When it comes to social networking, it's wise to put your best face forward. Facebook, the social networking juggernaut, lets users share information, post photos and videos, play games, and otherwise connect with one another through online profiles. Its Facebook Platform allows outside developers to build apps that integrate with Facebook. The site was launched in 2004 by Harvard student Mark Zuckerberg as an online version of the Harvard Facebook. (The name comes from books of freshmen's faces, majors, and hometowns that are distributed to students.) Microsoft powers the site's Web search and provides its search ads. In 2012 Facebook filed papers for what's expected to be one of the largest IPOs in US history.
Facebook's public offering comes after the company experienced exponential growth over the past few years, enabling it to dominate the social networking world as the most trafficked site of its kind in the US. In 2011 the service boasted nearly 850 million total users; about 480 million daily users; annual revenue of $3.7 billion; and $1 billion net income. It plans to raise a staggering $5 billion in a deal that is expected to value the company at $75 billion to $100 billion, representing the biggest technology IPO to date.
The company plans to use the funds raised from its IPO for working capital, general corporate purposes, and possible acquisitions. However, it also states it does not have "any specific uses" planned for the proceeds. Rather than spending the proceeds on its own businesses, Facebook will invest in money-market funds, certificates of deposits, Treasuries, or cash. Meanwhile, the company earns plenty from its operations. Revenue in 2011 increased by $1,737 million, or 88% compared to 2010, which in turn more than doubled from the year before. Net income jumped to $1 billion in 2011, up from $606 million in 2010 and $229 million the year before that.
Facebook owes the bulk of its earnings growth to its ability to lure more and more visitors to its site. The nearly 850 million users it counted in 2011 represents a significant increase from 2010, when it attracted 608 million users, up from 360 million in 2009. Such traffic attracts advertisers, who can learn valuable data that Facebook visitors give up for free -- including their age, location, gender, and interests -- allowing them to more accurately target specific demographics. Facebook makes most of its money, some 85%, from advertising. This figure is down from 95% of revenue in 2010 and 98% in 2009.
The remaining 15% of revenues primarily come from Facebook's online payments business, which consists of fees that users pay to purchase virtual and digital goods from game developers on Facebook. At the heart of this revenue stream is the Facebook Payments service, through which app developers pay Facebook a cut of their sales. Games from Zynga (including the popular FarmVille and Words With Friends) generate the majority of Facebook's online payments revenue, and Zynga accounts for 12% of total revenues. Facebook views its payments system as large source of potential revenue growth; such revenue accounted for 5% in 2010 and 2% in 2009.
While its success is remarkable, the company has not been without its share of troubles. In particular, Facebook has been the subject of controversy from privacy advocates who criticize the way the site shares personal information. Facebook has been rolling out a major redesign that began in 2011 and incorporates a Timeline feature designed to document even more aspects of its users' lives. In 2010 Facebook introduced changes causing users to unwittingly give away information about what websites they visit, which Facebook in turn presented to advertisers. Privacy advocates also had qualms about how difficult it is to "opt out" of new information-sharing features, which may have users unintentionally reveal personal information to third parties. In response, Facebook unveiled what it calls simpler privacy controls, including a redesigned privacy settings page.
Global in its reach, Facebook generated approximately 44% of revenue outside the US in 2011. The majority of its international business comes from customers located in western Europe, Canada, and Australia. The company sees Brazil and India in particular as key sources of growth.
Facebook's imminent IPO will make billions for its investors. Zuckerberg owns 28% of the company and controls 57% of the voting rights; his shares could be worth a whopping $28 billion. His former roommate at Harvard, Dustin Moskovitz, owns more than 7%, as does DST Global, an investment firm led by Russian billionaire Yuri Milner. Other major shareholders include private equity firm Accel Partners (11%), PayPal co-founder Peter Thiel (2.5%), and Elevation Partners, the investment firm of U2 front man Bono (1.5%).