SOCIAL MEDIA RICHARD CHEN HANSEL FUNG COLTON GABARA WEIJING GAO Social Media at a Glance
Total Internet Active Social Unique Active Mobile Population Users Media Users Mobile Users Social Users
+10% +10% +4% +17% 7.395 3.419 2.307 3.790 1.968 Billion Billion Billion Billion Billion
The social media industry is growing quickly. Fueled by globalization, high growth of internet users, and improving functionality of social media platforms, social media growth will continue to see high growth in or near double-digits for at least the next few years. Although internet and mobile penetration in developed countries are high, billions still remain unconnected in other parts of the world. Social media companies must quickly develop and improve their products in order to remain competitive in this fast- paced industry. The risks can be great, but the returns can be even greater with the proper execution.
Data and Images from WE ARE SOCIAL as of January 2016. % Change is YoY. Social Media and S&P 500 (3 Year)
200
180 Facebook
160
140
120 S&P 500
100
80 SOCL LinkedIn
60
40 Twitter 20
0
Social Media Index S&P 500 Facebook Twitter LinkedIn PLATFORM BUSINESSES Source From Harvard Business Review: “Pipelines, Platforms, and the New Rules of Strategy” Pipeline vs Platform
Pipeline Platform
Raw Materials Producers Consumers
Intermediate Goods
Manufacturing Providers
Owner Marketing & Sales PLATFORM
After-sales service Platform Business Components
Producers Consumers
Value and data exchange and feedback Creators of the platform’s Buyers of users Offerings (for example, Of the offerings Apps on Android)
Interfaces for the platform (mobile devices are Providers providers on Android) Controller of platform IP Owner And arbiter of who may Participate and in what ways (Google owns Android) PLATFORM
IMAGE FROM HBR Article “Pipelines, Platforms and the New Rules of Strategy” Pipeline to Platform
Resource Control Resource Orchestration . Pipelines try to gain advantages through controlling scarce and valuable assets such as mines, real estate, and intangible assets like intellectual property. . Platforms have networks of producers and consumers as their most important assets.
Internal Optimization External Interaction . Pipelines try to maximize the capabilities of its internal labor and resources to create value. . Platforms facilitate interactions between external producers and consumers to create value. . Emphasis shifts from dictating processes to persuading participants.
Customer Value Ecosystem Value . Pipelines seek to maximize the lifetime value of individual customers of products and services. . Platforms seek to maximize the total value of an expanding ecosystem in a circular, iterative, feedback-driven process sometimes subsidizing one type of customer to attract another type. Supply-side Economies of Scale
Key Factors Massive • Controlling resources Fixed Costs • Ruthless increase in efficiency to Higher sales Reduce volume increase volume and lower as prices to leads to much costs as possible achieve lower higher sales • Fending off challenges from any average cost volume of business of the five forces Low Marginal • Build large moat around the Costs business that protects it from competition and channels competition towards other firms Demand-side Economies of Scale
Value
Network Effect
Social App Demand User Other Useful Networking Development Aggregation Interface Tools
Technologies that help networks expand can create the network effect where companies attract more platform users because more and more people are using it. The larger the network, the better the match between supply and demand, which means the richer the data that can be used to find matches. The greater the scale, the greater the value, which will attract more platform users, which creates even more value, and so on like a feedback loop. Forces
Within the Ecosystem Exerted by Ecosystems • Consumers, producers, and providers may defect from the Successful platform businesses can move aggressively platform if their needs can be better met elsewhere. They into new industries with little warning, which can be may even compete with the platform. troubling for pipeline businesses. • E.g. Zynga planning to migrate users to its own platform from Facebook, Amazon and Samsung, providers of the Android platform, trying to create their own O.S. Accretive Behavior • Consumers and producers can exchange roles to generate value for the platform. For example, users can drive for Uber one day and ride for it on another day. Depletive Behavior • Providers on a platform can decide to compete with the owner. For example, if Apple were to not allow Facebook on its mobile devices and force its own social media platform. Focus on Interactions
Platform businesses focus on exchanges of value between producers and consumers on the platform. This unit of exchange can be very small with no money exchanging hands, such as a thumbs up or a view of a video. However, these small interactions determine the strength of the network effects, which in turn determines the success of the business. It is therefore essential to focus on ensuring the value of the interactions are high by focusing on the right type of interactions and nailing down the core interactions first before focusing on volume and moving on to other interactions. Access and Governance
For pipeline businesses, strategy is about erecting barriers. For platforms, it shifts to eliminating barriers of production and consumption to maximize value creation while still guarding against threats.
