For Immediate Release
Chicago, IL – February 6, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Apple ( AAPL), Microsoft ( MSFT), Google ( GOOG), Oracle ( ORCL) and Cisco ( CSCO).
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Here are highlights from Friday’s Analyst Blog:
Facebook IPO: Likes & Dislikes
The Facebook frenzy continues even as the company aims to raise funds through an IPO. Already the world’s most popular social networking platform, Facebook revealed plans on Wednesday to raise $5 billion in an initial public offering. The networking giant intends to use the ticker symbol ‘FB’ but the stock exchange it will trade from is yet unknown. The $5 billion is of course a placeholder amount, subject to changes in the final analysis.
The company has a $75 billion to $100 billion valuation goal that would make it one of the most valuable technology companies in the market, with a market capitalization lagging just a handful of firms, such as Apple ( AAPL), Microsoft ( MSFT), Google ( GOOG), Oracle ( ORCL) and Cisco ( CSCO).
Facebook's filing has revealed a profitable and fast-growing business built upon advertising revenue and online transactions. Per the prospectus, the company generated total revenue of $3.71 billion in 2011, up 88% over the prior year and net income of $1 billion that was a 65% increase from the prior year.
But the prospectus also states that CEO Mark Zuckerberg will hold more than one-fourth of the shares in the company. With a voting power of almost 60% of the stock, Zuckerberg will continue to remain at the helm of company affairs.
That’s a greater measure of control than Bill Gates had at Microsoft when it went public in 1986 (with 49%), and far greater than what the co-founders of Google had in 2004 (16% each).
Will Users Turn Investors?
The Facebook IPO filing hit headlines but with ambiguity. No doubt, the company’s trading will take off successfully, but after that, its fortunes will rise or fall depending on whether it can turn its 845 million users into investors.
Facebook’s IPO might meet a fate similar to that of the other high-profile tech IPOs last year. Share prices of both Zynga, the social gaming company and Groupon dropped sharply from their opening-day highs.
Analysts predict that Facebook could be as much as three times more expensive than Google when it launches, and up to 40 times more expensive than the average IPO over the past 40 years. Google had launched its IPO in 2004 at $85 a share, which was highly over priced. However, by mid 2007, prices rose to $500 a share.
Things could, however, be different for Facebook. It’s true that both companies are dependent on advertising models for most of their revenues and have enormous user bases. But the primary difference is that Google offers information, while Facebook offers entertainment. People visit Google when they need to but Facebook when they want to.
The value of a social networking company is directly related to its number of users. So any fall-off in the user growth rate could be a headwind for the company. In the last three months of 2011, Facebook's total monthly active users rose 5.6% versus 10.5% in the last three months of 2010, a significant slowdown. This could dwarf its revenue growth prospects. To avoid such a fate, Facebook will need to develop alternate revenue strategies to keep its growth coming and maintain stability in stock prices.
Additionally, Facebook has reached 60% penetration in the U.S. and U.K., according to the company's own estimates. In order to expand, Facebook should now make efforts to enter countries like China, which is a large potential market. However, things could be tricky since Internet users are generally restricted from accessing Facebook due to government regulations.
Most importantly, the networking giant must now find ways to have its existing users spend more time on the site and advertisers spend more money in order to maintain its dominance.
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