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2013-07-25_09h56_43

The market awarded Facebook a 25 percent share price spike today, following a strong earnings report that showed off the company’s ability to retain mind share among youths, build its total global usership, and monetize mobile traffic better than nearly any other company. Period.

The firm pop in its shares has pushed Facebook’s valuation past the $80 billion mark, where it currently rests at $80.21 billion. Not a bad day’s work, but that number is somewhat shadowed by the fact that, as a company, Facebook has torched tens of billions of dollars of shareholder equity since it first went public.

We draw two conclusions from that fact: Given that Facebook is now a tremendously stronger company than it was a year ago, and yet it is valued under its former price, a pox on our own house for overpaying for the company’s shares; and, naturally, that Facebook is more than another strong quarter away from being simply flat.

Here’s TechCrunch’s Josh Constine and Kim-Mai Cutler the day before the fateful, and botched, IPO:

Facebook shares will start trading at $38 tomorrow, the company confirmed in a release, giving it a valuation of $104.12 billion. Facebook and its early shareholders will raise just over $16 billion in tomorrow’s much anticipated IPO.

At a $104 billion valuation, Facebook is worth more than any other tech IPO candidate at the time of its offering. It also perfectly matches what Facebook shares have been trading at in secondary markets over the last several months. Google was worth $23 billion at the time of its very unusual Dutch auction IPO back in 2004. As of tomorrow Facebook will be worth about half of what Google is worth now.

The implicit point in the second paragraph is that if Google managed to so greatly grow its valuation compared to its IPO price, to what heights might Facebook race? Despite general market furor, Facebook popped but a nibble to $42 a share on its first day, and then declined rapidly enough that its banking partners held the line at its initially offered price.

To illustrate just how off the market was concerning the pricing and sale of Facebook stock, here’s the same set of TechCrunch writers during its first day as a public company:

While the price is going to fluctuate a lot today, there’s a crowdsourced bet from Twitter users on FacebookIPOClosingPrice.com that the company will close at a $54 price and a $135.7 billion valuation.

Nope, Twitter users, that wasn’t the case. In fact, those shorting Facebook made out the best.

The gap between $104 billion and roughly $80 billion is $24 billion. But that’s not even the least-kind way we could describe Facebook’s total decline from former heights. Facebook opened on its first day at $42.05, meaning that it was worth more than $104 billion; those who bought in at that price would have enjoyed a far heavier decline in the value of their stock if they held onto it.

But, in effect, this is our fault. The Facebook IPO price, as noted in the first blocked quote above, matched secondary market interest. The market bore Facebook at a $38-per-share price; the IPO went off, hitches aside.

Christopher Hitchens once said that the ironies of history occur most pungently to those that don’t believe in them, and that applies greatly to us in the technology industry. We have undergone a number of periods in which valuations of technology companies have gotten far ahead of their earnings. Again and again we have bought into our own hype only to watch the money of the average Joe evaporate as founders and investors pocket cash at IPO prices. That’s fine. It’s simple market capitalism. But you’d think we would have learned a bit by now.

Facebook as a financial entity is much stronger than it was during the quarter it went public. Let’s do a little comparison for fun [Facebook Q2 2012 financial data versus Q2 2013 financial data]:

  • Revenue, Q2 2012: $1.18 billion
  • Revenue, Q2 2013: $1.81 billion
  • Net income, Q2 2012: -$157 million
  • Net income, Q2 2013: $333 million

Aside from higher expenses and a lower operating margin, it’s hard to find a metric by which Facebook is worse off than it was a year ago. And yet we the market public value the firm at $24 billion less than on its first day.

We were out of our skulls in 2012, and we are still paying for it. That said, Facebook is damn killing it recently, and is slowly growing into the valuation that its bankers and investors found palatable four quarters ago.

New question: Is Facebook overvalued at its current $80 billion price? The comments are yours.