Open Architecture Noise • Allows players to access platform resources like app • Too much access can destroy value by creating “noise”. developer tools to create new source of value These are inappropriate or excessive low-quality content that obstruct interactions. Open Governance • Allows players other than the owner to shape the rules of trade and reward sharing on the platform. Fair Reward is Key • If rewards are not shared properly, potential platform participants have no incentives to enhance value even though they have the capability to. Metrics
Interaction Failure • If someone tries to get a ride using Uber but finds that there are no cars available in the area. If this happens often enough they will stop using the platform, drivers will have less customers and are more prone to quitting, which results in lower ride availability, and so on. Engagement • Content sharing, repeat visits, ratio of daily to monthly active users, how long people spend on a page, whether ads are clicked on, and more. Match Quality • Poor matches between what the user needs and the producers weaken network effects. Negative Network Effects • The positive loop can go the other way. For example, congestion from high network growth can discourage platform participation. Understand Financial Value of Communities
1 billion to 37 billion? It’s important to look beyond traditional financial metrics when looking at platforms. The worth and potential of these companies in their growth stages are often not measured in the same as pipeline businesses. DATA AND ANALYSIS Industry Segmentation
Casual Social Networks U.S. User Segmentation • These companies include Facebook, MySpace, Google Plus, Yahoo Pulse, Microsoft So.cl. 2.5% Other Social • Responsible for majority of revenue in the industry even if 5.7% Networks it only accounts for a bit over half of the users. Professional Social Networks • Advertising is the main source of revenue, and platforms utilize user data to target specific customers. Blogging Social Networks • Consists of two formats, traditional blogging networks like Blogger and Wordpress, and microblogging such as Twitter and Tumblr. 37.6% • In the early stages of recognizing revenue potential, but still Blogging Social limited due to content limitations. Networks Professional Social Networks • Majority of revenue comes from products offered to job 54.2% seekers and employers. Casual Social • This segment is projected to grow as other social networks Networks seek to incorporate similar career features.
SOURCE: WWW.IBISWORLD.COM Industry Competition
Internal Competition U.S. Market Share • Competes based on total cost ownership instead of initial price. Security, updates, and support are critical factors. 5.6% • User-friendly interface is especially important for networks Other with broad audiences as it doesn’t frustrate novice users. 15.1% • Compatibility and ubiquity are important. People want to LinkedIn access these networks however and whenever they want. Barriers to Entry • New SNS must be unique to be able to compete with the giants of the industry due to the network effect. • Monetization of users is an issue especially for newer SNS • Development of new SNS can be initially costly, and speed 13.2% is also necessary to take full advantage of new markets. Twitter Globalization • As user base grows in developed countries, SNS will seek to 66.1% grow their revenue abroad leading to competition with Facebook foreign SNS • Factors such as regulation may be increasingly complicated.
SOURCE: WWW.IBISWORLD.COM Key Operating Factors
Wages U.S. Sector vs. Industry • Specialized workers are absolutely essential in this industry, which has led to high compensation especially in the form of non-monetary arrangements such as employee options. • In order to remain competitive increased research and development is needed leading to larger headcounts and higher wage costs for SNS in the foreseeable future. Other Costs • Depreciation can be significant as SNS need to maintain servers for development and their user base. • Security costs are expected to increase in the future as concerns over security continue to be a major factor. Profit • Many large and small companies in this industry either have low profit margins or are deeply in the red. • Margins have been improving, however, as companies such as Facebook have paid more attention on monetizing their user base. SOURCE: WWW.IBISWORLD.COM Top Social Networks by Monthly Active Accounts
Facebook 1,590 WhatsApp 1,000 Facebook Messenger 900 QQ 853 WeChat 697 Qzone 640 Tumblr 555 Instagram 400 Twitter 320 Baidu Tieba 300 Skype 300 Viber 249 Sina Weibo 222 LINE 215 Snapchat 200 yy 122 Vkontakte 100 Pinterest 100 BBM 100 LinkedIn 100 Telegram 100 Data in millions, as of April 2016 from Staista Internet Users
3,500
193 3,000 172 141 170 148 129 118 162 2,500 124 487 105 154 105 143 466 93 447 79 114 2,000 86 435 95 651 419 616 410 584 1,500 388 539 368 483 456 340 1,000 300 428 277 405 385 1,506 1,229 1,366 346 1,124 500 316 872 988 726 503 615 344 394 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Asia & Pacific The Americas Europe Commonwealth of Independent States Arab States Africa Thanks to a high growth rate of 15.91% CAGR in Asia & Pacific the region has almost as many internet users as all the other regions combined. The Americas growth is primarily fueled by countries outside of U.S. and Canada, and Europe has the lowest growth rate at 5.8%. Developing countries are growing quickly, and although Asia & Pacific already has so many internet users, it’s internet penetration is only 36.90%, which is on par with the Arab States. This means future growth for Asia & Pacific will still remain robust. Internet Penetration %
90
