Social Network Service and Facebook Essay

1751 Words Feb 10th, 2015 8 Pages
1 . How does Facebook make money? What are the value drivers of its business? What is its comparative advantage relative to other social networking companies?
Advertising accounted for 98 per cent of Facebook’s revenues in 2009, 95 per cent in 2010 and 85 per cent in 2011. Facebook offered advertisers the opportunity to segment and target its users based on their demographic information, expressed interests and social connections.
Another part of the revenue was generated by its payments business, which came almost exclusively from the sale of virtual goods used in social games sold through the online gaming company, Zynga.
Facebook’s value driver is dependent on how well they adapt to their ever-growing pool of competitors. Twitter is
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Facebook will not receive any proceeds from the sales of share by the selling stockholders. Facebook expects that the majority of the net proceeds Mr. Zuckerberg will receive upon the sale of shares in the offering will be used to satisfy taxes that he will incur in connection with his exercise.
Through an article, it reported that Facebook says it plans to the proceeds for working capital and general corporation and the principal purpose is to “create a public market ” for shares to allow us and their employees. Instead of spending the money on businesses, then, Facebook says it will invest the proceeds in money-market funds, certificates of deposits, Treasuries or cash.
3. What was transpiring in the US IPO markets prior to Facebook’s offering? What has been the performance of recent IPO’s(during the lead-up to the Facebook offering?

Before Facebook’s offering, based on the exhibit 5, the US IPO market was influenced negatively by the global IPO market which was with economic uncertainty and market volatility. More investors were not optimistic that resulted in the decrease of raised capital and declining number of
IPOs since the first quarter in 2011.
According to exhibit 6 in the case, it shows the analysis of recent IPO by McNeil and his team. The
IPO prices of both Linkedln and Groupon are higher than the initial price range. Furtermore, their price increase dramatically on the first
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