Would you like to invest in Facebook?

This is high time as the most expected IPO in internet businesses history is making its way, yes, Facebook has begun its roadshow for investors towards its IPO on Monday. It seems many Indian investors also might be putting their money in Facebook.

For around 1,000 shares, one may need around Rs.18 lakhs (at a price of $35/share). Facebook's IPO offers around 337 million shares with a price band of $28-35 per share, raising around $14 billion. This puts the valuation of the company at $95 billion.

Facebook will start trading on May 18 on NASDAQ under the ticker, FB.

Facebook claims that it has more than 900 million active monthly users.

Facebook's growth slows down

Ahead of its proposed IPO in May/June this year, Facebook has come up with financial results for the Q1 2012. The results are bit disappointing for investors and potential investors who are thinking of a pie in IPO shares. Revenues crossed the magical $1 billion mark in last quarter, a healthy 55% growth Y-o-Y. But when you look at the bottomline, it was a bit concerning. Net profit for the quarter came down by 12% Y-o-Y, primarily driven by the expense factor. Marketing expenses have nearly tripled.

Facebook might be struggling to keep its revenue and user growth and spending a lot in marketing and ads. The company even cited in its recent filing that it may not sustain the growth level in coming months.

Here's the latest filing: http://sec.gov/Archives/edgar/data/1326801/000119312512175673/d287954ds1a.htm

A look at Facebook IPO

And yes, it's finally came! That's the reaction from the world of investors, analysts and others who have interests in Facebook. Facebook has filed for IPO yesterday with expecting to raise $5 billion from the public. However the company remained silent on the number of shares that are floated for IPO. Also, no break-up of users by country is available in the filing.

The numbers seem really promising and as expected. Revenues were $3.7 billion in 2011, an increase of 88% from previous year. Profits stood at $1 billion (~27% profit margin). Number of Facebook users jumped to 845 million at the end of 2011, up by 39% Y-o-Y.

Industry estimates put the valuation to be in the range of $75-100 billion.  Well, these are all on the positive side of Facebook. Let's have a look at some other numbers as well that may be really worth considering for investors and followers of Facebook.

    1. Sales growth has been on decline since 2009 (sales growth in 2009 was 186% over 2008, but it was 88% in 2011 over 2010)
    2. Total expenses have been steadily increasing since 2008 and it was up by 100% Y-o-Y in 2011
    3. Net income was increased by 65% in 2011 and was at $1 billion (don't know whether Mark wanted it as a rounded/exact figure!)
    4. Cash and cash equivalents were at around $4 billion at the end of 2011
    5. Number of monthly users were around 845 million as on Dec 31, 2011, increased by 39% Y-o-Y; the same number witnessed an increase of 69% in 2010; this shows that Facebook is nearing maturity in terms of adding people; this may not be an issue if it considers other unexplored markets like China;
    6. Daily active users were around 483 million in 2011
    7. Advertising is still the major source of income for Facebook with around 85% of its total revenues come from that segment, but note that it was 95% in the previous year
    8. Revenues from the US market has been on decline. Around 56% of its total revenues were from the US in 2011, it was 62% in 2010.
    9. Every Facebook member generates ~ $4.5 in sales for Facebook and adds ~$1.2 in profit to the company
  10. Expected offer price will be in the range of $40-53 per share
  11. Around 12% of its revenues come from Zynga

So, everything seems to have been well for Facebook. But that may not be the case in future. The issues that may affect the company's growth in coming years could be,

                   - data privacy regulations from the government
                   - increase in marketing expenses to sustain the revenues growth
                   - find out a mobile strategy that would help Facebook to explore new markets and people
                   - marketing strategies that help Facebook to retain members base (with innovative products/services)
                   - exploring new markets (e.g China)
                   - explore new avenues for generating revenues than depending only on advertising

Let's wish Facebook all the best with this fund raising in the new year!

Are ecommerce companies in India really sustainable?

We all know that ecommerce in India is growing at a rapid pace (around 40-50% a year) and presently valued at $10 billion. So everything seems to be on a very positive side as far as ecommerce is concerned in India. As a result, hundreds of new players are entering into this market every year. Some estimates claim that there are around more than 3,000 ecommerce companies in India.

So, how these companies manage themselves to differentiate their products and services from competition? There are many things that are common among all the ecommerce companies. viz cash on delivery, free shipping, security, new payment options like cash cards, EMI plans linked with credit cards, etc. But when it comes to differentiating factors there are very few things and that are captured only by very few companies. For example, some companies provide a great user experience and simple buying process. Another differentiating factor could be 'product offerings' i.e offering niche segment of products like kidswear, diamonds and other luxury items, etc.

So what's making these companies to mushroom in number? Well, everybody is competing for a share pie in this one of the fastest growing markets in the world. But all these companies tend to forget one main thing for any business to survival i.e profitability and scaling up (in terms of number of customers and revenues). There are few cases that has made many of these start-ups to revise their strategy. Recently, Taggle.com, an online electronics retailer, has announced to close its business due to increase in losses and the reason is it couldn't survive the intense 'price-war' that's going on among these so-called ecommerce companies.

So now the issue is about 'sustainability' in this space for the Indian ecommerce companies!

One good thing for customers though - great deals at an all time low prices!