77.60 80 74.47 71.72 69.97 67.80 66.57 66.00 70 63.20 63.15 60.20 60.43 59.90 56.00 56.37 57.39 60 54.78 51.00 49.70 48.64 50.73 46.30 46.10 50 42.70 44.10 40.68 38.80 35.90 37.00 40 33.95 34.65 32.24 29.35 36.90 26.45 33.80 30 23.80 24.27 30.71 28.37 19.50 20.70 19.10 25.18 18.93 16.80 22.45 16.72 20 10.30 12.60 16.20 14.44 13.40 18.90 12.56 10.60 16.20 9.84 13.40 7.30 9.40 11.10 5.90 10 8.30 3.90 2.40 3.30 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Asia & Pacific The Americas Europe Commonweath of Indep States Arab States Africa Fixed and Mobile Broadband Connections
140.00% 3,500
120.00% 3,000
100.00% 2,500
80.00% 2,000
60.00% 1,500
40.00% 1,000
20.00% 500
0.00% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fixed Broadband Connections (M) Mobile Broadband Connections (M) Fixed Growth Mobile Growth The extremely rapid growth of mobile has completely displaced fixed broadband as the leader making it of primary importance to all internet ad companies. Growth of fixed broadband remains only 6.03% YoY in 2015 and is also projected to decline to 2.67% YoY in 2019. Growth in mobile, while declining, is still sitting healthily in the double digits at 17.80% YoY in 2015. Hundreds of millions of mobile connections are being added every year making it an extremely attractive and fiercely competitive marketplace. Smartphone Penetration
90
80
70
60
50
40
30
20
10
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Asia Pacific North America Western Europe Eastern Europe Middle East & Africa South & Central America Internet/Other Advertisement Revenue
70% 700,000
60% 600,000
50% 500,000
40% 400,000
30% 300,000
20% 200,000
10% 100,000
0% 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Internet Ad Revs ($M) Total Other Ad Revs ($M) Internet Ad Market Share % From 2005 to 2015 internet ad revenue has grown almost 21.79% CAGR while the total ad revenue has grown by only 3.17%. Even so, other ad revenue is still remaining steady with a growth rate of 0.27% meaning internet ad is mostly absorbing the growth of other ad revenue. Internet ad revenue growth is projected to decrease as a percentage due to the law of large numbers, but will still remain very healthy in the double digits for the next few years. Internet Advertisement Revenue
200,000
6,526 180,000
5,696 160,000 49,733 140,000 4,894 42,996 120,000 4,025 35,133 27,591 52,034 100,000 47,413 21,863 80,000 17,454 42,810 37,546 14,269 60,000 32,603 10,961 11,530 29,100 9,171 24,783 40,000 72,542 6,075 18,361 20,496 63,700 14,811 53,488 10,323 39,669 46,360 20,000 28,558 34,658 17,820 22,534 25,183 24,827 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 North America EMEA Asia-Pacific Latin America
While Asia-Pacific has the majority of internet users, its revenue has yet to catch up to North America. In 2015 North America YoY growth was 13.88% while Asia-Pacific had a growth of 15.67% meaning it will still be a while before Asia-Pacific catches up to North America. Although penetration is high in developed regions, companies such as Facebook could continue to benefit from growing ARPU with the right monetization methods, data gathering, and various other enhancements to the platforms. Desktop and Mobile Internet Advertisement
45% 200,000
40% 180,000
160,000 35%
140,000 30%
120,000 25% 100,000 20% 80,000
15% 60,000
10% 40,000
5% 20,000
0% 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Desktop Mobile Mobile % of Total Internet Advertisement Revenue by Format
250,000
21,723
20,270 200,000
18,727
17,213 112,417 150,000 99,655 15,030 86,811 74,004 12,199 100,000 11,072 59,903 10,336 48,105 9,879 38,496 9,244 31,101 27,174 96,880 50,000 79,985 88,450 21,816 69,107 51,267 60,148 37,883 44,488 27,475 33,341 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Paid Search Display Classifieds
Google has led the charge in terms of the growth in paid search. However, over time display ads have grown in popularity as banner ads, video ads, and rich media ads took over paid search in 2015 as the leading format. Going forward, this trend is expected to continue with the increasing growth of video as well as platforms such as Facebook utilizing display ads in order to better attract advertisers and increase ARPU. Most of the growth in display will come from mobile instead of desktop. U.S. Desktop and Mobile Unique Visitors
2,500
2,000 363 364 359 355 353 351 350
342 347 347 344 345 350 361 1,500
648 652 653 656 646 633 622 1,000
500 734 736 738 741 741 737 732
0 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Google Facebook LinkedIn Twitter Global Ad Blocking Growth Usage of Ad Blocking Software in the U.S. Usage of Ad Blocking Software in Europe The Cost of Block Ads Effect of Ad Blocking by Industry Mobile Yet to be a Factor in Ad Block Growth Mobile Will Facilitate Future Ad Block Growth Average Monthly Display Ad Impressions
180,000
14,494 160,000
20,754 21,560 140,000 10,687 44,083
120,000 42,280 36,063 18,119 44,115 15,443 100,000 30,617 7,859 29,597 80,000
60,000 46,870 111,931 94,114 96,960 84,991 77,933 40,000 68,758
35,263 20,000
0 2009 2010 2011 2012 2013 2014 2015 Facebook Yahoo Google Ad Exposed Unique Visitors
600
108 110 110 500 104 111 88
97 400 141 150 157 156 134 164 121 300
165 157 168 200 161 157 135 155
100 121 146 144 136 122 86 118 0 2009 2010 2011 2012 2013 2014 2015 Facebook Yahoo Google Microsoft
Stock Overview 1 year IPO to Present Facebook Overview (Q1 2016) Timeline
Launch of Launch of Acquisition of Facebook is Facebook on Launch of Like Acquisition of Over 1 billion Facebook Video Oculus founded Mobile Button Instagram users February 4, 2004 April 1, 2006 June 22, 2007 February 9, 2009 February 9, 2009 October 4, 2012 March 25, 2014
1 Million Launch of Launch of Introduction of Facebook IPO Acquisition of Whatsapp active users Newsfeed Facebook Chat Timeline May 18, 2012 February 19, 2014 December, 1 2004 September 5, 2006 April 6, 2008 September 22, 2011 How Newsfeed Works
