Facebook's rocky year as a public company

Facebook's freshman year as a public company played out like an MTV drama in which Mark Zuckerberg was forced to navigate through an awkward accommodation with the rough-and-tumble world of Wall Street.

Even as Wall Street lectured loudly, a preoccupied Zuckerberg was only half listening and seemed more interested in saving the world from a dearth of sharing than worried about quarterly revenue performance. By year's end, though, Zuckerberg had earned his passing grade by demonstrating a masterful understanding of how to make money on mobile. Indeed, Facebook has seemingly weathered the worst even though it was an an uneven year with more than the usual fill of drama, one punctuated by extreme highs and lows. Let's take a closer look at the key moments:

Facebook flunks its first test

On May 18, 2012, Zuckerberg took public the social network he started from his Harvard dorm eight years prior. The milestone day proved to be as memorable as it was disastrous.

Nasdaq glitches delayed the offering by 30 minutes, and further complications left many traders in the dark as to whether their transactions had been completed. The Wall Street Journal estimated that the technical problems added up to roughly $500 million in losses for traders. Meanwhile, Facebook's underwriters were forced to buy up stock in bulk to keep Facebook floating above its IPO price of $38 per share to save face on its first day.

Facebook got some good banking done on IPO day -- it pocketed $10 billion through the offering. So too did a few early insiders who got to sell their shares. Everyone else bought in at Facebook's absurd $104 billion valuation. The financial markets have since decided on a much reduced valuation, which means day-one buyers are significantly under water. Not happy with what seemed like a safe bet, disgruntled shareholders filed suit against Facebook alleging that the company disclosed material information about the health (or lack thereof) of its business to insiders but not to them.

The IPO-uh-oh set a depressing tone for Facebook's first year as a public company as the social network's relationship status with Wall Street instantly deteriorated from honeymoon-like to "it's complicated."

It's still complicated.

"It's kind of hard to not focus on the IPO and the dramatic correction in the stock price," Mark Mahaney, managing director and Internet analyst at RBC Capital Markets, told CNET when reflecting on the one-year anniversary of Facebook's IPO.

"I think people, when they think about Facebook as a stock, are dwelling on the IPO catastrophe," he said. "They're going to be thinking about that for quite some time, probably until the day that the stock is able to go up above the IPO price."

Based on Mahaney's projections, Facebook won't be able to reach its IPO price of $38 a share during its second year as public company, which means the IPO cloud will keep things a bit gloomy for the foreseeable future. The stock is more stable now, however, and Mahaney does expect the social network to grow in market value by around 18 percent to $32 per share in the next 12 months. But if you were first to buy Facebook, you're still pretty hosed.

A year of big whiffs ...

One thing you can say about Zuckerberg is that he is a man of his word.

Prior to going public, the chief executive promised investors that Facebook would maintain its risk-taking, "Hacker Way" mentality of shipping imperfect products as fast as possible. Major product releases like Graph Search and Home made good on that promise and demonstrated that Facebook would stick to pushing out half-baked products over meeting Wall Street's demands for perfection.

Facebook Home, the social network's software suite for Android phones, flopped so supremely that partners AT&T and HTC have been sullied by association. The HTC First, the first smartphone to ship with Home, was put on the clearance rack after less than month. The software package, by itself, has been panned by thousands of app reviewers who don't enjoy Facebook's attempt to control their home and lock screens.

"[Home] has not gotten a warm reception, and I think deservedly so. It's much too in-your-face intrusive," Altimeter digital media analyst Rebecca Lieb told CNET. "I don't think that people want all Facebook all the time, and it really does Facebook-ify your mobile device. It's not terribly intuitive in terms of the interface ... . And even if people devote 50 percent of their time to Facebook, I don't think they want to devote almost 100 percent of their phone to it."

Graph Search is another one of Facebook's milestone releases that proved to be more of a head-scratcher than a game-changer.

Graph Search is meant to replace Facebook's current search experience and help people find people, photos, places, and interests with natural language queries. The product creates a new use case for Facebook: discovery. Graph Search finally opens the door to an expansive digital world buried underneath an always-updating stream.

Zuckerberg even dubbed Graph Search a "third pillar," which makes it as essential to the social network as Timeline and News Feed. Yet four months after the big unveil, the majority of Facebook's 1.11 billion users still don't have access to the new search experience and the company rarely talks about it.

"Graph Search is cool enough, and it's certainly intriguing enough, but it hasn't gone anywhere," Brian Blau, research director of consumer technologies at Gartner, told CNET. "That's got to be the biggest sore thumb they got right now ... it's clearly a miss."

And what of Facebook Gifts, the online marketplace embedded inside the social network that launched late last year?

