It is expected that Facebook, to be publicly listed as FB, is hoping to raise $5B USD in proceeds from its public offering.  This is substantially less than the previous reported $10B USD.  If the proceeds approach $10B, this will make Facebook the 4th largest IPO in US history behind Visa, General Motors and AT&T Wireless.

The lead underwriter is Morgan Stanley followed by JPMorgan, Goldman Sachs, Bank of America / Merrill Lynch, Barclays Capital and Allen & Co.  The offering is expected to take place in Q2 2012.

Under the 2005 stock plan, options and restricted stock units were granted to employees from 2005 through 2011.  The weighted average exercise price is $0.83 USD per share.  The low exercise price will generate a huge amount of wealth amongst hundreds of Facebook employees.

Financials

Revenue & Net Income / Loss
2011: Revenue $3.7B USD, Net Income $1.0B USD
2010: Revenue $1.97B USD, Net Income $606M USD
2009: Revenue $777M USD, Net Income $229M USD
2008: Revenue $272M USD, Net Loss -$56M USD
2007: Revenue $153M USD, Net Loss -$138M USD

With 1,883.9B outstanding shares and a net revenue of $3B, that’s $1.60 per share.  A valuation of $100B would yield a P/E Ratio (PE Ratio) of 60 – 65.

Facebook Payments have been an accelerating and very valuable aspect of their business.  Of the $777M in revenue for 2009, $13M came from payments.  2010 of $1.97B in revenue, $106M came from payments.  And in 2011, of $3.7B in revenue, $557M came from payments.  The balance of revenues are generated from advertising.

Marketing & Sales expenses are aggressively low.  Accounting for 12% of revenue in 2011 ($427M), $184M in 2010 or 9% and in 2009 $115M or 15%.  The large increase in spend, year over year, is due to increased headcount to support revenues.

Research & Development spend was 10% of revenue in 2011 ($388M USD).  2010 was 7% or $144M and in 2009 $87M or 11% of revenue.  The increase in spend was driven by new headcount.

Cost of Revenue hovers around 25% over the trailing 3 years.  $860M (23%) in 2011, $493M (25%) in 2010 and $223M (23%) in 2009.  This is largely driven by data center, networking and hardware expense.

Large Clients  Zynga is the only client that accounts for more than 10% of revenue — 12% for 2011.  In previous years Zynga accounted for less than 10% of revenues.  Zynga is expected to continue being a substantial revenue base until 2015 when their agreement to use Facebook Payments expires.

Capital Expenses The majority of Facebook’s Capital Expenses are encompassed in Capital and Operating Lease agreements facilitating cash flow.  This allows Facebook to maintain $3.39B USD in cash and cash equivelents.

Acquisitions have largely been immaterial to Facebook.  15 acquisitions largely for patents.  Total value of cash based acquisitions was less than $70M total.  Extensive stock grants were issued for the majority of acquisitions.

User Base

Facebook at the end of 2011 had 845M active users of which approx. 50% are active daily.  The majority of Facebook’s active users access the site via their mobile devices in addition to workstations (normal browsers).  This is becoming an increasing threat to Facebook’s revenues as the mobile site and applications on all platforms (iOS, Android, Blackberry) do NOT display ads.

100 billion friend connections as of YE 2011.  250 million photo uploads per day.  2.7 billion likes and comments per day.

Misc. Company Info

3,200 total worldwide employees or $1.156M in revenue per employee in 2011

Competition listed as: Google +, Cyworld in Korea, Mixi in Japan, Orkut in Brazil and India, and vKontakte in Russia.

Compensation:

Mark Zuckerberg – CEO: $500,000 Cash
Sheryl Sandberg – COO: $300,000 Cash
David Ebersman – CFO: $300,000 Cash
Mike Schroepfer – VP, Eng: $275,000 Cash
Theodore Ullyot – GC: $275,000 Cash

Zuckerberg owns 28.4% of all Facebook stock.  All other members of senior management own less than 1% each.

