Facebook to Face New Challenges Post-IPO

In 2004, from their Harvard University dorm room, 19-year-old Mark Zuckerberg along with two classmates, created what would later manifest itself into the world’s largest social networking company, Facebook Inc.

After its much-documented exponential growth to global dominance, it was by no happenstance therefore, that on the first Wednesday in February exactly eight years later, Facebook Inc. would officially file paperwork to become a publicly traded company.

Facebook intends to raise a desired $5 billion in capital, and within its released Securities and Exchange Commission (SEC) mandated filing of registration Form S-1, a previously over-speculated and undisclosed fiscal profile of the company has now definitively emerged.

Increasing Profits

As of last year, Facebook generated a net income of $1 billion, up markedly from $606 million in 2010, on gross revenue of $3.71 billion, a significant increase from $1.97 billion in 2010 and $777 million in 2009. Nearly 85 percent of Facebook’s revenue, $3.2 billion, was advertisement derived, with its Facebook Credits payment system comprising the rest of its revenue stream, at around $557 million. Facebook platform gaming company offshoot Zynga Inc., contributed approximately 12 percent to Facebook’s total revenue in 2011.

Despite this rosy financial picture, in a letter addendum to the filing, co-founder and CEO Zuckerberg once again interestingly harkened upon his social-impact first ethos when outlining the core guiding vision for the company by stating, “Facebook exists to make the world more open and connected, and not just build a company.”

A certainly contrarian notion given that raising and building capital will now be of critical importance to the success of the company and more importantly future investors. However, if Google Inc.’s Do No Evil mantra at the time of its public offering in 2004 is any precedent, perhaps Facebook and future generations of Internet companies can manage to be commercially successful without losing sight of their ethical compass as well.

Customer Monetization

From a pragmatic perspective, with around 845 million users, of whom Facebook knows more about than presumably any other company in the world, the challenge will continue to be simply user monetization.

To achieve this goal and ultimately satisfy Wall Street, Facebook will need to keenly focus primarily on further expanding its credit payment system, strengthening its mobile strategy, and growing its application platform to entice more developers to create a wider array of profitable applications.

On a more macro level, it will be vitally important for Facebook to strive to build a greater number of strategic corporate partnerships and also increase the number of their global users. In light of increased competition from the likes of Google, Microsoft Corp., and Twitter Inc. among others, indeed there will be no small obstacles to overcome. Yet, with this forthcoming infusion of capital, Facebook should be able to find innovative solutions to these challenges and succeed in converting “likes” into dollars.

The IPO will be underwritten principally by Morgan Stanley Co. with assistance from JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Barclays Capital Inc., and Allen & Co.

Facebook will trade under the ticker symbol “FB,” with an estimated valuation between $85 billion and $100 billion. Trading of the stock will most likely commence at some point during the second fiscal quarter this year, between April and June.