Last year (January 12th, 2011) I posed 5 Questions for Facebook Investors into the then private company Facebook:

1. Facebook (FB) claims 500 million subscribers. How many of these are active users — at least once or twice per week? How many of these are dead accounts, with no activity for 30 days? 90 days or more?

2. What is the average revenue per subscriber? How are you planning to grow this?

3. How much churn does Facebook go through? For every 100 new subscribers, how many subscribers leave?

4. What is the life cycle of the typical Facebook subscriber? How active are they for how long, what sort of arc do they cut across theirFB life cycle?

5. Besides advertising, how will you monetize your user base? Are you selling their data to buyers? What about anonymized data — are you selling this also?

Bonus question: What is the subscriber growth like outside of the US? Where are your fastest growing areas? What area is not seeing big penetration ?

OK, that’s more like 15 question about their users, growth and monetization prospects from a Private Equity/Venture Capital perspective.

Today, on the eve of their Form S-1 SEC filing for an IPO, there are additional questions that are worth asking of a soon to be publicly traded company:

1. What is the IPO offering price going to be? What market capitalization will FB come public at?

2. What are the key pricing metrics? P/E, growth rate, price to book, price to sales?

3. What are FB’s future growth rate? At 800 million users, where do they begin to plateau? Top out?

4. What is FB’s plans for penetrating China?

5. How are the privacy concerns going to be handled? What else might come out of the closer FTC  scrutiny of web companies use of personal data?

6. How long are insiders/VCs going to be locked up? Are they committed holding onto shares for the long haul, or are they cashing out at the IPO or as soon as possible thereafter?

The VC money is often called the smart money, where as the public IPO is often the dumb money.

Remember, Google stunned the world during their road show by revealing monstrous revenues and enormous profits. It stunned the analyst community, who had no idea as to how profitable the search giant actually was.

Will Facebook be able to do the same? Can the social media giant monetize users as effectively as Google — we shall soon find out!

Category: IPOs, Venture Capital, Web/Tech

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Questions for Facebook IPO Investors”

  1. HEHEHE says:

    They’ve been waiting to do this IPO for years so you know it means the stock market has topped for the intermediate term – time to get short. Reminds me of Blackstone.

  2. [...] Barry: Questions for Facebook IPO buyers.  (TBP) [...]

  3. Orange14 says:

    Only one thing is sure, the VCs, investment bankers and Mark Zuckerberg will make money; everyone else is engaged in a roll the dice game.

  4. DeDude says:

    What will they do when the next generation social network software get integrated into browsers and place peoples social network pages on their own computers or in the cloud, and 100% under user control. How will they compete with something that is free of privacy issues and annoying commercial interruptions?

  5. Bob A says:

    For many so called users it’s a passing or past distraction. And advertisers if you expect me to go to facebook to see your product info, or use facebook to log in to your service…… forgettttttttt it.

  6. DSS10 says:

    I still think the whole “internet-ad-click-through-sales-conversion” pricing/valuation model is BS, and likewise so is the valuation for Facebook. You can get a lot of information on someone but I really don’t think you can monetize it to the point that Facebook and others are touting and that you really can predict and influence customer behavior to the point that the information is worth more than the cost to collect it….

    I am however looking forward to some (they will never let the cat out of the bag) marketing data regarding customer account/ subscriber data and perhaps some demographic data for current users.

  7. nweaver says:

    Facebook CAN’T expand into china: Facebook is deliberately censored by the Chinese, and has been blocked since mid 2009, probably as much to encourage local competitors as it is to prevent a forum for dissent.

  8. “The VC money is often called the smart money, where as the public IPO is often the dumb money.”

    Let’s quantify that. As covered in bloomberg businessweek, Zynga’s IPO netted 100 times the return for VC. Return on IPO? 20% loss as of december and is just breaking even this year.

    The business value of Facebook is the “trust” users give to the site in exchange for free social networking. That personal information is worth a lot to advertisers. So the baseline metric is about how much an advertiser will pay per active and gross (active+inactive) user base. Compare that to Google. Do the same measure for # visitor/visits and then there might be some numbers to work with.

  9. jpmist says:

    How does it affect Facebook’s user base when grandparents join in?

    Has a privacy blacklash already started?

    Has Facebook already peaked?

    By now, people have either already joined or have lapsed. . .

  10. holulu says:

    Google offer enormous utilities for its users, FB is nowhere close.

    FB is much inferior concept than Google.

  11. Molesworth says:

    From the bubble expert, written when FB was speculated to be worth $50-100b.
    The facebook bubble
    A specter is haunting financial markets: bursting bubbles. Many fear, few can predict them. ETH professor and risk scientist Didier Sornette is one the few who can. After an analysis of the data of the most successful social media company, he and Peter Cauwels come to the conclusion: facebook is vastly overvalued.
    8 8 8
    Our analysis resulted in a valuation of 15.3 billion USD in the base case scenario, 20.2 billion USD in the high growth scenario and 32.9 billion USD in the extreme growth scenario.
    http://www.schweizermonat.ch/artikel/the-facebook-bubble
    http://arxiv.org/abs/1110.1319

  12. pesobral says:

    I think they can push the marketcap over 100 bi (US$ 120-150b i). With less than 10% in free float, FB shares will be a hot ticket. However, if it goes up +100% like Linked-in, does FB really worth almost US$ 300 bi?!?!?! Unrealistic…… but very curious to see ….

  13. Robert M says:

    Given the number of places I’ve already seen reference to your article Facebook smells like a bigger short than Groupon

  14. [...] Some questions for Facebook IPO investors.  (Big Picture) [...]

  15. Redcoat75 says:

    I use an ad blocking widget on my Firefox. Does that mean I’m freeloading when I use Facebook?!

  16. InterestedObserver says:

    Just don’t see the overheated valuations being discussed. Drop things by a small integer divisor, say 5 or so, and maybe. That’s still a very valuable company, but a lot more realistic.

  17. Chad says:

    I’m one of those Facebook subscribers who uses it once every 2-3 months. Why would I use a service that took everything we already had (email, blogs, comments, instant messaging, etc.), made it worse, jammed it all together, and allows people I have no desire to be in contact with track me down?

    Facebook seems to sit in between Google and Groupon, in that it doesn’t seem to have a lock on it’s customers like Google does, but more so than Groupon. Groupon is toast, so what does that make Facebook…hard to tell, but I wouldn’t do more than trade Facebook. No way I would buy it and think I could hold it for an extended period of time.