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Facebook’s Series A Crunch Acqui-Hiring Party

Posted on Monday, Feb 4th 2013

According to eMarketer, U.S. display advertising grew 22% last year to $14.98 billion. Google remains the leader in display advertising with 15% of market share. But Facebook is gradually catching up. The social networking site saw display advertising market share grow from 14.1% in 2011 to 14.4% last year.

Facebook’s Financials

Facebook’s (Nasdaq:FB) Q4 revenues grew 42% over the year to $1.61 billion, ahead of market expectations of $1.53 billion. Revenue growth was driven by a 43% increase in advertising revenues which grew to $1.35 billion. EPS of $0.09 missed the market expectations of $0.11.

Among other statistics, they ended the year with 1.06 billion users worldwide, growing 25% over the year and 5% over the previous quarter. Average revenue per user grew 12% over the year to $1.54. Ad impressions grew 46% over the year because of growth in emerging markets.  Facebook also saw strong growth in the number of mobile-only monthly active users, which grew 171% over the year to 157 million. During the same period, the number of daily active users rose 28% over the year to 618 million.

Facebook’s mobile segment is also seeing good traction. The company began mobile advertising at the beginning of the year, and at the end of the recent quarter, mobile contributed 23% of advertising revenues. According to comScore, 23% of all time spent on apps in the U.S. is spent on Facebook apps. The second leading app in the country is Instagram, also now a Facebook entity, at 3%. Together the two account for more than a quarter of the time spent on apps in the U.S.

Facebook’s New Offerings

Facebook recently expanded its earlier service, Facebook Gifts, to Facebook Card. By purchasing a Facebook Card, users can mail to their friends a card that can be used for shopping and dining at select places such as Target and Olive Garden, to name a few. The cards work like gift cards except that one card can carry balances for multiple stores. Facebook has tied up with Discover Card Services for the offering. Facebook Card will help Facebook expand its presence in the e-commerce segment. It is still not clear as to how Facebook plans to generate revenues out of the service, but analysts and Facebook see it as a potential revenue earner in the years to come.

Last December, Facebook also experimented with a messenger service that lets non-friends, strangers, and advertisers pay $1 to Facebook to send users unsolicited messages on Facebook. Most messages to Facebook users land in their inboxes. However, messages from unknown users arrive in an “other” folder. By charging $1 per message, Facebook will promise to deliver these messages to the user’s inbox instead.

Facebook also recently released a beta tool called Graph Search, which is a social search tool that lets users look at what their friends like and recommend. Analysts believe that tools like Graph Search will lead to development of several other social apps that will help users connect with like-minded friends of friends for services such as dating and recruiting.

Facebook’s Series A Crunch Party

While Facebook may be trying to improve revenue through the development of new services that will help the company monetize its wide following, it is also investing heavily in talent acquisition and product enhancement. The added expense is hurting margins, but Facebook sees this as a necessary expense toward future growth. Because of the Series A Crunch in Silicon Valley in particular, companies like Facebook are having a blast acquiring failing startups for peanuts. For a relatively small signing bonus, it the company access to highly entrepreneurial talent. The phenomenon is affectionately called Acqui-Hiring. As part of this strategy, last quarter, Facebook acquired Threadsy, a start-up that was known for their marketing tool, Swaylo. Swaylo enables users to analyze the traffic and following they get on their social media network posts. Swaylo would let users know the impact their online activities within their social networks have across the user’s social graph so that organizations are able to market better to connect with their social influencers. The terms of the acquisition were not disclosed.

Besides adding headcount through acquisitions, Facebook is also hiring in the traditional way. For the last quarter, operating expenses grew 82% over the year to $1.06 billion, and part of that growth was attributed to increasing headcount. Over the past year, Facebook has added more than 1,420 employees to end it with nearly 4,620 employees, compared with 3,200 a year ago. Facebook plans to continue to hire more staff during the current year.

Facebook’s increased investment is also geared toward capturing a bigger piece of the mobile advertising market pie. According to eMarketer, mobile advertising in the U.S. grew 180% last year to $4.06 billion. The pace of increase will slow, but the market is projected to grow 77% this year to $7.19 billion. By 2016, eMarketer projected mobile advertising in the country to be a $20.89 billion market. Google remains the leader in mobile advertising, with 56% of the market share. Facebook is a distant second, accounting for 9% of the market as of last year. The report predicts that Facebook’s expansion plans will help it to capture nearly 12% of the market this year.

The market has reacted favorably to Facebook’s recent moves. The stock is trading at $28.43 with a market capitalization of $67.96 billion. It touched a 52-week high of $45.00 in May 2012. The stock has recovered significantly from the 52-week low of $17.55 it fell to in September 2012.

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