• Facebook is hugely popular because of features like Newsfeed • Newsfeed was key improvement to Facebook, allowed users to see friends’ recent posts easily • However Facebook does not show all posts, they use an algorithm (known as Edgerank) to determine which friend’s posts would be most important to the user • Newsfeed allows for seamless integration of advertisements Newsfeed Ad on Desktop Newsfeed Ad on Mobile Daily Active Users
1,128 1200 1,090 1,040 1,010 968 936 1000 890 355 864 339 829 802 308 319 757 291 728 280 800 699 256 263 233 244 216 208 195 346 600 309 329 285 300 253 270 228 242 200 216 181 189 400
240 249 252 212 217 225 228 233 182 188 195 203 206 200
142 144 147 150 152 155 157 161 164 167 169 173 175 0 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 US & Canada Europe Asia Rest of the World Monthly Active Users
1,712 1800 1,654 1,590 1,550 1600 1,490 1,440 1,393 1,317 1,350 556 1400 1,276 533 1,227 509 1,190 492 1,150 470 436 453 1200 411 423 376 395 346 362 1000 566 592 522 540 800 471 496 410 426 449 351 368 390 339 600
315 323 333 338 400 272 276 282 289 292 296 301 307 311
200 198 199 201 202 204 206 208 210 213 217 219 222 226 0 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 US & Canada Europe Asia Rest of the World Mobile Daily Active Users
1200
1000
800
600
989 1,033 894 934 844 798 400 703 745 654 609 556 469 507 200
0 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Mobile Monthly Active Users
1800
1600
1400
1200
1000
800 1,508 1,574 1,390 1,440 1,310 1,189 1,250 600 1,070 1,120 945 1,008 874 819 400
200
0 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Mobile Only Monthly Active Users
1200
1000
800
600
967 894 823 400 727 655 581 526 526 456 399 200
0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Mobile Ratios
100% 90.73% 91.58% 88.51% 89.81% 87.19% 90% 83.71% 85.26% 81.37% 78.89% 75.94% 80%
70% 64.43% 64.32% 64.86% 65.58% 65.63% 62.77% 62.66% 63.84% 60.42% 61.12% 59.28% 61.44% 57.15% 60% 52.30% 50.00% 56.48% 46.96% 46.48% 54.05% 50% 44.24% 42.62% 51.76% 39.58% 46.90% 43.96% 40% 40.35% 38.96% 37.76% 34.62% 30% 31.27%
20%
10%
0% Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Mobile Daily/Mobile Monthly Mobile Only/Mobile Monthly Mobile Only/MAU Mobile Daily/DAU Average Revenue Per User Q2’14-Q2’16
$16
$14
$12
$10
$8
$6
$4
$2
$- Rest of the World Asia Europe US & Canada Total ARPU Revenue
7,000.0 6,436
614 6,000.0 5,841 5,382 610 1,025 473 5,000.0 4,501 846 4,042 862 3,851 451 4,000.0 1,585 3,543 415 403 709 1,434 3,203 354 623 1,307 2,910 554 353 3,000.0 2,585 542 2,502 347 1,085 492 1,037 311 271 431 1,030 2,016 908 2,000.0 1,813 341 354 238 844 213 278 824 727 698 3,212 247 2,951 2,740 538 505 2,256 1,000.0 1,967 1,864 1,739 1,514 1,206 1,179 1,308 848 962 0.0 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 US & Canada Europe Asia Rest of World Revenue Segmentation 2015 2014 2013 Payments Payments Payments and Other and Other and Other Fees Fees Fees 5% 8% 11%
Third- Third- Third- party Ad party Ad party Ad Revenue Revenue Revenue 89% 95% 92% Other 20% Other 31%
Other 47% Mobile 53%
Mobile 69% Mobile 80% Ads Delivered and Price per Ad (YoY % Change)
335 350
274 285 300
250 220
200
150 118 123
92 100 61 50 49 46 39 43 42 27 29 50 13 9 7 -4 3 -8 5 16 21 0 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 -10 -17 -25 -62 -65 -55 -50 -56
-100 Ads Delivered Price per Ad Revenue Growth Calculation Q2 2016
Ads Delivered = 49% Price per Ad = 9% Base = 100
Revenue Growth = Base*(1 + Ads Delivered)*(1 + Price per Ad) - 100
New # of Ads Delivered Multiple due to Ad Price
Revenue Growth = 100*(1 + 0.49)*(1 + 0.09) – 100 = 62.41
Actual Ad Revenue Growth in Q2 2016: 63% Revenue Drivers
Revenue
Ads Price Delivered per Ad
Pages Platform Number of Algorithm Marketer Economic Viewed/Time Limitations Users Efficacy Demand Growth Spent
A large reason why the revenue has been growing so rapidly has been due to Facebook increasing the number of ads that a user sees. However, this growth is limited as there are only so many ads Facebook can add to not hinder user experience. After various adjustments from 2012 until today, Facebook has stated that it expects ad load (ads delivered) to be less important by mid-2017. Facebook would then have to look for truly organic methods of growth by either increasing its platform usability which will increase time spent and pages viewed, increase algorithm efficiency to give marketers higher ROI, or increase the number of users. The number of users are increasing, but most of it now comes from places outside US & Canada where ARPU is far lower. Time Spent (Billions of Minutes)
350
300
250
200
150 290 292 259 251 239 229 227 212 196 100
50
0 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Global Usage Minutes (Billions)
900
800 66 700 97 59 80 173 86 88 84 600 89 225 239 94 500 322 279 316 400 88 307 101 256 300 154 107 200 257 291 291 224 100 163 171 201
0 2009 2010 2011 2012 2013 2014 2015 Google Facebook Yahoo Microsoft U.S. Desktop and Mobile Unique Visitors
2,500
2,000 363 364 359 355 353 351 350
342 347 347 344 345 350 361 1,500
648 652 653 656 646 633 622 1,000
500 734 736 738 741 741 737 732
0 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Google Facebook LinkedIn Twitter Original Sharing Decline
• Potentially very problematic as original Mid 2014 – Mid 2015 sharing is what differentiated Facebook from its competitors. • If original sharing continues to decline Original Sharing then Facebook would turn into a recommending machine, which may not have as much value going forward. • Unique information from users will be more difficult to obtain. • Facebook’s economic moat could 21% decrease over time as network effects may lessen.
