Takes advantage Exposed to 5, 6 of 3, 4, 5 (+3) (+2) (-2) Utilises 1, 2, 5, 7, Could overcome Takes advantage Exposed to 2, 3, 8 2 of 3, 4, 5, 6 4 Could worsen 6, Could worsen 1 1 (+3) (+5) (-1) (-3) Utilises 1, 3, 5, 7 Overcomes Takes advantage Exposed to 1, 3, 1, 2, 3, 4 of 4 Could worsen 6 3, 4, 5 (+4) (+3) (+3) (-3) +4) Reject (+7) Accept (+4) Accept (+7) Reject 37 Corporate Option Strengths 1. World’s largest Social Network 2.
Data Centres 3. World brand number one 4. Photos & Videos 5. Organisational knowledge and expertise 6.
Control of the Value Network 7. Cash and Cash Equivalents & Marketable Securities 8. Mark Zuckerberg Weaknesses 1.
Mobile Phone Advertising 2. BRIC countries penetration 3. Low average revenue per user compared to competitors 4. Decline of share price 5. No restriction for executives to sell shares 6. Exposed to foreign exchange rates and U.
S. interest rates 7. Dependence on Zynga 8. Data Analytics Could worsen 1, 6 Overcomes 2 (-1) Overcomes 1, 4, 2 Worsens 1, 4 (+1) Could worsen 4, 5 (-2) Overcomes 3, 4, 7 Worsens 6 (+2) Overcomes 3, 4 Worsens 6 (+1) Overcomes 4, 6, 8 (-5) Opportunities 1. Mobile Phone Advertising 2. Creation of New Products 3. New Strategic Alliance 4.
Emerging Markets 5. Users Data Increase 6. Brand Threats 1. Advertising Contributes a high percentage of revenue 2. Increasing Competition 3. Protectionism 4. Exchange Rates 5.
Change in users preferences 6.Reputation Accept or Reject 5 Utilises 1, 3, 5, 8 (+4) Utilises 5, 7 6 7 (+2) Utilises 7 (+1) Utilises 5, 7 (+2) Utilises 1, 4, 5 (+3) Does not take into account the Strengths (-8) 8 9 10 Takes advantage of 1, 3, 4, 6 (+4) Takes advantage of 1, 2, 3, 4, 5, 6 (+6) Takes advantage of 3 (+1) Takes advantage of 2, 3, 5 (+3) Take advantage of 3, 6 (+2) Does not take advantage of the Opportunities (-6) Exposed to 2, 3, 4 (-3) Exposed to 2, 4, 6 (-3) Exposed to 2, 4, 6 (-3) Exposed to 6 (-1) Exposed to 2,3, 4, 6 (-4) Overcomes all Threats (+6) (+4) Reject (+6)Accept (-3) Reject (+6) Accept (+2) Accept (-13) Reject 38 Appendix H – Acceptability test Option 2 Risk vs Return It can increase profit and share market of Advertising but it will require a strategic alliance, ideally with a search engine company Stakeholder Reaction Shareholders: positive reaction due to the opportunity of increasing profits and market share Advertisers: positive reaction due to the possibility to better target their customers and better calculate ROI Employees: excited about new alliance and motivated by new goal Accept or Reject Accept 3It can increase profit and share market expanding into new markets but it will increase marketing expenses and it will have to face strong competitors already present into these markets Shareholders: positive reaction as profit increase should recoup investment Employees: positive reaction to the expansion of their company Competitors: most likely their reaction will be the retaliation decreasing their price and imitating products National Government: positive reaction to the expansion abroad used as national power expansion Foreign Governments: could react imposing strict protectionism that could damage the whole nternational strategy expansion Reject 6 Huge capital investment will be required, competencies must be hired but neither success of the project nor profit are guaranteed Shareholders: could react either positively or negatively due to opportunity of revenue and risk of project failure Users: younger could react positively to a new device which could become iconic for their generation Reject 39 Option Risk vs Return Stakeholder Reaction 8 Profit could increase but it will require capital investment to develop the application and expert engineers should be hired.This application could change the retail industry because of the possibility of buying clothes online and virtually try them on. Furthermore, the 3D would perfectly scan the body eliminating the problem of different size for different brands. Customers could buy online and get a perfect size. The retail industry would benefit from the low return rates that this Product would generate. For the time being the return rate for garments bought online is one out of three and this represents the biggest problem the retail industry is trying to solve.
It could increase revenue through the sale of photos to third parties