Facebook’s Long-Awaited IPO: The Good, the Bad and the (Local?) Future

By now, much of the connected universe, and certainly all of technolphilia, is aware of Facebook’s IPO, which seeks to raise up to $5 billion (and perhaps eventually $10 billion) when its shares go public this spring. The net effect is a valuation of $75 billion to $100 billion for the 8-year-old social network.

Mining the 150-page S-1 for gold can be something of a scavenger hunt. Of course, Facebook’s user reach and engagement metrics explode off the document: 845 million monthly active users (MAUs) as of December 2011, 483 million daily active users (DAUs), 425 million mobile MAUs (as detailed by MLM’s Mike Boland), 2.7 billion likes and comments per day, and the list goes on. Facebook’s engagement stats — and the data that those enable it to collect about its audience and on behalf of its advertisers — is the envy of companies everywhere.

Also, its $1 billion in net income was a conveniently round and easily discoverable number. But probing deeper, the data told other narratives as well: some promising, others alarming and several yet to be determined.

The Good

Facebook’s top-line revenues continue to grow, as one would expect with a maturing network whose domestic and global reach is ubiquitous. Revenues eclipsed $3.7 billion in 2011, an 88 percent increase year over year. Advertising jumped 69 percent from 2010, with 56 percent of that U.S.-based. Perhaps more encouraging was its deepening payments business, which now accounts for 15 percent of Facebook’s total revenues, skyrocketing from $106 million to $557 million in just 12 months.

Facebook also already boasts $3.8 billion in cash on hand, and that number is about to multiply.

The Bad

Although $3.7 billion in revenues seems like a handsome haul, the top-line number actually came in lighter than many analysts expected. The 69 percent increase in ad revenues looks modest when noted that this stream boomed by 145 percent from 2009 to 2010. And that was even as Facebook boosted its total ads delivered by 42 percent and average price per ad by 18 percent.

Meanwhile, it is not realizing meaningful money from its 425 million mobile users. Facebook is in the strange position of both attacking and defending on mobile platforms. While it continues to enhance its apps suite and build new mobile products, and will soon place Sponsored Stories ads within mobile news feeds, it also wants to refrain from cannibalizing the ads business it has amassed on the desktop. As a result, substitutive mobile growth is listed as a risk factor.

The (Unknown) Future

Facebook’s future appears as uncertain as it is promising (and vice versa). Naturally the company must continually calibrate its monetization engine, and quickly unpack new revenue sources (as it has with Facebook Credits over the past two years). Here are three domains that we feel Facebook may address with its newfound cash and investor pressure:

Ad Network: Facebook’s reach is undeniable. Its user data trove is deep, perhaps unparalleled. And thousands of third-party sites have linked to Facebook’s platform through Connect, a single sign-on conduit that can socialize a website experience based on the user’s Facebook social graph. Mash it all together, and an ad network — both desktop and mobile — seems irresistible and inevitable. For now, we’ll call it “Facebook AdSense.”

Payments Expansion: Facebook has already ported its Credits currency beyond gaming and virtual goods to digital products such as movies and music. Now, will the network usher Credits into real-world goods and services, making it a full-service social commerce portal? It toyed with the idea during its short-lived deals trial last summer, in which Credits were a payment option (though not the only one). Expect many experiments to come.

Local: Facebook has never shown the propensity to build a sales force of the mass and scope necessary to exhaustively address local markets and SMBs (as opposed to say Groupon). Even its deals play was an aggregated approach through partners. However, it does collect much of its advertising revenues from small and mid-market businesses that self-serve on the platform. Now it has opened up its Ads API to all qualified developers, enabling more partners with local audiences (agencies, media, etc.) to manage scaled ads campaigns on behalf of a fleet of clients. As just one example, French directory publisher PagesJaunes recently joined the API program.

A more enterprising probe of the S-1 will publish to Social Local Media clients in the coming days.

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