Source: The Information Ad Products
• Mobile is no longer “nice to do” but a “must do” • Facebook recognizes the different behaviours of mobile and desktop browsing • Creating ads that catch attention within seconds of viewing without sound • Facebook is creating an easier experience for small and medium-sized businesses to create a web presence, instead of a traditional website, they can create a Facebook profile • Simple and inexpensive ad buying experience and impression tracking for businesses Search and Posts
• Facebook users are using search more to look up topics, people, and businesses • There are over 2.5 trillion posts on Facebook • Over 2 billion searches a day Video
• Internet consumption is transitioning from text to photos to videos in the future, according to Mark Zuckerberg, Facebook is becoming a “video first” company • Facebook will be bringing more relevant video ads for consumers Live Video and 360 Photo
• Live Video is a new focus of Facebook, it is changing the way people consume news • Live video can present important moments as they happen • 4 million 360 photos have been shared since launch this quarter Audience Network
• Audience Network is Facebook’s propriety ad serving platform • Facebook is planning to expand Audience Network to serve ads to third-party sites • Facebook also intend to incorporate videos into future Audience Network ads Expenses as % of Revenue Diluted Shares Outstanding and YoY % Change
3,000 50%
45%
2,500 40%
35% 2,000
30%
1,500 25% 2,853 2,664 2,517 20% 2,166 1,000 15% 1,414 1,508 10% 500
5%
0 0% 2010 2011 2012 2013 2014 2015 Free Cash Flow and Capex
10,000 100%
8,000 80%
6,000 60%
4,000 40%
2,000 20%
0 0% 2009 2010 2011 2012 2013 2014 2015
-2,000 -20%
-4,000 -40% Cash from Operations Capital Expenditures Free Cash Flow % Capex to Cash from Operations Mark Zuckerberg
• Founded Facebook on February 4, 2004, and became CEO in July 2004. • Responsible for overall direction and product strategy for the company. • Leads the design of Facebook’s service and development of its core technology and infrastructure. Sheryl Sandberg
• COO, since March 24, 2008 • Responsible for helping Facebook scale its operations and expand its presence globally and also managed sales, marketing, business development, legal, human resources, public policy, privacy and communications. • Previously VP of Global Online Sales and Operations at Google • Served on the board of Facebook since June 25, 2012. • Named one of the "50 Most Powerful Women in Business" by Fortune and one of the "50 Women to Watch" by The Wall Street Journal. • Holds a B.A. in Economics from Harvard University, and was a Baker and Ford Scholar at Harvard Business School, where she earned an MBA with highest distinction. David Wehner
• CFO, since June 1, 2014 • Leads the finance, facilities and info tech teams. Before being CFO in June 2014, he was Facebook’s VP, Corporate Finance and Business Planning since 2012. • Between 2010 and 2012, he was CFO of Zynga. • Before Zynga, he served as Managing Director of Allen & Company LLC. He led corporate finance teams responsible for capital raises and M&A transactions with a focus on Allen & Co.'s Silicon Valley clients. • B.S. in Chemistry from Georgetown University and M.S. from Stanford University. Mike Schroepfer
• CTO (since March 15, 2013), and VP of Engineering (since September 2008) • Responsible for Facebook’s products, services and infrastructure. • Before joining Facebook in 2008, he was the VP of Engineering at Mozilla. He led the global, collaborative, open and participatory product development process behind Firefox web browser. • Prior to Mozilla, he served in various positions of Sun Microsystems, Inc and served as its Chief Technology Officer of data center automation division • Mr. Schroepfer holds a B.S. and an M.S. in Computer Science from Stanford University. Chris Cox
• CPO (Chief Product Officer) • Leads Facebook’s product management, design and marketing functions globally. • Responsible for the core products and features that shape the social experience for Facebook. • Joined Facebook in 2005 as a Software Engineer and was instrumental in implementing first versions of key Facebook features, including News Feed and Inbox. • Holds a bachelor’s degree in symbolic systems with a concentration in artificial intelligence from Stanford University Shareholder Ownership
Class A Shares Eduardo Class B Shares Other Fidelity % Voting Power Investors Vanguard Saverin 2% 2% 9% 6% Other … Other BlackRock Vanguard Other Executives 2% Investors and Directors 6% Eduardo 79% 0% Saverin Fidelity 6% Dustin 7% Dustin Moskovitz BlackRock Moskovitz 6% 7% 9% Other Mark Mark Executives Zuckerberg Zuckerberg , and Directors 60% Executives, Mark 1% and Zuckerberg Directors 76% 3% Instagram
• Instagram is a photo and video sharing platform • Instagram now has more than 500 million monthly active users • Over 300 million daily active users • It is only beginning to monetize this platform, but the ads are visually simple and non-intrusive Instagram Advertisement WhatsApp
• Whatsapp is a free, cross- platform messaging application • It has over 1 billion monthly active users • It has committed to not selling advertising on this platform Messenger
• Messenger is also a free messaging application with the ability to send text messages, videos, and calls • Over 1 billion monthly active users Monetizing Whatsapp and Messenger
