Social network -Facebook's, IPO filing is back in the news:
Three (3) days ago, Facebook updated its S-1 filing to reflect a first quarter (January 1-March 31,2012) revenue of $1.06 billion - 45% up from its 1st quarter 2011 revenue of $730 million.
However, 1st quarter earnings (profits) were $205 million, down 12% from the $233 million earned in 1st quarter 2011.
(82% of Facebook's revenue comes from advertising. The rest comes from fees and payments from its business partners who build social applications on Facebook or integrate their websites with Facebook).
The decline in revenue was stated as being seasonal, as the regions with the highest subscriber growth, were those with the lowest Average Revenue (contribution) Per User (ARPU).
There is some evidence of this, in the table below:
| Facebook Subscriber Growth March 31,2011 - March 31,2012 | ||||
|---|---|---|---|---|
| Regions | 31-Mar-12 | Contribution to Total Subscribers | 31-Mar-11 | Growth |
| Europe | 232,835,740 | 28% | 200,260,360 | 16% |
| Asia | 195,034,380 | 23% | 131,556,800 | 48% |
| North Amer. | 173,284,940 | 21% | 173,640,240 | -0.2% |
| South Amer. | 112,531,100 | 13% | 69,594,760 | 62% |
| Sub Total | 713,686,160 | 575,052,160 | ||
| Rest of World | 121,839,120 | 15% | 88,980,300 | 37% |
| Total | 835,525,280 | 664,032,460 | 26% | |
| Prepared by Gillian Campbell, MOUBlog.com | ||||
| Derived from: http://www.internetworldstats.com/facebook.htm, accessed April 26,2012 | ||||
As can be seen from the above table, as of March 31,2012, 85% of Facebook's 836 million users came from Europe (28%), Asia (23%), North America (21%) and South America (13%).
1) Europe experienced 16% subscriber growth over the period March 31,2011- March 31,2012
2) Asia experienced 48% subscriber growth over the same period (OTSP)
3) North America experienced 0.2% subscriber decline OTSP
4) Whilst South America experienced 62% subscriber growth OTSP.
What this simply means is that the regions (Europe and North America), which Facebook had expected to get its greatest revenue from, just weren't growing enough in the quarter ended March 31,2012.
So it comes as no surprise to hear reports from six (6) days ago that Facebook had increased its advertising fees by 41% for last year. (Facebook's fiscal year coincides with the calendar year: January 1 - December 31).
This is very interesting news, as Facebook's May IPO date approaches.
But will this affect its projected $45 /share price?
Not for now:
Facebook will be a hot stock, with investors tripping over themselves to get a piece of this goldmine...so no matter if earnings dipped for a quarter, investors are still optimistic that:
1) Facebook's phenomenal increase in subscriber growth will continue for at least another year (Facebook's worldwide subscriber growth from March 31,2011 to March 31,2012 was 26%)
2) Even if profits decrease, Facebook can take corrective measures to quickly address this situation.
This "seasonality issue" is something that Facebook has to address, however and it would be interesting to note, when their full financials are made public, if these figures reveal that the dip in ARPU for their more profitable regions, is really seasonal and the true extent of this "seasonal" decline in revenue.
Will keep you updated re this.
Gillian
Sources Include
1) Article, "Company Overview of Facebook, Inc.", via Bloomberg BusinessWeek, April 26,2012
2) Definition: Form S-1, ia.wikipedia.org, accessed April 26,2012
3) Table, "Facebook Growth Stats for 2011 - 2012", via InternetWorldStats.com, accessed April 26,2012
4) Article, "How Facebook's Ad Prices Collapsed in Q1 2012" , by Jim Edwards, April 20,2012
5) Article, "Facebook Advertising Rates Skyrocket, CPM Up 41%", by Jackie Cohen, AllFacebook.com, April 16,2012
6) Post, "IPO Watch: Facebook IPO Update", by Gillian Campbell MOUBlog.com, February 2, 2012.
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