Facebook has finally updated its status. Financially, that is.
The social-networking giant's initial public offering document reveals a wealth of detail about its business operations previously known only to the likes of co-founder Mark Zuckerberg, COO Sheryl Sandberg and the company's legion of private investors. So let's dive in and see what they tell us about how the secretive giant does what it does.
That billion-dollar profit
One thing is immediately clear: Facebook makes a ton of money. And it's making it fast.
Facebook has finally opened up its books. What do you think?
In 2011, the company reported net income of a clean billion dollars on revenue of $3.7 billion. Just three years earlier, Facebook was an unprofitable and scrawny runt, with a net loss of $56 million and revenue less than a tenth of what it now pulls in ($272 million).
What changed? Advertising took off. Fully 85 percent of Facebook's revenue comes from advertising, which has risen to $3.2 billion last year from just $764 million in 2009 (the earliest year for which the company breaks out such data).
The rest of Facebook's money comes in the form of payments and fees--principally thanks to Facebook Payments, the company's system for taking a 30 percent cut of social-game transactions and other commerce conducted on its site. (And most of that is from Zynga; see below.) Such income has also skyrocketed, reaching $557 million last year, up from a paltry $13 million in 2009.
All that sounds pretty impressive. But $3.7 billion in revenue still fell short of what those oracular Wall Street analysts had expected. Apparently the supposedly smart money had counted on 2011 revenue of $4.3 billion. Too bad there's no stock price for those guys to push down yet.
Social-game producer Zynga is the remora to Facebook's Great White. Zynga accounted for an astonishing 12 percent of all Facebook revenue in 2011. That's $445.3 million, for those of you playing along at home. In the two prior years, Zynga accounted for less than 10 percent of Facebook revenue, which means less than $187 million in 2010 and $76 million in 2009.
The big jump largely reflects a May 2010 deal in which Zynga agreed to use Facebook's payments system for in-game purchases. That meant big money for Facebook--again, because it gets to keep as much as 30 percent of that revenue stream.
Small wonder Facebook lists its dependence on Zynga as one of the risk factors that could harm its future business.
Users engaged to be engaged
We all expected some big user numbers, and Facebook certainly delivered on that front. It claims 845 million "monthly active users," and an astonishing 483 million "daily active users"--that is, the number of people who either log in or share something with other Facebook users in a given day.
Tellingly, though, U.S. user growth has noticeably flattened. Daily U.S. users rose only 27 percent to 126 million in December 2011, up from 99 million a year earlier--only about half as fast as in the preceding year.
Facebook, of course, has high hopes for the rest of the world. On a global basis, the number of daily users jumped 48 percent over 2011, to 483 million. Facebook took pains to cite growth in Brazil, Canada, Germany, Mexico and the U.K. in addition to the U.S.
The company can't be faulted for a lack of ambition. As Facebook states in its IPO filing:
There are more than two billion global Internet users, according to an industry source, and we aim to connect all of them.
Unsurprisingly, given the amount of cash sluicing through Facebook, its executives are making out like bandits.
At first glance, Zuck himself looks like the piker of the bunch. While he's got a higher base salary ($483,333) than any other execs, his total compensation for 2011 was $1.5 million. A lot by ordinary standards, in other words, but as you'll see, nothing compared with the rest of his team.
(Fun fact: Facebook reported paying $692,679 for chartered jets used to shuttle around Zuck, his family, and friends during 2011--all as part of the CEO's "comprehensive security program," naturally.)
Meanwhile, COO Sheryl Sandberg pulled down a whopping $30.9 million in the year, the vast majority of that reflecting stock awards during the year. Engineering VP Mike Schroepfer was runner-up with 2011 compensation of $24.7 million. CFO David Ebersman got $18.7 million, while general counsel Theodore Ullyot had to be content with a cool $7 million.
As if that imbalance wasn't striking enough, Zuckerberg's salary is set to fall to $1 at the beginning of 2013. But no one should feel too bad for him; Zuck's stake in Facebook could be worth an estimated $28.4 billion, according to Bloomberg, making him wealthier than either Larry Page or Sergey Brin and almost the equal of Larry Ellison.
All in the family
The numbers may amount to little more than a rounding error in Facebook's financials, but it's still fascinating to see how some of Zuckerberg's relatives have benefited from his success.
For instance, Edward Zuckerberg--dentist and father to the CEO--holds 2 million shares of Facebook's class B common stock, thanks to a grant made by the board (sans said CEO) in December 2009. The elder Zuckerberg apparently provided the company with "initial working capital" in 2004 and 2005, for which he received options for 2 million class B shares that he never exercised.
The board subsequently determined that the options grant "did not reflect the intent of the parties with respect to the equity to be issued to him" and instead gave Zuck the Elder an outright grant instead of options. For what it's worth, the grant came in exchange for a "release from potential related claims," suggesting that the dentist from Dobbs Ferry might have bared his legal incisors at some point.
Zuck's older sister Randi Zuckerberg, meanwhile, earned a total of $357,864 from Facebook over the years 2009-2011 for various work at the company, including heading up its consumer marketing. She has since left the company to form her own social-media consultancy.