• Facebook intend to build organic interactions between businesses and users • Then building the commercial opportunities from those organic interactions • They will use chatbots designed specifically for comapnies to interact with consumers Oculus
• Oculus is a virtual reality technology company • Oculus produces the virtual reality products: Oculus Rift and Gear VR • Oculus is creating a virtual reality platform for all consumer media • More than 1 million people are using Oculus software through Gear VR partnership with Samsung Balance Sheet 10Q Balance Sheet 10K Balance Sheet 10K Continued Income Statement 10K Income Statement 10Q Cash Flow Statement 10K Cash Flow Statement 10Q RECOMMENDATION: BUY
Twitter 1 year 5 year Company Overview Products for Users Products for Users
• Monetization of these platforms occurs primarily through advertising • These products provide a depth of experience for users (embedded tweets, celebrity accounts, news accounts) • Advertisers and data partners need a broad audience Monetization
• Promoted tweets, accounts and trends account for generate the majority of their advertising revenues
• Most of these products sold to advertisers are placed on Twitter, although some are placed on third-party publishers’ websites, applications or other offerings
• Data licensing and other revenue by (i) offering “Gnip”- branded products and data licenses that allow our data partners to access, search and analyze historical and real- time data on our platform and (ii) providing mobile advertising services through our MoPub exchange Failure to Attract Advertisers
• In the Q2 letter to shareholders, • This statement is complimented it is stated: “We’re seeing a by a survey of advertisers continuation of the trends conducted this year discussed last quarter with less overall advertiser demand than • The Strata survey asked 83 expected. This is reflected in advertising agencies which social both our Q2 performance and Q3 platform their clients preferred outlook.” for social media campaigns • 96% would use Facebook • 63% would use Instagram’s photosharing • 56% would use Twitter Failure to Attract Advertisers Failure to Attract Advertisers Revenue Why? – Flat Lining & Declining MAUs Flat Lining & Declining MAUs Flat Lining & Declining MAUs Engagements Engagements QoQ New Strategy?
Live Streaming Partnerships Next Generation of Real-Time Content
• Signed a $10 million deal with the NFL to live stream 10 TNF games ($1 mil/game well below market rate, Yahoo paid $17 mil for the rights to stream one game) • Twitter will probably package the games alongside a live feed of curated tweets and stream all of it on its site and mobile app • Other web sites will also be able to embed Twitter’s live stream, which gives the company and the NFL a much wider digital reach than the 66 million Americans Management Team
• CEO and co-founder of Twitter and Square • Serves on Board for The Walt Disney Company • Became chairman of the board for Twitter on October 16, 2008 • On June 10, 2015, Costolo announced that he was resigning as CEO of Twitter • Dorsey became interim CEO • Named permanent CEO of Twitter on October 5, 2015 Management Team • Began duties as COO in September of 2015 • Previously served as Twitter’s President of Global Revenue and Partnerships • Prior to joining Twitter in 2010, Adam was President of the Fox Audience Network (FAN) • Served as Fox Interactive Media’s original Chief Technology Officer Management Team • Prior to joining Twitter in July 2014, Anthony was a partner and the Head of the Technology, Media and Telecom Investment Banking Group at Goldman, Sachs & Co. from 2010 to 2014 • From 2008 to 2010, Anthony was Chief Financial Officer of the National Football League • From 1999 to 2007, he served in various roles at Goldman Sachs • Holds a B.S. in Mechanical Engineering from the United States Military Academy and an M.B.A. from the Wharton School Management Team • Became CTO in July of 2013 • He was previously VP of Application Development • Prior to joining Twitter in 2011, Adam was Vice President of Development at Oracle Management Team • Joined Twitter in February 2016 • Prior to joining the company in 2016, she was Executive Vice President, Global Advertising, Marketing & Digital Partnerships at American Express • Worked with AE since 2005 • Earned a B.S. from Boston University’s College of Communications Management Team • Iranian-born American businessman who has been the Executive Chairman since October 2015 • He was previously a Senior Vice President, the Chief Business Officer, and a special advisor to the CEO and founders at Google during July 2014 to October 2015 • Worked at Google since 1999 Management Turnover
• All executives discussed previously have joined Twitter very recently • Executive turnover sitting around 70% • Alarming trend • Is there a struggle to innovate? • Is the new-look management team in-tune enough with Twitter to make a difference? Stock-Based Compensation
• With the declining share price, could this be linked to executive turnover? Stock-Based Compensation Stock-Based Compensation Management Ownership Share Structure and Net Loss Net Loss per Quarter Free Cash Flow Balance Sheet – Q2 Balance Sheet – Annual Income Statement – Annual Income Statement – Q2 Statement of Cash Flows – Annual Statement of Cash Flows – Q2 RECOMMENDATION: SELL LinkedIn Stock Performance Currently Stock Performance Compared with Index (5 Days) Stock Performance Compared with Index (1 Month) Stock Performance Compared with Index (3 Months) Stock Performance Compared with Index (1 Year) Stock Performance Compared with Index (3 Years) Stock Performance Compared with Index (5 Years) Stock Performance Compared with Index (Max) Company Overview
