REVENUE

•Facebook IPO in February 2012 has not been up to the expectations!

•Facebook made $3.7 billion revenue in 2011. Not too shabby at all, but in December 2011 they had 845 million users. Assuming they averaged 700 million for the whole year, that’s just over $5 per user per year. And that’s revenue, not profit!

• 15% of its revenue comes from one social game developer, Zynga, suddenly the whole system seems a bit fragile.

• Ads are rarely clicked and they’re badly targeted and the creative they use looks so woefully amateur any brands use them.

• General Motors recently pulled their entire Facebook advertising budget. Not everyone agrees with them for sure (least of all Ford), but if one of the world’s leading brands doesn’t spend ANY money with you, frankly you’ve got problems.

• Facebook users in the United States now spend more time on Facebook on their mobile than their desktop computer Great news for the user, but terrible news for Facebook. There are fewer ads on the mobile site. Fewer ads mean less money.

AGING USERS

• From March 2011 to March 2012, Facebook lost 300,000 users in the US. And its worldwide profit was down too by almost $30 million.’

• Facebook was built for college students. (A face book, for those outside the US, is a photo album of your peers that you’re given before you start college). But those college students who were the early adopters are grown up now. have kids, mortgages, even jobs. Sure, they might post the odd comment, a video they like, but certainly they’re not the avid Facebookers once were.

• ‘gentrification’ of the first generation of college kids has contributed. Likewise, the loss of a novelty factor means that, for most people, it’s not something they get excited about. This then leads to the loss of a ‘network’ effect. If no one you know is on Facebook, you have no reason to join.

INSTAGRAM

• Instagram, for the record, doesn’t make any money. I don’t mean money as in profit, I mean money as in revenue.

• All the money Instagram have ever spent has come from venture capital investments. Debt, in other words.

• So why would Facebook spend so much money on an essentially valueless product? Partly it was defensive. Instagram was looking for a buyer and Facebook knew that Twitter was interested and wanted to maintain its position in the photo-sharing market. And of course culturally, old companies that are worried about their future often buy younger ones for over-inflated prices.

WHAT NEXT?

• Facebook’s much-delayed IPO will be interesting when it actually happens. What sort of return will investors expect?

• Investors, having paid $38 per Facebook share, get a decent return on their investment, but there’s no denying that the stakes are getting higher. Can Facebook, with revenues of fewer than 4 billion really be valued at over 100? With profits of around $200 million a quarter, it would take 125 years for investors to get their money back. That’s assuming Facebook pay out 100% of their profit as dividend 100% of the time, which even they say is unlikely.