Why Twitter should pay attention to Facebook's ad warning

SAN FRANCISCO - Facebook Inc's investors and other proponents of the social network like to say that it captures one of the greatest concentrations of human attention on the planet and thus offers a boundless opportunity for advertisers.

But Facebook Chief Financial Officer David Ebersman on Wednesday cast doubt on those assertions by suggesting that there may be a limit on how many ads Facebook can show users before they get turned off.

Ebersman's warning carries far-reaching implications for not only Facebook but also other social media companies including Twitter Inc, which is in the middle of a roadshow to promote its initial public offering to investors.

Twitter has yet to turn a profit but it is pitching an advertising business model similar to Facebook's.

"It's important for investors to realize that there is a limitation on the mobile ad revenue that can be generated. The sky isn't the limit when it comes to that," said Jeff Sica, the founder of Sica Wealth Management. "That's the issue with Facebook. That will be the issue with Twitter."

Seven-year old Twitter faces an additional challenge: its active user base, now at 230 million, has expanded much more slowly compared to Facebook, due in part to its struggle to retain newcomers. A recent Reuters-Ipsos poll found 36 percent of Twitter users do not use the online messaging service.

"You don't know how many people sign up and don't use it, how many abandoned accounts they have," said Adam Grossman, an analyst at Middleton & Co who attended a roadshow lunch presentation by Twitter executives in Boston on Thursday.

Twitter has set a price range of $17 to $21 per share for its IPO, which aims to raise up to $1.6 billion. The price range values Twitter at up to $11 billion, less than the $15 billion that some analysts had expected. (Full Story)

One investor who attended the Thursday luncheon said Twitter's ubiquitous brand name will draw some investors.

"It's a company that has changed the world so I wouldn't bet against it," said the investor, who did not want to be identified. "But they also haven't created a business model which has proven that they can continue to grow at 100 percent a year and be profitable."

THIRD-PARTY ADS

Twitter is trying to expand its ad business in other ways. This week it closed a $350 million deal to acquire MoPub, an ad network that serves ads within mobile apps.

"The consumer eyeballs, and the amount of ads they can absorb without being irritated, is finite," said Rich Wong, a venture capitalist at Accel Partners, who invested in MoPub and AdMob, a mobile ad network that Google Inc acquired for $750 million.

With MoPub, Twitter will be able to serve ads in other apps to grow revenue without cluttering its own users' Twitter streams, Wong said. "By leasing real estate, you can expand by orders of magnitude the eyeballs you can get to," he said.

It remains to be seen whether MoPub can unearth new revenue for Twitter. But some industry experts liken the deal to Google's $3.1 billion acquisition of DoubleClick in 2008, which helped the search giant improve its ability to place targeted ads on Web pages across the Internet, not just google.com.

In the case of MoPub, Twitter will serve ads within third-party mobile apps, such as games, rather than websites.

In late September, Facebook also resumed work on its own mobile ad network after it appeared to put the project on hold earlier in the year, according to several tech blogs.

The renewed effort to seek other sources of revenue could be explained by Facebook's reluctance to show more than one ad per 20 stories in a user's news feed. Ebersman told analysts on Wednesday that the 5 percent ad ratio would not increase by much in the future.

That surprised some analysts and investors who had expected a higher rate.

"Five percent is relatively low," said Brian Blau, a Gartner analyst. "I'm surprised that it's only five percent. I was anticipating more, to really push the boundaries."

BETTER TARGETING

According to its investor prospectus, Twitter now makes a little over $0.65 per user compared to Facebook's $1.72. Analysts believe Twitter has room to grow in getting more revenue per user because Chief Executive Dick Costolo has been cautious so far about injecting more ads into Twitter streams.

Twitter's format and the nature of its fast-scrolling content also differs from Facebook, which means Twitter users may be more tolerant of ads, said Gartner's Blau.

But if Twitter's ability to show more ads becomes limited, then it would have to seek higher ad prices by promising marketers the ability to target users with greater accuracy.