• Business: business-oriented social networking service • Headquarter: Mountain View, California, U.S. • Area Serve: All over the world(over 200 countries and territories) • Language: multilingual • Employee: 9732 (March, 2016) • Key People: Reid Hoffman (Chairman), Jeff Weiner (CEO) • Users: More than 433 million account, more than 106 million are avtive • Slogan: Relationships Matter Strategy • Stay connected & informed: build connections, update news and ideas, share view and knowledge • Advance my career: get hired and learn new skills(Bright Media Corp. and Lynda.com) • Work smarter: find freelance professionals for individual and small business(monetized products: advitising, hiring platform, social selling tool, subscription) History
• December 14, 2002: Founded in California • May 5, 2003: Launched • March 2006: Reached profitability • January, 2011: Filed for an initial public offering • May 19, 2011: traded its first shares, under the NYSE symbol "LNKD“ • 2015: most of the site's revenue came from selling access to information about its users to recruiters and sales professionals History Continued
• February 2016, shares dropped 43.6% within a single day, down to $108.38 per share. LinkedIn lost $10 billion of its market capitalization that day. • June 13, 2016: Microsoft announced it will acquire LinkedIn for $26.2 billion, a deal expected to be completed by the end of 2016. Acquisition Organization Structure Technology
• The technology platform is designed to create an engaging professional networking experience for members and is built to enable future growth at scale. • LinkedIn will continue to invest in building proprietary technologies and using open sourced technologies for data, search and solutions. • The product development expense was $775.7 million, $536.2 million and $395.6 million in 2015, 2014 and 2013, respectively. Technology Platforms
• Professional Graph • Open Sourced Technologie • Search • Customized Content, Matching, Targeting and Recommendations • Ad Targeting Platform • Document Conversion Technologies • Service Infrastructure • Experimentation Platform Members Members Around Regions Competition
• Competitors: - Other social-networking companies: Facebook, Google, Microsoft Twitter, etc. - recruiting companies, talent management companies, and companies that provide learning and development products and services - online and offline outlets that generate revenue from advertisers and marketers - online and offline companies for customers with lead generation and customer intelligence and insights Competition Continued
• Industry: -Various and strong competitors - Fast-developed and dynamic industry - Reasons to be acquired by Microsoft: combine competitive advantages, share resources and customers, be more competitive Free Product
• For member: - Identity (Profile) Tell your professional story to attract opportunities and be more successful. - Network (Messaging, MyNetwork, People You May Know) Build and nurture your networks to unlock future opportunities - Knowledge (SlideShare, Influencer, Pluse, Job Search App, Company Pages) Stay informed on news relevant to your professional world, and gain the skills to stay ahead in your career. Monetized Products: Talent Solution
• Talent Solutions, through which recruiters and corporations pay for branded corporation and career listing pages, pay-per-click targeted job ads, and access to the LinkedIn database of users and resumes. - Hiring: enables enterprises and professional organizations to find, contact and hire highly qualified passive and active candidates. In the meanwhile, members can get in touch with recruiters and quickly find job opportunities. - Learning and development: a Lynda.com subscription allows members to learn from experts by providing a full video training library indexed by subject, software and new releases. Members can share courses across social networking apps, edit and view playlists and download or view full courses offline. Monetized Products: Marketing Solution
• Marketing Solutions, which advertisers pay for pay per click- through targeted ads. - Enable enterprises and individuals the ability to advertise to the member base - Targeting capabilities allow marketers to reach potential customers according to a number of attributes such as industry, function, and company size Monetized Products: Premium Subscription
• Premium Subscriptions, through which LinkedIn users can pay for advanced services, such as LinkedIn Business, LinkedIn Talent (for recruiters), LinkedIn JobSeeker, and LinkedIn Sales for sales professions. - All of the subscription packages are designed to manage members' professional identity, grow their networks and connect with talent. These subscriptions bundles are sold at different price points. Key Features of Premium Subscription
• Premium Search: provides • Sales Solutions (Sales advanced search filters and unlimited Navigator): provides sales people searches within a subscriber’s professionals with the ability to network up to third degree quickly find, qualify and create new connections. opportunities, and can help sales management accelerate the social selling capabilities of their sales organization; be marketed through both field sales force and self-service subscription platform. Contribution to Revenue
• Total revenue increased 35% year-over-year to $861 million.
• Talent Solutions revenue increased 41% year- over-year to $558 million.