Top Image Credit: Steve Snodgrass

Screen Shot 2013-07-25 at 12.51.04 PM

Facebook stunned yesterday with its report that mobile advertising represented 41 percent of its total ad revenue in the second quarter of 2013. In the first quarter of 2013, it totaled a then-hailed 30 percent, bumping that key ratio by more than a third in just a fourth of a year. On a dollar basis, Facebook’s mobile advertising grew more than four times as much as its desktop-sourced advertising incomes in the most recent quarter.

However, looking backwards, last quarter’s mobile ad growth is less astounding when placed into context. From the third to fourth quarter of 2012, Facebook juiced its ad revenue as a percentage of total ad income by 9 percent. From the last quarter of 2012 to the first quarter of 2013, growth was 7 percent. Taking into account the 11 percent gain reported yesterday, Facebook has averaged 9 percent growth in its mobile ad revenue as a component of its larger ad top line for the past few quarters.

This allows us the ability to make basic predictions. Facebook yesterday noted on its earnings call that mobile advertising revenues will eventually outstrip desktop ad income. But when? Well, we can predict. If mobile advertising revenues continue at their average rate of the past few quarters, Facebook should earn precisely as much from desktop and mobile advertising platforms in the current quarter.

The math is simple: Facebook ended the most recent quarter with a 41/59 split between mobile and desktop ad income. If mobile revenues are growing by 9 percent quarterly – again, on average – 41 and 9 make 50, leaving the remaining 50 percent for desktop ad revenues.

Adding another 9 percent to Facebook’s mobile ad revenue as a percentage of its total ad income, and we could wrap the year where the second quarter finished, but in reverse, with mobile revenues comprising 59 percent of total ad income, and desktop just 41 percent.

This feels, prima facie, optimistic. Are we being too generous?

There is always a risk in any form of prediction, as future market dynamics are outside of our vision, and will always remain so. That said, we can take mild refuge in the fact that our average rate of mobile ad growth, again as a percentage of Facebook’s total advertising top line, is under the most recent quarter’s rise; this means that we are anticipating Facebook to under-perform its most recent quarter moving forward.

This gives us some breathing room in our predictions. Here’s the chart:

If mobile revenue is so strong, where does that leave desktop advertising incomes? Well, as it turns out, Facebook’s desktop advertising business is all but not growing. We can deduce this by subtracting the percentage of Facebook’s mobile ad revenue from its total advertising income, leaving us with its desktop-sourced figure. Let’s have some fun:

  • Facebook’s total advertising revenue was $1.25 billion in the first quarter of 2013. Of that, 30 percent came from mobile. That means 70 percent came from desktop sources. Seventy percent of $1.25 billion is $875 million.
  • Facebook’s total advertising revenue was $1.60 billion in the second quarter of 2013. Of that, 41 percent came from mobile. That means 59 percent came from desktop sources. Fifty-nine of $1.60 billion is $944 million.
  • $944 million – $875 million = $69 million. That, assuming that Facebook has its numbers in place, is the delta between Q1 and Q2 for Facebook’s desktop advertising business.

That’s not much. Not only is Facebook sourcing a growing percentage of its revenue from mobile platforms, but its revenue growth is increasingly coming from a smartphone near you.

Let’s get to the bottom of the final number: In dollar figures, how much did Facebook’s mobile ad revenue grow from the first to second quarter? I’m glad you asked. Let’s find out:

  • Facebook’s total advertising revenue was $1.25 billion in the first quarter of 2013. Of that, 30 percent came from mobile. Thirty percent of $1.25 billion is $375 million.
  • Facebook’s total advertising revenue was $1.60 billion in the second quarter of 2013. Of that, 41 percent came from mobile. Forty-one percent of $1.60 billion is $656 million.
  • $656 million – $375 million = $282 million.

So, Facebook’s mobile revenue grew by a quarter billion dollars in the second quarter. Not bad, given that as a percentage gain it works out to around 75 percent. And, perhaps more importantly, the $282 million figure is more than four times our previous $69 million sum. Therefore, mobile ad revenues on a dollar basis grew four times as fast as desktop advertising incomes in the most recent quarter.