In the past year, Twitter has expanded its targeting features to show ads to users who live in certain metropolitan areas, or show interest in certain topics.

Twitter infers what its users are interested in based on who they follow and what they tweet. In July, the company also began to use cookies to track the Web pages that its users visit, a commonly employed technique among Internet firms.

But even when displaying the highly personalized ads prized by marketers, social media companies have had to weigh the value of the ad versus their "creepiness factor," which could scare away fickle users.

source: www.abs-cbnnews.com

Facebook's stock price dives, and California could take hit

Facebook's stock has nosedived since the social media giant debuted on Wall Street earlier this month, and that's bad news for California's budget.

Gov. Jerry Brown was counting on about $1.5 billion in income taxes related to the company's IPO to help patch the state's swelling $15.7-billion deficit. But if the stock price remains low, a haul that big becomes unlikely.

The Brown administration pegged the stock at $35 per share -- lower than its $38 starting point but significantly higher than the $28.19 per share at the close of trading on Wednesday.

Jason Sisney at the nonpartisan Legislative Analyst's Office, which provides budget advice to lawmakers, said tax revenue from Facebook "could be hundreds of millions of dollars less than has been projected."

Of course, that assumes the stock price stays at its current level. And even if it does, Sisney said, there are other ways for the state to make up the difference. For example, the sale of Facebook stock would increase a California resident's tax bill.

The bigger question for the state budget, Sisney said, is how the overall stock market performs. That could sway tax revenue by billions, not millions.

H.D. Palmer, spokesman for Brown's Department of Finance, said the administration does not plan to redo its revenue forecast based on the lower Facebook share price.

He pointed out that the administration's $1.5 billion estimate did not include Brown's plan for higher taxes, which the governor hopes voters approve in November. If Brown's proposal passes, the state would reap more tax revenue from the Facebook IPO.

Asked if the administration is worried about the stock price, Palmer replied by email: "We’ve kept an eye on it –- but at the same time realizing that a) it’s only been trading for less than two weeks, and b) stock prices will fluctuate -- both down as well as up relative to an opening price."

source: latimes.com

Getting bearish on Facebook shares

Facebook shares have fallen 24% from their IPO price, and traders are placing bets that the social networking firm's stock will erode further.

The bears are after Facebook Inc.

Shares of the social networking giant continued a precipitous plunge since the company's much-hyped initial public offering. The stock notched a 10% drop Tuesday and has lost about a quarter of its value since going public May 18.

Facebook is now trading below $29, a stunning drop for the biggest tech IPO in history. And traders are placing bets that the stock will erode further.

"It's been a one-way ride so far, and it's hard to say if the stock has hit bottom," said William Lefkowitz, chief options strategist at VFinance Inc. in New York.

Much of the slide Tuesday was because of a rush of options traders coming into the market. These trades offered investors a new way to speculate on the rise or fall of the company's shares, and most of the bets indicated more drops are ahead.

In the first day for Facebook options, the bearish puts outnumbered calls by 1.26 to 1, said Brian Overby, a senior options analyst at online brokerage TradeKing of Florida. Facebook debuted as the second-most actively traded option behind Apple Inc. with 366,409 total contracts.

Put options grant investors the right to sell the stock at a predetermined price, while call options give owners the right to buy a stock at a preset price.

"It's giving people another way to short the stock, and you are seeing people jump on it," Overby said. "The options market can drive the actual stock price."

Indeed, the flood of options trading pressured the stock. Facebook tumbled $3.07, or 9.6%, Tuesday to $28.84. It marks a 24% plunge from the IPO price.

The drop brings up the big question Wall Street's been asking: How low can it go? The answer might not be known for a while.

Analysts said that there were a variety of option-trading strategies at work on Facebook and that it probably would take several days to get a better read on whether the bearish sentiment would stick. Monthly option contracts started trading Tuesday, while weekly contracts begin Thursday.