• Hiring revenue contributed $502 million in revenue, up 27% year-over-year. • Learning & Development contributed $55 million in revenue. • Marketing Solutions revenue increased 29% year-over-year to $154 million.
• Premium Subscriptions revenue increased 22% year-over-year to $149 million. Revenue Growth Adjusted EBITDA Change Operating Cost Structure
Operating Cost Structure(2011-2015) 4,500.0
4,000.0
3,500.0 + Other Operating Expense IS_OTHER_OPERATING_EXPENSES_GAAP — — 3,000.0 + Depreciation & Amortization IS_D&A_GAAP — —
2,500.0 + Research & Development IS_OPEX_R&D — —
2,000.0 + General & Administrative IS_GENERAL_AND_ADMIN_GAAP — —
+ Selling & Marketing IS_SELLING_EXPENSES 5.0 17.0 1,500.0
+ Selling, General & Admin IS_SG&A_EXPENSE 11.8 30.0 1,000.0
500.0
0.0 1 2 3 4 5 Growth Rate and Net Income
• In 2015, LinkedIn net revenue increased 35% from 2014, which benefited from increased sales of our core products, specifically Recruiter, Jobs, Sponsored Content, and Sales Solutions as well as revenue from our recent acquisition of Lynda.com. • It also had an operating loss of $214.7 million driven by increases in headcount-related expenses: hire additional employees, increase depreciation and amortization, build out of data centers, improve leasehold and capitalized website and internal-use software. • “We expect our growth rate to continue to decrease over time.” - member and engagement growth will decelerate over time and may impact the growth of certain portions • LinkedIn expected that they will have negative income in short-term future by increasing investment in products, marketing and technology. Shareholder Ownership Management Team Jeff Weiner
• Currently CEO at LinkedIn • Joined LinkedIn in December 2008 • Internet executive with over 20 years of experience. Prior to LinkedIn, was an Executive in Residence at Accel Partners and Greylock Partners. Primarily focused on advising the leadership teams and evaluating new investment opportunities. Previously, Jeff served as executive vice president of Yahoo!'s Network Division. • Jeff also serves on the board of directors for Intuit Inc., DonorsChoose.org and Malaria No More • B.S. in Economics from The Wharton School at the University of Pennsylvania. Michael Callahan
• Senior Vice President, General Counsel and Secretary • Is responsible for worldwide legal affairs and public policy at LinkedIn • Before joining LinkedIn, Callahan served as the Chief Legal Officer at Ten-X, the nation's leading online real estate marketplace. • Previously, he was Executive Vice President, General Counsel, and Secretary at Yahoo!. • B.S. from Georgetown University's School of Foreign Service, and received J.D. from the University of Connecticut Mike Gamson
• Senior Vice President, Global Solutions • Joined the company in August 2007, currently leads LinkedIn's Global Solutions Organization across the company's 30 offices worldwide. • Work: field sales, professional services representatives, research analysts, account managers and operational experts • Before joined LinkedIn, was the Director of Product Marketing at Advent Software, where he led the Trading and Order Management business. Mike began his career by founding a restaurant and boutique hotel in 1996. He sold the business to American investors and joined Bank of America as a financial analyst in Chicago the following year. • B.A. from Amherst College Kevin Scott
• Senior Vice President, Engineering and Operations • Responsible for software engineering at LinkedIn • Prior to joining LinkedIn, Kevin oversaw mobile ads engineering at Google. Prior to its acquisition by Google, Kevin was responsible for engineering and operations at AdMob, the world's leading platform for mobile monetization. • Kevin's 20-year career in technology spans both academia and industry as researcher, engineer, and leader. • M.S. in Computer Science from Wake Forest University and a B.S. in Computer Science from Lynchburg College Steve Sordello
• Senior Vice President and Chief Financial Officer • Oversees financial operations at LinkedIn • Previously, he served as Chief Financial Officer of two Nasdaq publicly-traded companies. In July 2007, Steve joined LinkedIn from TiVo, where he was part of the management team that delivered TiVo's first- ever quarter of profitability. • Prior to that, he was CFO for Ask Jeeves and helped lead the company through a transition from unprofitable back to a profitable, high- margin company. • MBA and B.A. from Santa Clara University Shannon Stubo
• Chief Marketing Officer and Senior Vice President, Communications • Is responsible for driving the company’s worldwide communications activities, including media relations, financial communications and consumer PR • Has more than 15 years of experience in the corporate communications field and has worked at some of the world’s most innovative and disruptive companies since 1994. • Studied Psychology at Notre Dame de Namur University. Pat Wadors
• Senior Vice President, Global Talent Organization • Joined LinkedIn in January 2013 to lead its world-class talent (HR) team. Is responsible for hiring, retaining and inspiring top talent, and all employee-related HR programs, including compensation and benefits and performance management. • She had HR-related work experience at Plantronic, Twitter and Yahoo. • B.S. in Business Administration from Ramapo College, with a major in Human Resources Management and a minor in Psychology. Balance Sheet 10Q Balance Sheet 10K Balance Sheet 10K Continued Income Statement 10K Income Statement 10K Continued Income Statement 10Q Income Statement 10Q Continued Cash Flow Statement 10K Cash Flow Statement 10K Continued Cash Flow Statement 10Q Cash Flow Statement 10Q Continued Recommendation