This review is a response to Facebook, Inc.’s Form 10-K, which was filed on February 1, 2013 for the period ending on December 31, 2012.
After reviewing the information shared by Facebook’s executive team during 2012 Earnings Conference Calls, and in their Form 10-K, it is my suggestion that Facebook’s management team utilize a graphically-enhanced presentation to deliver their annual report to stakeholders.
Emphasis should be placed on Facebook’s main products: news feed, timeline, graph search, messages, photos, and videos, groups, events, and pages. These products should be presented in a manner that highlights their contributions to Facebook, Inc.’s ad revenue and total revenue during 2012 and appeases shareholder concerns regarding Facebook’s ability to meet this foundational shift.
After the initial drop in the value of Facebook, Inc.’s (FB) public stock offering, shareholders and financial analysts expressed the desire to hear more about Facebook’s plans to make its mobile offerings more competitive.
As a new mobile company that started 2012 with mobile applications (apps) that featured no advertisements in apps, it is our belief that emphasizing the growth and adaptation of each of these products to improve mobile engagement and increase the value of advertising money spent for each minute spent on our mobile apps will be well received by shareholders if expressed in a manner that exemplifies an understanding for their concerns.
Due to the fact that the company previously had no advertisements on mobile applications prior to Q3, and reported that revenue from mobile advertising represented more than 23 percent of Facebook’s total ad revenue during the fourth quarter (a nine percent increase over third quarter), analysts and users speculate about the future of the company’s use of advertisements in the news feed and ads on the right-hand side of the Facebook website. Since comments from the financial community have shown a great deal of concern for the role advertising revenue will play in Facebook’s future, especially considering ad revenue’s aggressive growth during the fourth quarter, an increased level of disclosure would certainly benefit Facebook.
Financial analysts’ feelings of hesitancy and speculation, directly affected the company’s image and valuation on capital markets. After the Q4 Earnings Conference Call, Facebook (FB) stock dropped by more than three percent. According to Forbes, there was a flurry of downgrades from the sell-side following the company’s fourth quarter earnings report.
Although Facebook’s overall ad revenue of $1.33 billion was up 41 percent year over year, analysts suggest that this drop in valuation is due to the comments shared by the financial community online, as well as the responses given during the question and answer session. Concerns about the company’s spending habits grow as top executives announce that investments in research and development will rise in 2013 and may push profit margins.
The investor relations team should also suggest that emphasis be placed on management’s dedication to additional research and development and understanding that there is a need to bring in more revenue so that earnings won’t be greatly weakened by additional R&D spending in 2013. To support the need for additional new hires and spending, the executive team should highlight Facebook’s three-point strategy in regards to building the best mobile product, building platforms and services that leverage the social graph, and building a strong monetization effort.
Although long-term goals certainly show corporate consistency, there are important benefits that could be obtained by voluntarily disclosing information that shareholders and financial analysts have continuously expressed an interest in knowing. Numerous analysts made a point of commenting on the brevity of Facebook’s financial releases. The company could certainly benefit from simply increasing the quantity and quality of disclosure in a manner that attracts information intermediaries like brokers and financial analysts and target Facebook’s desired investor base. Once Facebook’s management team addresses these concerns, the company will be able to develop better relationships with financial analysts and attract serious buy-side investors.
The objective of the 2012 annual report is to encourage a renewed faith in Facebook, Inc.’s Board of Directors and executive team’s management ability and vision for growth. To do so, it is suggested that the executive team focus on the following factors: product and service quality, marketing prowess, and customer satisfaction. By giving priority to these shareholder concerns, Facebook will not only improve its corporate image and valuation on capital markets but also epitomizes why FB stock will increase in value faster and more substantially than a dollar in other companies in our industry.