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Web and mobile tools such as News Feed, Timeline, Graph Search, Messenger, Instagram are
provided to users to share, learn and explore. Since Facebook is intimately close to their users’
live, privacy and security concerns have never halted.
With more and more activities shifted from web to mobile, Facebook is expanding their power in
mobile reign, which has been proven to be successful.
!
Current Financial Situation
Facebook’s revenue has been growing rapidly since 2010 according to public record, ranking 341
in Fortune 500. Trailing twelve months revenue by September 2014 is over 10 billion. Over past
5 years, it has always been profitable, even though net income in 2012 dimmed severely.
5500
2750
0
2010 2011 2012 2013 TTM
!
Facebook’s revenue is
composed by two parts:
advertising, payments and
other fees. Among these
two sources, advertising
revenue takes more than
80% and the percentage
has been increasing, which
Grow or not?
Facebook experienced a severe stock market earthquake right after IPO, when all 4 major banks
pulling out seeing the price rolling down. Suspicion of whether Facebook can win the
competition in mobile ads market also raised some concerns among investors. Successfully
survived in this earthquake and kept bottom line of profit margin, Facebook proved their
capability in both technology competency and financial management. ROA and ROE keep rising
ever since over each quarter, so as their stock price.
Acquisition of WhatsApp indicated Facebook’s plan of attacking private messaging market. The
$16 billion deal was highly controversial and is still under discussion. Whether Facebook can keep
its rapid growth is highly dependent on whether they can successfully monetize this new
component.
Competition in social media and digital advertising market is fierce. Facebook is no doubt in a
leading position in former. However, Google has never stopped trying to take over. As shown in
below chart, the two lines of engagement level between the two player is getting closer. Keep user
engagement, improve user experience, lower cost and improve effectiveness on ads are crucial for
Facebook’s next battle. As stated in 2013 Annual Report, global expansion is also vital to win next
billion user.
DuPont Analysis
With short 4 years history, there’re not many evidences to predict Facebook’s growth trend except
for their strategic shifts. However, standing at current point, they are in a healthy financial
position with high gross margin, return on assets, return on equity, as well as cash flow.
Operational cash is 4.38 billion by June 2014, increased 30% comparing to December 2013.
Facebook maintains industrial average profitability in the past years. Other than 2012,
Facebook’s net margin is maintained steady at 18% level, which is very impressive for such
competitive industry, second only to Google.
Asset Turnover has been increasing since 2012, but still lower than Google’s 0.60 and LinkedIn’s
0.68. With proper management of assets, we can expect it to be higher.
Facebook is free from long-term debt since 2013. Debt/equity dropped from 0.17 to 0.02 from
2012 to 2013, which is positive. Financial leverage kept decreasing since 2010. It indicates that
the increase of ROE is mainly due to the rise of net margin and asset turnover, meaning that it’s
financial status is under proper management but not over-leveraged.
Profitability 2010-12 2011-12 2012-12 2013-12 TTM
!
Conclusion
Based on above analysis, we can conclude that Facebook is under a healthy and positive financial
stage with proper management and development. It should be able to keep growing by
maintaining investment in R&D and expanding globally. At the same time, we need to take into
account that the overall social media industry has been promising in recent years which may
correspondingly contribute to Facebook’s growth. Though the growth rate is already slowing
down, with next billion user in mind and a competent executive team, another leap lead by social
media herald is in the near future.
Resources
1. Facebook 2012 Annual Report. From http://investor.fb.com/annuals.cfm
2. Facebook 2013 Annual Report. From http://investor.fb.com/annuals.cfm
3. Facebook Prices IPO at Record Value | Wall Street Journal (2012, May 17)
4. Social Media Intelligence Report | Adobe Digital Index (Q3, 2013)
5. Facebook Prices IPO at Record ValueThe 40 Most Important News Stories About Facebook
Since Its IPO | TechCrunch. (2012, July 26). From http://techcrunch.com/2012/07/26/
facebook-news/
6. They Work! Facebook Mobile Ads Are Clicked 13X More, Earn 11X More Money Than Its
Desktop Ads | TechCrunch (2012, June 19). From http://techcrunch.com/2012/06/19/
facebook-mobile-ads/
7. Investors file lawsuit against Facebook, Morgan Stanley. (2012, May 23). From http://
money.cnn.com/2012/05/23/technology/facebook-lawsuit/
8. Facebook’s top 10 from 2012: A big acquisition, a mobile hangover, and, oh, yeah, an IPO.
(2012, December 29). From http://venturebeat.com/2012/12/29/facebook-top-10-2012-
news/
9. Global Facebook Advertising Report Q2 2012 | TBG Digital (2012, June)
10. Social Login Trends Across the Web for Q2 2014 | Janrain. (2014, June 1). Retrieved from
http://janrain.com/blog/social-login-trends-q2-2014/
11. Why Facebook is a leading social media player. (2014, January 14). From http://
marketrealist.com/2014/01/facebook/
12. Must-know: Can Facebook survive its increasing competition? (2014, January 16). Retrieved
from http://marketrealist.com/2014/01/must-know-can-facebook-survive-increasing-
competition/