Facebook filed for an IPO with the SEC late today. I've had a chance to review the S1 document, although I didn't really dig deeply into it. That can come later. The CliffNotes version is that there aren't any huge surprises here, as far as Facebook's financials go. There are over 800 million users. The business is all about advertising, the source of almost all of Facebook's revenue.
So what are the little surprises?
1. Facebook's future hinges on mobile. As plenty of folks have pointed out, pretty much everybody who is going to use Facebook already does — on a computer. This is where the money comes from: advertisers want to reach those people. On mobile devices, by contrast, Facebook doesn't do ads yet. There could be growth here. But mobile could also steal from Facebook's computer-bound business. From the S1:
We had more than 425 million MAUs who used Facebook mobile products in December 2011. We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. Although the substantial majority of our mobile users also access and engage with Facebook on personal computers where we display advertising, our users could decide to increasingly access our products primarily through mobile devices. We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.
Business Insider says...How about a Facebook phone? Really? So Facebook is going to develop a mobile operating system now to save itself if the entire Web experience shifts to smartphones? Why not just buy struggling BlackBerry maker Research in Motion?
Facebook's yearly expenses have begun to more than double. Being Facebook is getting more expensive. About time to tap the public markets for more money, don't you think? According to the S1, total cost and expenses in 2010 were $942 million. In 2011 they were $1.96 billion. If the company raises $5 billion or more from the IPO, it can offset the acceleration of the cost of being in business. For a while. But the pressure to grow as a public company is going to force Facebook to spend money.
3. The Zynga Factor. The S1 reports that 12 percent of Facebook revenue comes from Zynga, the game developer that staged a disappointing IPO last year. This might be the most interesting nugget in the whole filing. We already knew that Zynga was completely dependent on Facebook. But it now appears that Facebook can't afford to be without Zynga. The market cap for Zynga is currently at $7.4 billion, but if the company gets into trouble, that could easily be cut in half. So would Facebook them have to spend billions to acquire Zynga to save that 12 percent of its own business? And how will THIS piece of Facebook's business be affected by the move to mobile? Buying RIM (see above) could be costly (RIM's current market cap is more than $8 billion).