Mobile-first, indeed.

Top Image Credit: Randy Lemoine

snapchatdollar640

Only a few months after closing a Series B round of $60 million that valued the ephemeral messaging company at $800 million, Snapchat has been in talks for another funding that values it at up to $3.6 billion, according to sources close to the situation.

Sources also added that the funding itself would be in the hundreds of millions of dollars and that the lead investor might be a strategic party from Asia.

Such a deal could still fall apart, of course, but the effort has become well known among several Silicon Valley venture firms, who have considered investing.

A spokeswoman for Snapchat declined to comment.

The investor is neither China’s Alibaba Group nor Japan’s Rakuten, which has put a lot of money in Silicon Valley startups of late, said sources. One interesting possibility would be China’s Internet giant Tencent, which makes money from in-app transactions.

The move by the Los Angeles-based company comes on the heels of another massive funding round raised by social scrapbooking company Pinterest, which announced earlier this week that it just raised $225 million at a $3.8 billion valuation.

Besides the huge piles of investment dough being poured into them, here’s what else the pair have in common: Little to no revenue.

That does not seem to have stopped a panoply of venture and other investors from jumping in and ponying up with huge amounts of cash for the privilege of investing in several fast-growing startups, hoping to grab ahold of the next Twitter or Facebook early.

Launched in 2011, Snapchat has grown wildly popular in a relatively short span of time, effectively creating an entirely new genre of messaging category with its “ephemeral” pictures and videos that last for only a matter of seconds.

Snapchat’s last round – which it called a “scaling round” for infrastructure improvements – was announced in late June, led by Institutional Venture Partners, with participation from General Catalyst Partners and SV Angel. Previous investors Benchmark Capital and Lightspeed Venture Partners also participated. With that round, the company had raised around $75 million in total.

Snapchat's Evan Spiegel

Snapchat’s Evan Spiegel

All the fervor has been due to Snapchat’s fast growth and younger demographic. Only a few months ago, co-founder and CEO Evan Spiegel boasted that the service had more than 200 million snapped pictures and video taken by its users on a daily basis, up from 150 million just months before. Then in September at the TechCrunch Disrupt conference, he said that the number had grown to 350 million self-destructing messages daily.

At the time, there was also an additional $20 million in a secondary offering just four months ago.

At the time of the June funding, in an interview with AllThingsD, Spiegel noted: “We’re excited about in-app transactions because of what we’ve seen in the Asian markets.”

A clue!

Snapchat has clearly been a phenom of late.

Indeed, the app has proved so popular – and potentially worrisome to established social players – that sources said when Spiegel continually rebuffed Facebook CEO Mark Zuckerberg’s acquisition offers, Zuckerberg cloned the app outright with a service called Poke. Zuckerberg’s offering famously flopped, while Snapchat continues to grow.

Most recently, Snapchat has begun to experiment with features outside of its core ephemeral messaging service. The company launched its Stories product last month, essentially a long-form play on Facebook’s status update in the form of a picture or video. And recently, Spiegel has grown more keen on the idea of monetization, experimenting with bands and listening to music inside the app.

The company, however, has not been without its problems. Early on in its history, Snapchat had to fight the perception that it was a “sexting service” for tweens, a fly-by-night app used to easily spread lewd photos. And it is still involved in ongoing litigation with Frank Brown, a collaborator from the service’s early days, who is suing the company he was pushed out of.

empty wallet shutterstock

Want to sell your startup to Facebook or Google? Don’t try doing it in late summer.

Both Web giants, which have been very active acquirers for the last few years, slowed down considerably in the third quarter of the year.

Facebook, which had spent $246 million buying companies in the first six months of 2013, spent $14 million in the next three months. Google had a similar pattern: In addition to Waze, the mapping startup it bought for $1 billion, Google bought 15 other companies for $344 million in the first half of 2013. But Google only shelled out $25 million, on five purchases, in Q3.