Facebook is hawking the heck out of these physical goods you can send to friends, but it's not making meaningful revenue from sales, nor does it plan to this year. A few months ago, the company insisted that, in typical Facebook-fashion, its just experimenting and trying to figure out how the product should work. Gifts didn't get a mention in Facebook's last earning report, however, which means the company may be starting to wise up to the less pleasant reality that members just don't want to give gifts through Facebook.

Of course the list of misses includes Facebook Poke, the mobile app that convinced absolutely no one to switch from Snapchat to send their self-destructing pics. Once again, the social network proved to be a bad copycat.

... but even bigger hits

Sure, Facebook had its share of whiffs, but it also strung together enough hits it to solidify its place as a monthly destination for more than 1 billion people. That's something that should not be dismissed.

"With a billion users, it's hard to keep growing, but they have been," Mahaney said. "The growth rate has been consistent in terms of users ... and in terms of usage per user. Those are very big wins."

Facebook reported 1.11 billion monthly active users, 751 mobile monthly active users, and 665 million daily active users at the end of the first quarter 2013. The numbers were remarkable enough to quiet critics concerned around the social network's ability to grow as it reaches capacity in some markets.

"The biggest success that Facebook has had over the past 12 months ... is the fact that Facebook is still a success. They have lots of users, and they've managed to keep them. And, for the most part, they've managed to keep them happy," Blau said. "That's a huge challenge in today's world where consumers have a lot of choice."

Basically, Facebook is still Facebook. Despite the IPO mishap. Despite more ads in News Feed and ads on mobile. Despite teens spending more time on competing services.

With 100 million active users, Instagram looks to be the find of the decade. The $1 billion deal, which closed in September, gives Facebook access to young social-networkers who prefer communicating through mobile photos. Instagram represents Facebook's connection to the future. Plus, with brands becoming a bigger part of experience, the social network should be able to tack on a business model when it deems appropriate to do so.

"I look at [the purchase] as a very deep commitment to visual content and the talent to make that technologically possible," Lieb said. "I do think that that's important for Facebook. They have really redesigned the site around being more visual, which is important for the Web product but even more so for the mobile platform."

An A+ for mobile

Facebook may still be Facebook, but members are increasingly choosing the social network's mobile applications over its Web site. Last May, when Facebook had zero ways to monetize member attention on mobile, this was a major problem. Today, mobile is Facebook's greatest opportunity.

Facebook now counts 751 million people who visit its mobile products each month -- but it's no worse off for this attention shift. In the first quarter, the company managed to make 30 percent of its advertising revenue, or around $375 million, from mobile.

"At the IPO, they were generating no revenue from mobile devices, and now they're clicking along at a $1.5 billion annual revenue run rate for mobile," Mahaney said. "Facebook has proven that it can monetize the dramatic amount of mobile usage that came on the network."

The year ahead

With a steadily growing business, the social network heads into its sophomore year as a more mature organization.

But that's not to say the next 12-months will be dull. Facebook is on a collision course with Google. The social network purchased Atlas to help it appeal to advertisers and it's showing an active interest in stealing away a chunk of the mobile search ad market from its Valley competitor. Maybe even Graph Search will grow up and challenge Google for search ad dollars.

The social network's to-do list should include all of the following action items:

• Promote and enhance advertiser-beloved tools such as Custom Audiences and Facebook Exchange to continue to grow revenue, use Atlas to give advertisers more insight into how their ads are performing, and give more advertisers the option to run retargeted ads in News Feed. Facebook needs do all of these things without alienating users. We didn't say it would be easy.
• Fix Facebook Home. Zuckerberg has said that he's most excited about the product, but the company needs to do more than talk about changes. It needs to ship them. Preferably sooner, rather than later.
• Master e-commerce or move on from Gifts.
• Keep spending in check.
• Grow its developer community. Facebook's lock on the social graph could be in jeopardy with Google more determined than ever to get people to make Google+ their primary social identity. Google is making Google+ the identity platform on Android, and it hopes to entice developers to push people to sign in with Google+. Facebook can defend against the attack if developers continue to build Facebook hooks into their apps. Thankfully, it picked up Parse, a platform that gives the company access to an even bigger pool of mobile app makers.
• Figure out if it wants to be a major player in local search. The Nearby tab in mobile apps and improvements to mobile Pages aren't significant enough releases to get people to turn to Facebook for their local search queries. Maybe Waze will do the trick.
• Defend its turf from a slew of social applications, mobile messaging apps in particular, siphoning away its youngest users. Facebook invented Chat Heads, perhaps the only well-received feature of Home, but it needs to dream up even more original ideas to stay current with fickle social networkers.

Stay tuned. There should be enough drama to keep us entertained for quite some time.