Finally, The Facebook IPO!

Finally, The Facebook IPO!
Get ready for a never-ending media deluge. According to a Wall Street Journal report and other reports, Facebook’s S-1 will come out this week. Facebook’s operating profit was around $1.5 billion in 2011 and its operating revenues were about $3.8 billion, according to leaked numbers reported by CNBC, consistent with other reports we’ve seen—apparently, we’ll know soon enough whether those leaks were good. The expected valuation is around $85-100.

When the S-1 finally drops, you can count on us to thoroughly dissect the company’s financials. But in the meantime it’s worth taking a high-level view of why Facebook matters and why anyone would dream of buying a $4 billion revenue company at $100 billion. 

Here are the few, highest-level reasons:

  • Facebook is becoming one of the biggest sources and referrers of traffic on the internet—and on the internet traffic is money. The reason why Google became the most valuable and feared internet company was because most of the traffic on the internet came from Google. This is changing. An increasing amount of traffic—for some sites, most of their traffic—comes from Facebook. And on the internet, traffic is money, because it translates into (take your pick) advertising, commerce, transactions. If Facebook controls half of the traffic on the internet (as it does now to many sites), it can start selling that traffic very profitably. (This is also the real reason why Google is terrified of Facebook, even though they’re not direct competitors.) 
  • Facebook has oodles of data on you, including your identity. The web has been crying out for a personal identity system: a way to link transactions and traffic to a real-world identity. Facebook is the first traffic that has achieved the goal of getting us to identify using our real-world identities. The opportunities for targeting advertising are obvious, but they are much broader: By “owning” personal identity on the internet, Facebook has an immensely valuable asset. 
  • Facebook is the biggest social platform. “Social” is a fad, some say. We disagree: What “social” means is that people decide what to consume and share among other people, which is the natural way to do things. “Social” is always going to be a part of consumer and even enterprise applications. And Facebook, intelligently, isn’t content with being the biggest “social” destination site; it has turned itself into a platform, allowing others to either build applications on top of it, or use its tools to add its “social sauce” to its system. Just as Microsoft dominated the computing world by owning the biggest software platform—Windows—Facebook is turning itself into the dominant platform of a new internet era. (It might not end that way, but it’s definitely not a silly case to make.)    
  • Facebook is unstoppable because it has a network effect. We are mixed on this, as we have written many times that network effects are oversold. This is what we think about Facebook’s network effect: It does ensure that the vast majority of people on the internet will be Facebook users, and that this in turn will make Facebook’s platform very valuable. What it does not ensure is that Facebook will always remain relevant and might not be displaced by other platforms. But not everyone sees it that way. 

So to sum up, Facebook is a company that controls, will control, or can plausibly be argued to be on the cusp of controlling: a) most of the traffic on the internet; b) most of our personal identity data; c) the emerging platform that will define the future of the internet. 

Predictions are hard, especially about the future, and we’d hate to have to be the ones to put a dollar value on Facebook’s valuation. But when it comes to the inevitable howls that Facebook’s valuation is “obviously insane,” you’ll know better.

In other news …

Don’t Miss Our Explainer: How (ACOM) Makes Money →

The economy of the web is poised for tremendous growth in the next few years and could be worth as much as $4.2 trillion in G20 countries alone by 2016, according to results from a survey by Boston Consulting GroupGoogle commissioned the report, which says the exploding popularity of smartphones will lead the way in the internet of the future.

Among the astounding numbers, the survey predicts that within four years: 80 per cent of all internet users will get online via a mobile phone; nearly half the entire world’s population will be online; the majority of people online will be in emerging markets (think: China); 1 trillion devices will be connected to the internet, estimates IBM, as cars and many other things become “wired.” More information on the report can be found on the Boston Consulting Group’s site.

Digital revenues across multiple platforms is now the driving force for growth in the video games industry, writes BMO analyst Edward Williams. This highlights how most sectors of the economy are slowly but surely being eaten by the internet.

Acer’s chairman says there is a “high chance” the company will return to profitability in the first quarter. Things have been rough for Acer, which grew on the back of netbook sales, and is now disrupted by tablets. More broadly, Acer’s troubles mirror those of the PC industry at large, which is stagnating or even declining as we enter a post-PC era.

More brands will be able to have customised Twitter pages beginning next week, if they’re willing to pay for at least $25,000 in advertising. Brand pages allow companies to promote certain tweets and show more multimedia content than normal twitter profiles. See our earlier report, on how Twitter is quietly building a big business →

Jon Rubinstein, known for taking over Palm after he left Apple, has left HPPalm was acquired by HP in 2010. It’s unknown what he’ll do next.

Google spent over $1 billion to acquire 79 smaller companies last year—twice as many as the year before. Bracketing the confounding Motorola buy, which isn’t included in the tally because the deal hasn’t concluded yet, Google’s generally been an excellent acquirer and this should be a positive sign for the company.

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