Two quick off-the-cuff theories to explain the slowdown, which aren’t mutually exclusive:

  • Perhaps both Google and Facebook have concluded that the startup shelves have been pretty picked-over, and there’s not a lot else they need to buy.
  • Bankers need breaks, too.

(Image courtesy of Shutterstock/PTstock)

Facebook’s mobile image took a bit of a beating in the weeks that followed the April launch of its Home software for Android.

Ondrejka, right, with Facebook CTO Mike Schroepfer

Ondrejka, right, with Facebook CTO Mike Schroepfer

But, more than six months later, Facebook mobile engineering VP Cory Ondrejka said that the company learned a lot from the experience – knowledge that is going into both improving Home and into developing other mobile products.

“We will keep iterating on Home,” he said during an interview at this week’s Techonomy conference near Tucson, Ariz. “We really have a better understanding of where to take Home in the future.”

One of the most recent changes is the capability to add photos from other services to be part of the Facebook Home experience (Home replaces the standard Android lock screen and home screen). That and other improvements mean that those who try Home now may have a more favorable impression than those who did so in its early days.

“Most people have never seen Home,” Ondrejka said. “They may have heard about it.”

More broadly, Ondrejka said the Facebook Home experience has helped the company better develop overall Android software. By digging deeply into the operating system, Ondrejka said the company has a keen understanding of the kinds of products it can create going forward.

Google has also turned on options in its Google Play Store that let the company simultaneously offer early alpha and beta versions of its products to willing testers while maintaining an earlier version for general consumers. That is a big deal, he said, since even a large company like Facebook can’t possibly internally test on all the different combinations of devices and operating system versions that the software will be run on after release.

Meanwhile, a project to preinstall Home on phones appears to still be in hiatus. Facebook touted a wide range of expected hardware partners when it launched Home, but the effort was put on hold after initial critiques of Home and slow sales of the HTC First, the lone device to ship with Home preloaded. AT&T eventually sold through the initial batch of HTC First devices, following price cuts.

Ondrejka said that preloading Home has become less necessary after a range of changes that Google has made in recent updates to Android.

Instead, Facebook has been focusing on its core app, as well as companion programs such as Facebook Messenger.

“It’s certainly something we are always exploring,” Ondrejka said.

Facebook CEO Mark Zuckerberg at the Facebook Home launch event.

Imitation is the sincerest form of flattery. Until, that is, it starts to get annoying.

Facebook has definitely reached that point with some look- and act-alike sites outside of the U.S., according to Mark Zuckerberg. So much so, in fact, that it has hurt the company’s international growth prospects.

“Clones actually end up being a pretty big nuisance. People have made such great clones of Facebook outside the U.S., it made us harder to grow,” Zuckerberg said at the Y Combinator Startup School event over the weekend. Russia in particular, he pointed out, has done the best job of mimicking Facebook’s abilities.

“They’ve made such an awesome clone of Facebook it’s been hard to beat them,” he said. “It’s almost been 10 years since we started Facebook, and we still haven’t beaten them in Russia.”

Zuckerberg gave interesting reasons for the struggle. Besides the fact that the so-called “clones” were first to market in home countries like Russia, he said, many startups would make Facebook lookalikes and then introduce the sites to European countries. From there, Zuckerberg said, the first-movers would appreciate the network effects of viral growth, and make it that much more difficult for Facebook to grow.

One other thing: Some Facebook “clones,” like the ones in Russia, are also home to illegal file-upload hosting services, which makes it a more attractive proposition for those seeking free music and movies to pirate.

Indeed, if you compare Facebook’s quarterly European user-growth rate to other regions (like Asia, which also hosts stiff competition to Facebook with homegrown social sites), it has slowed quite a bit over the past year. Europe, in particular, is important to Facebook, as it is home to far more consumers with money to spend than, say, developing-world nations that are also slowly being introduced to Facebook.

In other words, it’s a big problem that Facebook needs to solve.