"Some of these investors might say the selling is overdone and let's look at a turnaround," Lefkowitz said. "It's hard to read into the current activity and figure out what investors are really thinking."

Some market watchers expect Facebook shares to settle into a range after the company reports earnings in late July. Others say the volatility will last much longer because the social network continues to operate like a tech start-up that's not beholden to Wall Street's focus on short-term results.

The stock has also notched lower as some have worried about Facebook's strategy. There were reports over the weekend that the Menlo Park, Calif., company was eyeing the acquisition of Norway's Opera Software, a Web-browser developer.

Spokesmen for Facebook and Opera declined to comment. In April, Facebook surprised some analysts by spending $1 billion to acquire Instagram, a photo-sharing company.

"Most companies are managing the business to produce relatively smooth and relatively predictable results for their investors," said Brian Wieser, a senior analyst at Pivotal Research Group in New York, who has a "sell" rating on the company and a $30 price target. "That is not the case with Facebook. People should expect volatility from an operations and stock perspective."

While Wall Street is guessing wildly about where Facebook's shares go from here, the mood inside the tech giant appears to be a bit more composed.

"Everyone is just going about their regular business here," said one employee who was not authorized to speak publicly.

On the day Facebook filed for its IPO in February, Facebook founder and Chief Executive Mark Zuckerberg posted a photograph of a sign on his desk that read "stay focused & keep shipping."

And some employees may take the stock swoon in stride since Facebook allowed employees to cash in some of their holdings through the secondary markets prior to the IPO.

"Mark has done a really good job at getting people not to focus on Wall Street," said a person familiar with the company who spoke on the condition of anonymity to preserve his relationship with Facebook. "Facebook has always been very long-term-focused company."

source: latimes.com

Zuckerberg kicks off Facebook's IPO show in New York

NEW YORK—Facebook Inc. CEO Mark Zuckerberg took questions about the No. 1 social network's slowing revenue growth and its $1 billion Instagram purchase, kicking off a cross-country roadshow to promote its $10 billion initial public offering.

Wearing his trademark "hoodie" sweatshirt, jeans and sneakers, Zuckerberg fended off one investor who questioned the deal to buy photo-sharing developer Instagram, an acquisition analysts and media said may have been concluded too hastily.

The 27-year-old–whose majority control of Facebook worries some investors about accountability–replied he would do the Instagram deal again if he had to, according to attendees.

Hundreds of investors packed the Sheraton Hotel in Manhattan and formed a snaking line around the block outside, watched by police and clipboard-carrying staffers, a stark contrast to the more mundane nature of the average investor IPO presentation.

Facebook aims to raise about $10.6 billion, dwarfing the coming-out parties of tech companies like Google Inc. and granting it a market value of up to $96 billion–rivaling Amazon.com Inc.'s.

Facebook's emergence as a cultural phenomenon, whose beginnings were depicted in the fictionalized 2010 film "The Social Network," added a palpable energy and buzz to an event that was policed rigorously.

Attendees were asked for multiple forms of identification and cross-checked against a list of names. Curious passers-by asked questions to media and investors waiting to spot arriving Facebook executives.

One investor joked that it should have been held in New York's Madison Square Garden, home of the Knicks basketball team and a standard venue for rock concerts.

"This is unlike anything we've ever seen," said another investor who was at the event.

From dorm room to NASDAQ

Observers pointed to the outsized event as a sign that interest was high in one of the biggest retail-technology names to hit stock markets in years.

The 8-year-old social network that began as Zuckerberg's Harvard dorm room project indicated an IPO range of $28 to $35 a share on Thursday, which would value the company at $77 billion to $96 billion.

The size of the IPO reflects the company's growth and bullish expectations about its money-making potential as a hub for everything from advertising to commerce. Many investors say they expect Facebook to raise its offer price range as the roadshow progresses from New York to other major cities such as Chicago, Boston and San Francisco over the next two weeks.

