Facebook is in the top five of most valuable companies this is due to the drivers that have made it grow: mobile engagement, growing number of marketers, and product development. Even though, FB didn’t invest much in mobile advertising during the IPO it was still a significant driver and impacted the company’s performance.
In 2013 the number of daily mobile users had exceeded the daily desktop users which accounted for 53% or $1.25 billion of total advertising revenue. FB users utilize the social media site as their main source of information before making shopping decisions.
The efforts set forth by Facebook paid off with a 92% increase in ad prices year over year in the fourth quarter. (Levy, A. 2014).
FB has a growing number of marketers even though Google had more ad-clicks than FB. The increase in its ad impressions increased its revenue however, FB increased the number of marketers to drive the up the price of the ad which influenced the increase in ad sales.
Of the four marketer segments that FB has the mainly focused on were: small-to-medium businesses (SMBs), and app developers (Levy, A. 2014).
FB has recognized the value of the SMB they showed this by adding 5 million SMB pages exceeding 25 million placing them in the top position over its competitors. FB has also been very successful with its app-install and app-engagement ads. Even though this is relatively small segment, it is quickly raising because they have specific objectives and advertise in mobile markets (Levy, A. 2014).
Product development will be a key component if FB wants to continue to appeal to more customers than Google and Twitter.
One way they are doing this by tracking in-store advertising sales (Levy, A. 2014). Even though the founder of FB Mark Zuckerberg was reluctant to take the company public by 2012, that decision has proven to be very lucrative the initial $38 per share has more than tripled to around $160 per share currently.
Suggest an alternative method of valuation for the company valuation indicated and how it may have yielded a different value and the potential resulting impact to investors decision
Not all valuation methods are the same nor is one method applicable to all companies or all market conditions. An alternative method of valuation that FB could use is the absolute valuation method. This method is good for defining the value of a company without regards to its current price. The value is determined independently then compared to the current price to compare if there is enough expected return. It is usually based on the cashflow or an asset approach (Johnson, R.R./Horan, S.M./Robinson, T.R. 2014).
Let us first look at the cash flow approach, a prediction on the future expected amount of cash flows should be made then a determination of the present value of those cash flows using a predetermined rate of return on that investment. The free cash may be due to dividends or income that the company has created internally. The second approach which is asset based, the value of the net assets (assets owned subtract any liabilities) is determined. The calculation for this approach is based totally liquidating the company (Johnson, R.R./Horan, S.M./Robinson, T.R. 2014).
Assess the role of the Chief Executive Officer in relationship to the stock performance, suggesting what the person in that role may have done differently to positively influence the performance of the stock and value to investors
The role of the Chief Executive Officer (CEO) for FB is structured in a way that Zuckerberg has control and the final say on the company’s direction this is how the stock is arranged. This gives him the ability to focus on the long-term goals of the company without the threat of investors of the board firing him after a couple of non-profitable quarters. On a FB townhall Q&A Zuckerberg said, “If you have control of the company then it is very difficult for investors to fire you. This means you don’t need to worry about losing your job over a couple of bad quarters or controversial short-term decisions, and that makes it easier for you to make the decisions you think are correct as well” (Priestley, T. 2015).
As the founder and CEO, Mark Zuckerberg has a passion to maintain long-term goals to help FB succeed. The bottom line is not his primary focus, it is about creating a product that will be on the same level as television in the communications arena one day. It is about trying to find a compromise with the investors that want bottom line details, so they can turn a profit. When thinking about investing in a new public company one should understand the company’s business model and the objectives of senor management. Knowing the direction that management wants to take the company in is beneficial and investors will be able to gage the growth and potential earnings of the company. Remember that when you invest in an IPO there are no guarantees, so it is important to know what to expect when they preform well and when they underperform. For example, when FB went public in 2012 the price per share was $38 a week later it traded for $27 per share now the shares are worth $160 per share.
Evaluate the risk/reward position to an investor when purchasing stock during an initial public offering, indicating under what circumstances you would advise an investor to do so
Most people want to have money to retire and live comfortable or at least be able to afford their medications, the question is what a good investment is what the risks and rewards are. As an investor purchasing stock during an initial public offering, here are some things you should consider.
According to data from Thomson Reuters, the IPO market is its strongest since 2007 (Greenshields, D. 2014). New IPO’s from companies like Rocket Internet a German Internet provider and Cnova a French online retailer, and many others are being generated but what are the deciding factors as to which one to invest in. Not only is there a potential to deliver substantial returns, there is also a great risk to loss one’s investment. There are some factors to consider when thinking about investing in a startup public company.
How do I access an IPO? How does one “get in” on an IPO, usually the initial shares are reserved for high-net worth individuals, mutual funds, hedge funds, pension funds, and insurance companies. Is it possible for the average investor to purchase shares before they are already traded on the secondary market? The Securities and Exchange Commission (SEC) does advise that the stock share price could be higher or lower than the initial offering price, depending on when you decide to make the investment (Greenshields, D. 2014).
Do your homework. Before investing in a newly public company consider:
Does the company have a strong earnings potential or struggling to make a profit?
What is the business model, fundamentals, and management team?
What are the implications of a market downturn on the value of stock holdings?
How does the company make money?
What are its key products or services
What are the potential risks and rewards associated with investing in the company.
Media hype doesn’t always help. A prime example of media hype investing is Groupon the internet discount coupon provider. The IPO was so overwhelmed with investors trying to “get in” on the deal because of the media hype/ market boom. In 2011 the price per share was $20 and since 2014 the stocks have been trading under $10 per share (Greenshields, D. 2014). The underwriters were able to price the IPO shares above the company’s price-to-earnings ratio because of the many investors however, those share prices were not maintainable once on the secondary market, thus causing the price to fall. If an investor purchased stock during a market bloom they risk holding shares that will most likely be difficult to sell during a market downturn.
Predict the stock price of Facebook over the next five years, indicating the key drivers of the performance and the resulting impact to the stock price
Facebook was listed #35 on eVestment’s list in 2014, it has raised incredibly 399% since then, by 2015 it was at the #23 position and since December 2016 it was at the #16 spot. Facebook’s earing per share rose by $0.77 on revenue of $5.4 billion this was 10% higher than what Wall Street had estimated all this was done the first quarter. It has been six years since Facebook went public, so it is comparatively a young company with so much growing power (Adler, D. 2016).
The two noted subsidiaries that will increase FB stock by 112% by the year 2020 are Instagram and WhatsApp. Instagram the very popular social media stream has 400+ million users, and WhatsApp the instant messaging app that can also be used to make global phone call through FB has 1 billion users. CEO Mark Zuckerberg is making plans to convert these two into revenue streams. Instagram is excepted to produce cash through advertising. eMarker a research site predicts that 10% of FB 2017 global ad revenue will be generated from Instagram. According to data from The Wall Street Journal, “40 of the 48 analysts covering FB stock give it a “Buy” rating. The median 12-month price target is $145, with a high of $170 (Adler, D. 2016).
Over the next five years FB will become more popular especially with the over 50 crowd because of the discoveries of the endless possible and the ways to connect with loved ones.