RIM needs to speed up their new product development.  They’re being left behind.  RIM devices are few and far between now in the company where I work.  Overrun by iPhones and Android devices.  With lackluster products and new sales ARPU declining, RIM had better act quickly.

AT&T’s network aside, the phone performs amazingly well.  The Super AMOLED screen is brilliant and remarkablyvisible in direct sunlight.  The touch sensitivity of the screen is just right and extremely accurate.  And including the Swype keyboard is a life saver – you can hold your finger down and move between individual letters on the screen rather than hunting and pecking for each individual letter.  Swype is perhaps one of the best virtual keyboards available on the market today.

Battery life is great.  With moderate daily use, I can get about 12 hours of life out of the phone before needing a recharge.  The internal storage is more than enough for what I need (mp3s, videos and photos).  And the Google Voice integration is exceptional – this has allowed me to get away from carrying multiple phones.

I’ve sold several people in the office on this phone – most purchased them from Costco where you can get an additional discount over an AT&T store.  There are several downsides that I warned everyone about:

- Android 2.2.  Where is it?  It should have shipped with this phone.  We’re into October, several months after release, and it still isn’t available.  This isn’t good.  Early adopters and technically savvy consumers purchase this phone.  Samsung should be more on top of this.

- AT&T bloatware.  AT&T has loaded the phone up with their own software – completely useless software for most people considering the included Google applications and the Android Marketplace.  The AT&T applications take up space, clutter the screen and slow the phone down.  And without rooting your phone, it is impossible to remove these applications.

AT&T needs to realize that their proprietary applications are not wanted and are doing more harm than good.  Consumers shouldn’t have to put up with this.  If I could have purchased this phone separate from AT&T, I would have to avoid their bloatware.

- Multiple microphones.  The Galaxy S doesn’t have multiple microphones to help with noise cancelation when speaking on the phone.  The Nexus One did and they worked remarkably well.  The noise canceling that’s employed on the Galaxy S works well – just not as well as two microphones.

- USB port. Samsung put the USB port / charging port in an odd place – on the top of the phone.  This makes for speaking on the phone when plugged in feel odd.  You expect to connect power to a phone on the bottom of the unit.

The few caveats aside, I recommend this phone to anyone looking for an iPhone or Blackberry alternative.

What this begins to setup is that manufacturers are willing to spend more for raw goods, meaning that end user goods will eventually see price increases.  We should be prepared to see continued inflation of basic goods.  Milk and butter have seen increases of 30+% year to date.  When milk is more expensive than fuel on a retail per gallon basis and we continue to experience inflation, we’re in trouble.

Whether or not the Producer Price Index is a true leading indicator of inflation of the Consumer Price Index; that remains to be seen.  Historical data from past recessions looking at leading and lagging indicators provide anecdotal evidence that mass inflation is on the horizon.

Data Source: Bureau of Labor Statistics

What does this mean? One interpretation is that the fiscal stimulus has failed to achieve what Team Obama thought it would. Another interpretation is that the baseline was worse than they believed at the time.

Rather than pointing fingers we need to drive overall government accountability. In light of the shifting baseline, it’s impossible to hold the administration accountable for whether its policies are achieving their intended effects.  To be clear, this lack of accountability is not a feature on this specific administration but is, instead, a reflection of the inherent uncertainties associated with macroeconomics.

The administration, however, has not been particularly forthright in admitting to this lack of accountability. Indeed, the act of releasing quarterly reports on how many jobs have been “created or saved” gives the illusion of accountability without the reality.

There are two significant points we need to focus on; neither of them are partisan:

- First, as much as we’d like to point to one political group or another, incalculable macroeconomic consequences have played a substantial role in undermining the global economy; regardless of the party in office.

- Second, we must radically increase government reporting transparency and continue to make additional raw data available to allow for third parties to validate conclusions and assumptions.

If we must assign blame, assign it to variable change (Bayes’ theorem). We’ve always had several options available to combat the recession. However, due to the complexity of the solutions, financial burden and time to implement, we haven’t had the luxury to eliminate solutions after a short period allowing us to increase the probability of achieving the greatest success.