Top Takeaways From The Facebook IPO Roadshow Presentation

Posted by · May 3, 2012 3:58 pm

I’ll admit. My Facebook usage has decreased significantly over the past few months.  My newsfeed has become too cluttered with songs from Spotify and business announcements from companies I’ve liked.  And if I receive one more Farmville request, I’ll likely give them the ultimate social snub. That’s right. I’ll unfriend them.

However, if the Facebook IPO roadshow presentation is any indication, I’m not your average Facebook user.  The Facebook IPO roadshow presentation was released by the company today as they prepare for their Initial public offering (IPO) which is currently set for May 18th.  According to the presentation, Facebook currently has over 901 million active monthly users and 526 million active daily users who are generating two billion likes and one billion comments on Facebook per day.

The roadshow presentation is split into five sections: Facebook’s mission, products and platform, advertising, finance and Facebook’s future.  Facebook CFO David Ebersman kicks off the roadshow presentation and is followed by conversations with Mark Zuckerberg, Facebook VP of Product Chris Cox and Sheryl Sandberg.  While the first and last sections of the presentation are mostly fluff, the three middle sections do have some interesting metrics.  In case you don’t want to spend 30 minutes watching it for yourself, here’s a quick recap of the Facebook roadshow presentation:

Section 1: The Facebook Mission

There are lots of babies, weddings and people hanging out and having a good time looking at a computer screen or mobile phone (with Facebook on it, of course) in this section.  Zuckerberg kicks off the section by talking about Facebook’s mission: To make the world more open and connected.  Honestly, I think they are achieving that goal—even if they do employ questionable methods at times.

Section 2: Products and Platform

Both Zuckerberg and Cox talk about the social graph (the mutual connections that exist between two people and Facebook’s open graph development platform in this section.

“The social graph is something that has always existed,” Cox says. “The one thing there’s never been is a map of everyone in the world and their relationships between each other. Now we have that.”

As for the open graph, Zuckerberg says it’s “structurally disruptive.”

“The open graph can transform any industry,” Zuckerberg says. “Most companies getting started can rely on Facebook and know that the vast majority of their customers will be there already. And that allows innovation to be unlocked.”

I do not disagree with this statement, and to back it up, Cox and Zuckerberg talk throw out stats from The Guardian, which saw a 400% increase in referrals overnight when they started integrating their site with Facebook’s open graph.

Section 3: Advertising

Here’s where things get interesting.  In addition to seeing Sheryl Sandberg (by far my favorite woman in technology these days) talk, the Facebook roadshow presentation contains cameos from higher-ups at Ben & Jerry’s and American Express, talking about how Facebook has impacted their bottom line.

The folks from Ben & Jerry’s say that for every one dollar spent on their Facebook advertising campaigns, they see a $3 return in incremental sales.  Then, American Express CMO John Hayes talks about the company’s Small Business Saturday initiative that ran on Facebook last year.

“Local businesses live on Facebook,” Hayes says. “1.5 million people supported Small Business Saturday on Facebook and that resulted in 28% increase in year-over-year business for participating local businesses and a 9% increase in overall retail versus compared to the year before.”

According to Sandberg, there are four different factors that contribute to the success of Facebook advertising: reach, relevance, engagement and social context. Facebook advertising targets people with 90% accuracy compared to an industry average of only 35%; and social context increases brand recall by 50%.

Earlier this year, Facebook released sponsored stories as a type of advertisement, and Sandberg says this has proven to be a boon for mobile advertising.  Since sponsored stories show up in people’s newsfeeds, they provide a seamless integration with people’s Facebook experience (rather than typical mobile advertisements which tend to take up half the screen).  This is true, but I still find them annoying.

All in all, however, section three makes quite a compelling case for why companies should advertise on Facebook.  If I were a retailer, I’d be signing up.

Section 4: Financials

Ebersman does most of the talking in this section, providing viewers with the financial information you’d expect in a roadshow presentation.  He says Facebook’s revenue is largely driven by advertising and advertising revenue is driven by the users.  In 2010 and 2011, Facebook added 200 million users and in 2012, the company added 50 million users.  (I have been on Facebook since 2006, thank you very much.) While only 20 percent of Facebook’s users come from North America, North American users account for 50% of ad revenue.

In addition to ad revenue, Facebook does make some money off of their virtual goods and games on their development platform (mostly games, as Ebersman admits), and while the company may look to grow revenue in that area, it’s most likely that Facebook will continue to rely on advertising to sustain their business.  (A business model that would throw up red flags to many investors, but not when a company has close to one billion users, I suppose.)

Ebersman says Facebook’s operating margins  have stayed between 42% and 52% during the past few years, and while the company wants to become a high margin business in the long run, Ebersman sees Facebook in a heavy investment period, particularly when it comes to mobile development.

“We will be making more investment in mobile in the future.  Even if mobile monetization is uncertain in the future, we will be investing in mobile,” Ebersman says adamantly.

Section 5: The Future

The Facebook roadshow presentation closes with Zuckerberg who refers back to the power of the open graph to help launch other Internet companies.

“We are trying to set ourselves and the entire world up so that every experience you have is social–and that’s all powered by Facebook,” Zuckerberg says.

So far, I’d say they’re doing a darn good job at doing just that.