Amid the hoopla of one of the most closely watched IPOs in years are persistent concerns about Facebook's longer-term growth and Zuckerberg's majority control.

Zuckerberg, who will have roughly 57 percent voting control after the IPO, personally forged the expensive deal to acquire mobile app maker Instagram in a matter of days last month with little involvement from Facebook's board of directors, according to media reports.

Asked about the deal by an attendee at the event, Zuckerberg said Facebook's management had discussed a possible Instagram acquisition at length in several meetings. Facebook decided to act when it saw Instagram's user data cross a "tipping point" from which they believed it would grow significantly, he said.

He said Facebook moved quickly to strike a deal when it became clear that Instagram was open to being acquired.

Zuckerberg was accompanied by finance chief David Ebersman, who was wearing a suit and tie, and chief operating officer Sheryl Sandberg in a black dress, sweater and heels.

Investors managed to ask just five questions during the event, including a query about Facebook's potential plans to enter China, the world's largest Internet market by users.

Zuckerberg noted that Facebook was blocked in China–as are popular US websites from YouTube to Twitter. Sandberg said the company would be willing to sit down with Chinese government officials and discuss partnerships there.

Morgan Stanley banker Michael Grimes took the stage to begin the formal presentation as the audience of investors lunched on Cobb salad, iced tea and cookies, attendees said.

Demand built-in

Facebook set up the event to accommodate slightly more than 400 attendees in the hotel's ballroom, according to a person working for the hotel's event staff who declined to be named.

With 900 million users, Facebook is challenging established Web businesses such as Google Inc. and Yahoo Inc. for consumers' online time and advertising dollars.

Longer term, analysts say Facebook needs to develop a way to earn money from the increasing number of users who access the social network on mobile devices such as smartphones.

Facebook, which makes most of its money from advertising, began offering limited ads on the mobile version of its service only recently.

The average time spent accessing Facebook via smartphone in the United States was 441 minutes per unique visitor in March, compared with 391 minutes via computer, according to a report released by IT research house comScore on Monday. That exceeds the 146 minutes for users of mobile check-in service Foursquare, and about 114 minutes for microblogging service Twitter.

Susquehanna Financial Group analyst Herman Leung said in a note to investors on Monday he expected Facebook's revenue to grow 40 percent this year and 33 percent in 2013.

He said the $28 to $35 range for Facebook shares was an "attractive" valuation that provided a "compelling entry point" for investors.

In a separate note published Sunday, Pivotal Research Group analyst Brian Wieser put a $30 price target on Facebook shares.

"Our conversations with investors to date suggest that concerns around revenue growth and the absence of mobile monetization will linger for some time," Wieser said.

But, he added, "we would not be surprised if the stock trades up above the IPO price on retail interest in the company over the near term." —Reuters

source:gmanetwork.com

Silicon Valley braces for Facebook millionaires

SAN FRANCISCO — As Facebook goes public, Silicon Valley is buzzing in anticipation of the “instant millionaires” that may soon be looking for ways to spend their newfound wealth.

Eight years after Mark Zuckerberg founded the company in a Harvard dorm room, the stock market debut is expected to value the social media giant at as much as $100 billion.

While Zuckerberg and other longtime staffers stand to benefit the most, the initial public offering on Wednesday could also make millionaires out of much of the company’s rank-and-file.

Local real estate agents say they expect the IPO — at $5 billion easily the largest ever by a technology company — to boost already high home prices as newly wealthy staffers at the social media giant begin shopping.

“It’s going to have a great effect,” said Pierre Buljan, a Silicon Valley real estate agent who shows homes to young technology executives. “I believe with 1,000 new millionaires, they’re going to need a place to live.”

Buljan said his typical client often seeks “modern, high-tech structures” close to the airport and good schools.

“They don’t like the stuff their parents used to live in,” he said.

Typically clients pay cash for the homes, he said, which can range anywhere from 4,000 to 15,000 square feet (372 to 1,393 square meters) depending on the size of the family.

