Tha Face Deal Book - Research Paper Example

? The Face Deal Book The Face Deal Book Introduction Facebook Inc. is an online company that is involved in the social networking service. The company was founded in February 2004. The website was initially limited to the Harvard students, but it later spread to the surrounding universities. The website currently serves any user at the age above 13 years. Facebook is highly successful, capital intensive, and a high tech operational organization. The company has had several rounds of investment from different investors that have overseen its current growth (Sutherland, 2012). Financing used Most of the financing Facebook Inc. was obtained as ventures. The ventures were given with an exchange of obtaining the rights of ownership of the company. Accel Partners invested $12.7 million at a valuation of about $100 million. They also invested in another transaction worth $27.5 million with the Greylock Partners (Griffin, 2012). This investment earned them a valuation of $525 million. The Accel Partners and the Greylock Partners invested in this young company due to its promising market service. The company had grown so that it could serve millions of students around the campuses. The investment opportunity was to allow for its growth in the market. The Microsoft Corporation and the Digital Sky Technology raised their contribution in the form of equities.This financing was aimed at the elevation of the Facebook Inc., which was a young promising company (Ferrera, 2012). The cumulative investment has seen the listing of Facebook as the most used social network over the years. This led to the eventual filing for an IPO on February 2012 and started selling stock in May 2012. This tremendous growth can be credited to the investment that has overseen the financial credibility of the company. The investors had an aim of obtaining a valuation in the company through the acquisition of ownership rights of the company. The Microsoft Corporation invested to the company in order to obtain the 1.6% stock and to be allowed to advertise on the site. The Accel Partners requested a post of being a board member of the company thereof being central in running the company (Baloun, 2007). Therefore, the financing of the Facebook Company was a beneficial venture for both the company and the investors. Uses of the finances The Facebook Inc. started as a small company with very few employees. At that time, they only had 10 Employees.The Company had an aim of recruiting new employees to aid in the servicing of its clients. The event that was carried out and it drew about 700 people. The company was also experiencing losses that were spurring the possibility of being sold to Yahoo or other larger media groups. To fight this pressure, there was a need to allow investors to venture into the company financially. This acted as a source of capital for investing in the expansion plans beyond the old environment. The company added high school networks, international school networks and photos to the social networking pages (Sutherland, 2012). In order to obtain a valuation in the economy, the Microsoft Corporation invested $240 million for the 1.6% stake in the company. This enabled Facebook to spread and improve on their applications on the website. The company could get recognition in the corporate market with a high financial basis. Another project was the acquisition of the international headquarters in Dublin (Carver, 2012). The acquisition of other companies such as Connecticut was also another project that required a great deal of funding. This was after the settlement of the suit against Facebook. The funding from Microsoft, Accel, Greylock, and Digital Sky Technologies was instrumental towards the growth of this company to the point of obtaining an IPO. Current valuation The company has provided varied valuation standards in the current period. The increase in the target price of the stock before valuation is a major boost for this company. The company considers their revenue growth, the operating margins, the costs of growth, and the possible risks (Damodaran, 2011). Currently, the company announced to have been valued at $104 billion when it valued its shares at $38 each. Facebook Company has more than 900 million users worldwide who aided the company to generate revenue last year. The size of the market served has spread all over the world, to all age groups, to the corporate world, and many different customers. The company also generates a massive amount from the online advertising going on the platform. The amount of time spent by the people on Facebook also boosts their revenue to this high value over the years. The company has overseen the electronic industry advantage by applying the service on tablets, computers, phones, and other devices (Griffin, 2012). The increased demand for Facebook in the retail market postulated that Facebook would value itself at a higher offering price than they did. Though this is the case, some commentators argue that Facebook is not worth that value because of a non-liquefiable market basis. However, the above factors could be the possible reasons for the bubbly valuation of Facebook. Outsider valuation The outside investors of Facebook include Paul Thiel, who was the first outside investor for the company. He invested $500000 of his money in 2004. In the May IPO, he sold 16.8 million shares for a proportional amount of $640 million. This shows that his stake at the company has been sold over this period. This is despite the lockup periods, which prevents the insiders from selling the stock following the Facebook IPO. Other outsiders who value the company include David Chose, Zuckerbag’s father and sister, and the Winkle Voss twins who were his rivals. Chose was the artist whose graffiti in the company’s headquarters earned him some stock that was worth millions of Dollars (Griffin, 2012). The outside businesses like eBay, Nokia, Disney, Amazon, Google, Apple and other similar businesses affect the valuation of the Facebook Company. According to New York Times, Facebook edges out Amazon, which is an online retailer. Disney has a value of about four fifths of the Facebook Company value. Facebook is twice valued compared to eBay, which is also an online business. However, Facebook has a lower valuation than Google, Microsoft, and Apple. They have a double valuation compared to that of Facebook Company. Google is worth about $204 billion, Apple is worth about $500 billion, and Microsoft is worth $250 billion. The valuation of Facebook stands at a mere $104 billion. Therefore, the valuation in relation to the big giants makes it to have a lower value (Mayrhofer, 2013). Financial values Facebook Company has currently invested a lot in the mobile advertising. Ahead of its IPO, Facebook caused a lot of headache for the investors due to the use of mobile advertising. In the first quarter of 2013, the company reported a total increase in revenue accumulating to 38% against expectations. Its net income was $219 million, up from $205 million. The revenues grew from $1.06 billion to $1.46 billion. The contribution of mobile advertising was about 30% of its total adding revenue. The mobile phone trade has attracted many customers all over the world and thus renewing the confidence in Facebook. The company now enjoys a high valuation and reduced skeptic claims against them currently and hence their growth. It is speculated that a further increase in the mobile advertising is expected over the coming years. Researches also speculate that the Facebook valuation and share of the online advertising is continuing to grow rapidly. There is a likely growth of online market share from 9.5% to 13.2%. All these values depict a growth in revenue and income over this financial year due to increased market appeal. Conclusion In conclusion, Facebook is an established business that is spreading all over with time. It is revolutionizing the social networking and serving an enormous market dynamics. The investments above have overseen the rise of this company to an excellent company from a mere student site. The sale of the shares at the IPO indicates the high valuation of the company and its market service. Though the company has undergone numerous criticisms, it has managed to become the highest ranked social network in the world. References Carver, L. (2012). Venture capital valuation: Case studies and methodology. Hoboken, N.J: Wiley. Griffin, R. W. (2012). Management. Mason, OH: CENGAGE Learning Custom Publishing. Mayrhofer, P. (2013). Interdependencies in the discovery and adoption of Facebook applications: An empirical investigation. Wiesbaden: Springer Gabler. Baloun, K. M. (2007). Inside Facebook: Life, work and visions of greatness. Victoria, B.C: Trafford. Ferrera, G. R. (2012). Cyberlaw: Text and cases. Mason, Ohio: South-Western Cengage Learning. Damodaran, A. (2011). Applied corporate finance. Hoboken, NJ: John Wiley & Sons. Sutherland, A. (2012). The story of Facebook. New York: Rosen Central. Read More