Facebook turns to mobile ads to justify $16B IPO hype
Facebook is set to begin trading on the Nasdaq after a blockbuster initial public offering that ranks as the second largest stock market debut in U.S. history.
Facebook sold 421.2 million shares Thursday at $38 each to raise $16 billion, valuing the social network at $104.2 billion. The Facebook IPO trails only Visa, which raised $17.9 billion in 2008, and vaults the company ahead of General Motors, which generated $15.8 million in late 2010.
Facebook must now justify investor enthusiasm by making good on promises to monetize its fast-growing mobile platform. Facebook boasts more than 901 million users worldwide, up 33 percent from 680 million a year ago, with 488 million users accessing the site via mobile device each month. Facebook will look to mobile advertising as a major revenue source moving forward: Earlier this year, Facebook began integrating Sponsored Stories--posts from friends or Pages on Facebook that a business, organization or individual has paid to highlight--directly into its mobile News Feed.
"Sponsored Stories enable businesses to increase the reach and distribution of stories about their brand," said Facebook COO Sheryl Sandberg in a recent road show video recorded to drum up investor support for the IPO. "Today only a small fraction of our impressions are Sponsored Stories, which gives us lots of room to grow."
Last week Facebook released the sixth revision of its S-1 filing with the Securities and Exchange Commission last week, admitting that increasing its mobile base and shifting users away from its ad-supported desktop services could negatively impact its business model and long-term revenue outlook.
"We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users increasing more rapidly than the increase in the number of ads delivered," the filing states. "If users 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, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected."
A survey issued by digital marketing agency Greenlight suggests Facebook could face tough sledding: Forty-four percent of respondents said they would "never" click on Facebook advertisements or Sponsored Stories. Only 3 percent of respondents said they "regularly" click on Facebook ads, and 10 percent said they "often" click on promotions. In addition, more than 30 percent of respondents admitted they "strongly distrust" Facebook with their personal information--data the social network leverages to target its ad efforts.
"Facebook's advertising program has an upward struggle," said Hannah Kimuyu, Greenlight's director of paid media. "Facebook's advertising program allows brands to connect with more than 900 million potential customers through targeting their age, gender, location, and interests--in other words, personal data. Although 44 percent say they would 'never' click on advertisements or sponsored listings in Facebook, it is interesting to see that those who do find the targeting effective and engaging. Moreover, given the positive growth figures, we at Greenlight predict that more of us will be advertising and hopefully 'clicking' on an advertisement or a sponsored listing on Facebook this year."
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