Real estate agent Dawn Thomas said she is already seeing home prices rise in areas surrounding Facebook’s Menlo Park headquarters and expects that to continue.

“You’re going to have all these instant millionaires on the streets,” Thomas said. “The trickle is already happening.”

Thomas described her tech-savvy homebuyers as “very, very green-minded” and in search of smaller, tech-equipped, energy-efficient homes with high-end amenities.

“They don’t want ‘McMansions,’” she said, referring to super-sized houses that can gobble up energy.

Thomas and Buljan both cautioned that it will take time to see the full effect of the IPO. Facebook shares will not actually begin trading on Wall Street until later this year.

The social networking company may also be taking steps to avoid sparking a buying craze that could spark another housing bubble.

Buljan said he’s heard Facebook has cautioned its soon-to-be millionaires to take their time when purchasing a home in order to avoid staffers flooding the market and essentially bidding against each other.

“They’re very young, 20s and 30s, and the fact is they’re getting some good warnings from inside company execs,” Buljan said. “They don’t want it to be about Facebook has got all these crazy people out there shopping.”

That’s good advice, according to Sam Hamadeh, chief executive of the financial research company PrivCo.

Hamadeh said employees can typically start selling their shares 180 days after a company goes public.

But he said he would advise staffers to resist the temptation to borrow heavily against vested holdings or cash in immediately once those six months are up.

With past IPOs, “a lot of people have gotten devastated by putting down big downpayments on homes” that they later couldn’t afford when share prices dropped, Hamadeh said.

Instead, he said shareholders should sell slowly and not expect prices to soar indefinitely.

“When they can start selling, everyone can start selling,” Hamadeh said. “Between the IPO and six months, you’d be surprised how fast shares can tank sometimes.”

source: interaksyon.com

ANALYSIS: Facebook IPO tests easy growth assumptions

SAN FRANCISCO - As Facebook hurtles toward one of the largest initial public offerings in U.S. history, its honeymoon with investors may already be over.

The dorm-room project started by Harvard dropout Mark Zuckerberg, 27, could well become one of the world's most highly valued Internet companies when it sells shares to the public for an expected valuation of as high as $100 billion.

But the relatively carefree days of super-charged user growth may be behind Facebook, analysts say, as the social networking company begins the difficult task of living up to Wall Street's lofty expectations under a public microscope.

Facebook's IPO prospectus, filed with U.S. regulators on Wednesday, revealed a profitable and fast-growing business built upon advertising revenue and online transactions.

But the Silicon Valley company's $3.7 billion in revenue last year was at the low end of analysts' expectations and underscored the wide gulf between its current business and the most optimistic hopes that many investors have riding on it.

"For the valuation that people are going to be paying for this name, they're going to probably be overpaying by a third because of the optimism related to just the name," said Michael Yoshikami, chief executive of YCMNET Advisors, a California-based wealth management firm.

"The numbers justify maybe a $50 billion number," he said, referring to Facebook's valuation.

Facebook's revenue growth rate - roughly 88 percent in 2011 - would justify a $65 billion valuation, Yoshikami noted, which is far short of the $75 billion to $100 billion that sources have said the company is looking for.

Facebook fatigue?

Facebook's explosive growth has come as first-time users joined the social networking site in droves, which in turn enticed even more to join up. The world's biggest social network now has 845 million members in more than 70 languages.

But with signs that membership growth is slowing, analysts say Facebook needs to get existing users to spend more time on the site and advertisers to spend more money. In the last three months of 2011, Facebook's total monthly active users rose 5.6 percent versus 10.5 percent in the last three months of 2010.

"The hypergrowth is probably over'" said Michael Pachter, head of research in the private shares group at Wedbush Securities. "The low-hanging fruit of the Western developed world has already been penetrated to a large extent...It's just kind of obvious that they're not going to ever get every single person that lives on the planet."