One solution? The “lockdown” approach, started in Facebook’s early days by Zuckerberg and co-founder Dustin Moskovitz – basically stopping just short of literally locking the employees inside the building until they come up with a way to fix a problem (though I imagine this isn’t kosher with OSHA).

Or there’s another approach: If you can’t beat ‘em, join ‘em. Facebook has cloned competing services in the past (Snapchat, Quora, Foursquare). Perhaps the company could take a few cues from what its foreign competitors are doing well.

hug_it_out

Unsubtle reminder from Facebook to media companies: We’re really big, and we can send you a lot of traffic.

The longer version comes here, via a Facebook blog post boasting about all the eyeballs they have passed along to sites like BuzzFeed and Bleacher Report recently, in an experiment to boost referral traffic.

Facebook said it got those sites and 27 others to increase by 57 percent the number of articles they posted to the social network, and that those sites saw their referral traffic jump by 80 percent.

The bigger picture is that Facebook is making a renewed effort to get media companies to distribute their stuff on the site.

Today’s blog post is specifically about Web publishers. But Facebook has been making a particular push to engage TV programmers and networks to use the site, in the way that Twitter has been doing for a couple of years.

marissa_mayer_at_d_600-2

If you were onstage, talking to Charlie Rose, in front of a very crowded room of ad people, and you were asked to describe the unique qualities of Larry Page and Mark Zuckerberg, you might get flustered.

Not Marissa Mayer.

Here’s what the Yahoo CEO had to say about the Google CEO and the Facebook CEO at the IAB/MIXX conference in New York today:

I’ve thought about it before. They each have their superpower.

Larry’s superpower is asking “Why not? Why does it have to be this way?”

I once witnessed a conversation where Larry really started challenging Dean Kamen, the guy who invented the Segway. He started saying “Why, why, why does it have to be this way?”

And he was actually having an argument over a physical constant. Finally [Kamen] said “because it’s a physical constant – an intrinsic property of the universe.”

And so, he loves to ask “why not, why not, why not.” His super power is asking “why not.” On everything. It helps him challenge.

Zuckerberg’s incredibly insightful about people. And that makes him a great leader, it makes him a great recruiter.

And I think it also makes him a great person to run a platform that connects us all. He really understands people and what makes them tick.”

Janet Balis Headshot

Betaworks has hired former Huffington Post Media Group publisher Janet Balis as its chief revenue officer.

The New York technology studio – which owns and develops varied media-focused companies, such as social news aggregator Digg, news-saving app Instapaper and the hugely popular Dots mobile game app – has been girding its efforts to monetize its portfolio, said Betaworks CEO John Borthwick.

“Phase One of Betaworks was building great companies,” he said. “And Phase Two is really building Betaworks as an operating media company.”

Balis left her job at the AOL-owned HuffPost in May, after a year-long stint. She has also worked at Martha Stewart Living Omnimedia, Time Inc. and Newsweek.

In an interview, she noted that there was ample opportunity to knit together tech and data to serve advertisers better.

“There is a thread of social discovery for brands to think very creatively and strategically, and Betaworks properties are well positioned for that,” said Balis. “We have to think differently to bring those brands into the process.”

Betaworks has been searching for a CRO to work on a common monetization effort that it could apply across its many platforms, said Borthwick.

“We have been trying to tie together and figure out all the places we could monetize, and it surprised me how well it has gone with some early efforts,” he said.

Borthwick pointed to a partnership effort around Dots with industrial giant GE, which sponsored a new game mode called Gravity that was made available free for a week. The native ad implementation garnered 30 games played and 172 million views, he said. Later – due to its popularity – Betaworks rereleased the Gravity mode within the game, for $1.99.

Borthwick said that to help develop more such ideas with marketers, the company had also hired James Cooper as its head of creative, to “explore creative opportunities for Betaworks products and to help tell the Betaworks brand story.”

Cooper was previously at the production company Tool of North America, and has worked on a number of well-known digital advertising initiatives, such as the “Help I Have the Flu” Facebook app.

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