Face Value

Dec 23 2013, 04:01 IST
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SummaryFacebook has finally regained investor confidence, and is taking advantage of this by issuing more shares

This time around, when Facebook announced that it would be issuing 70 million shares, it had every right to be confident of not diluting its price. The last time, when it issued its IPO in May 2012, the situation was very different—there was next to no revenue from advertising, no real plan for the shift to mobile, and investor confidence was perilously low. The effect was almost immediate; the shares lost almost 50% of their value in the first three months. Now, however, Facebook is in a much better position and investors recognise this. For one, Facebook’s shares are trading at around $55, up 45% from its offer price of $38. This higher price comes on the back of several strong quarters of revenue growth. In the latest results, Q3 of this year, Facebook reported a revenue growth of 60% to $2.02 billion. What is really encouraging for the social network is that it seems to have firmed up its advertising revenue stream. Advertising revenue grew by 66% to reach $1.8 billion (that’s almost 90% of total revenue).

What is even better is that mobile advertising accounted for around half this—and mobile’s share has been consistently growing. There are other factors at play here, as well. Twitter’s recent IPO was a success and went a long way in assuaging investors’ fears over the future prospects of social networks. In addition, the fact that Facebook will be making its debut on the S&P 500 stock index on Monday should also act as a fillip to its share price. A successful share issue will not only bolster investor confidence further, but will also provide a balm for Facebook’s bruised ego following its IPO.

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