Facebook knows it needs to diversify revenue streams. It has a successful gaming business that nets it 30 percent of the revenue from sales of virtual goods in games like Zynga Inc's Farmville.

But Facebook wants to encourage users to stay for media content, putting it in competition against Apple Inc and Google Inc.

Known for its engineering-driven culture, where innovation and experimentation are prized, Facebook has rolled out a steady stream of new features and capabilities, from video chat to mobile apps. They appear to be ensuring that users keep coming back.

In December, 57 percent of Facebook's 845 million active users interacted with the service on any given day, up from 54 percent at the same time last year, the IPO prospectus shows.

And U.S. users seem willing to devote increasing amounts of time to the site - seven hours each month compared to just over five hours only a year ago, data from industry research firm comScore says.

Boosting that level of engagement, however, will be one of Facebook's challenges. With new competitors hitting the market, from image-sharing site Pinterest to Google+, some analysts warn that social networking "fatigue" might set in.

"There's probably going to be a breaking point in how many of these new technologies consumers can cobble into their lives," said Rebecca Lieb, an advertising and media analyst at research and consulting firm Altimeter Group.

"You still have to eat, you still have to sleep. So the market might become very saturated and shake out," she said, noting that Facebook has a very solid foundation compared to some of the other social networking services.

Titan or minnow?

Facebook's advertising business, which generates the bulk of revenue, also has room for growth or improvement, depending on your perspective. In 2011, the number of ads delivered on Facebook rose 42 percent year on year, while the average price per ad delivered rose 18 percent, the company reported.

The wealth of information that users have given Facebook about themselves - from their age, gender and city of residence to the music and products that they "like" - means that the company can target marketing pitches to specific audiences.

Whether Facebook's advertising services can become a must-buy for marketers, the way Google's search ads have, remains to be seen, analysts say. Many of the companies that have created pages on Facebook simply use the service as a free marketing tool rather than paying for advertising services.

Facebook noted in its prospectus that more than 4 million business have set up pages on its site - but it did not mention how many of those companies are paying advertising customers.

"I worry that the billions of dollars of revenue that they generated last year aren't as solid as they need to be because the advertisers who spent the money aren't as thrilled with the results they got for it," said Nate Elliott, an analyst with Forrester Research.

While Facebook has plenty of data about users, it has not figured out how to use that to effectively target ads, he said.

The company can use the proceeds from its IPO, expected to raise $5 billion to $10 billion, to bolster its advertising services by building new tools or by acquiring companies, said Elliott.

Compared to many established tech titans, from Google to Apple to Microsoft, Facebook's current business is tiny.

Google reported $38 billion in revenue last year, while Apple had more than $100 billion in revenue in its most recently ended fiscal year. Google shares are currently trading at five times revenue, whereas Facebook would be demanding a 27 times multiple based on a $100 billion valuation.

For some, Facebook's rich valuation is a bet that its sheer mass and its status as the Web's central destination will open new money-making opportunities. To be sure, Google went public at about 24 times its previous year's revenue, and Apple went public at about 25 times prior year's revenue.

"In order for investors to make the case to pay up for this deal they're going to have to be extremely confident that Facebook will be able to develop new revenue streams that will be very significant," said Ryan Jacob, chairman and chief investment of the Jacob Funds.

"The opportunities for them are really pretty endless if they execute," said Jacob.

source: interaksyon.com

Facebook may file for IPO next week: WSJ

NEW YORK - Facebook may file papers for an initial public offering next week that would value the social network at up to $100 billion, The Wall Street Journal reported Friday.

The newspaper, citing people familiar with the matter, said Facebook could file IPO papers with the US Securities and Exchange Commission (SEC) as early as Wednesday but the "timing is still being discussed."

It said the Menlo Park, California-based social networking giant is looking at a valuation of $75 billion to $100 billion and is close to picking Morgan Stanley as the lead underwriter for the public offering.

source: interaksyon.com