social media - simon fraser universitypoitras/417_social-media_16-2.pdf · blogger and wordpress,...
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SOCIAL MEDIARICHARD CHENHANSEL FUNG
COLTON GABARAWEIJING GAO
Social Media at a GlanceTotal
PopulationInternet
UsersActive SocialMedia Users
UniqueMobile Users
Active MobileSocial Users
7.395 3.419 2.307 3.790 1.968Billion Billion Billion Billion Billion
Data and Images from WE ARE SOCIAL as of January 2016. % Change is YoY.
+10% +10% +4% +17%
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.
Social Media and S&P 500 (3 Year)
0
20
40
60
80
100
120
140
160
180
200
Social Media Index S&P 500 Facebook Twitter LinkedIn
S&P 500
SOCL LinkedIn
PLATFORM BUSINESSESSource From Harvard Business Review: “Pipelines, Platforms, and the New Rules of Strategy”
Pipeline vs Platform
Raw Materials
Intermediate Goods
Manufacturing
Marketing & Sales
After-sales service
Pipeline Platform
Producers Consumers
Providers
Owner
PLATFORM
Platform Business Components
Producers Consumers
Providers
Owner
PLATFORM
Value and data exchange and feedbackCreators of the platform’sOfferings (for example,Apps on Android)
Interfaces for the platform(mobile devices areproviders on Android) Controller of platform IP
And arbiter of who mayParticipate and in what ways(Google owns Android)
Buyers of usersOf the offerings
IMAGE FROM HBR Article “Pipelines, Platforms and the New Rules of Strategy”
Pipeline to Platform
Resource Control
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.
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.
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.
Resource Orchestration
Internal Optimization External Interaction
Customer Value Ecosystem Value
Supply-side Economies of Scale
Reduce prices to achieve
higher sales volume
Higher sales volume leads to lower
average cost of business
Massive Fixed Costs
Low Marginal Costs
Key Factors
• Controlling resources• Ruthless increase in efficiency to
increase volume and lower as much costs as possible
• Fending off challenges from any of the five forces
• Build large moat around the business that protects it from competition and channels competition towards other firms
Demand-side Economies of Scale
Social Networking
App Development
Demand Aggregation
User Interface
Other Useful Tools
Network Effect
Value
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 platform if their needs can be better met elsewhere. They may even compete with the platform.
• 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.
Successful platform businesses can move aggressively into new industries with little warning, which can be troubling for pipeline businesses.
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
Open Architecture
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 Governance
• Allows players to access platform resources like app developer tools to create new source of value
• 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.
Noise
• Too much access can destroy value by creating “noise”. These are inappropriate or excessive low-quality content that obstruct interactions.
Metrics
Interaction Failure
Engagement
Match Quality
Negative Network Effects
• 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.
• 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.
• Poor matches between what the user needs and the producers weaken 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
Blogging Social Networks
Professional Social Networks
U.S. User Segmentation
2.5%
5.7%
37.6%
54.2%
Other SocialNetworksProfessional Social Networks
Blogging SocialNetworks
Casual SocialNetworks
• These companies include Facebook, MySpace, Google Plus, Yahoo Pulse, Microsoft So.cl.
• Responsible for majority of revenue in the industry even if it only accounts for a bit over half of the users.
• Advertising is the main source of revenue, and platforms utilize user data to target specific customers.
• Consists of two formats, traditional blogging networks like Blogger and Wordpress, and microblogging such as Twitter and Tumblr.
• In the early stages of recognizing revenue potential, but still limited due to content limitations.
• Majority of revenue comes from products offered to job seekers and employers.
• This segment is projected to grow as other social networks seek to incorporate similar career features.
SOURCE: WWW.IBISWORLD.COM
Industry Competition
U.S. Market Share
5.6%
15.1%
13.2%
66.1%
Other
Internal Competition
Barriers to Entry
Globalization
• Competes based on total cost ownership instead of initial price. Security, updates, and support are critical factors.
• User-friendly interface is especially important for networks with broad audiences as it doesn’t frustrate novice users.
• Compatibility and ubiquity are important. People want to access these networks however and whenever they want.
• 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
is also necessary to take full advantage of new markets.
• As user base grows in developed countries, SNS will seek to grow their revenue abroad leading to competition with foreign SNS
• Factors such as regulation may be increasingly complicated.
SOURCE: WWW.IBISWORLD.COM
Key Operating Factors
U.S. Sector vs. IndustryWages
Other Costs
Profit
• 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.
• 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.
• 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
100
100
100
100
100
122
200
215
222
249
300
300
320
400
555
640
697
853
900
1,000
1,590
Telegram
BBM
Vkontakte
yy
Snapchat
LINE
Sina Weibo
Viber
Skype
Baidu Tieba
Tumblr
Qzone
Facebook Messenger
Data in millions, as of April 2016 from Staista
Internet Users
1,5061,3661,2291,124988872726615503394344
651616
584539
483456
428405
385346316
487
466
447435
419410
388368
340300
277
170
162
154143
11495
141
129
118
105
9386
193
172
148
124
105
79
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20152014201320122011201020092008200720062005
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 %
36.9033.80
30.7128.37
25.1822.45
18.9016.20
13.4010.60
9.40
66.0063.15
60.43
56.37
51.0048.64
46.1044.1042.70
38.8035.90
77.6074.47
71.7269.97
67.8066.5763.20
60.20
56.00
49.7046.30
59.9057.39
54.78
50.73
40.68
33.95
23.80
19.5016.80
12.6010.30
37.0034.65
32.2429.35
26.4524.27
19.10
16.2013.40
11.108.30
20.7018.93
16.7214.44
12.569.84
7.305.903.903.302.40
0
10
20
30
40
50
60
70
80
90
20152014201320122011201020092008200720062005
Asia & Pacific The Americas Europe Commonweath of Indep States Arab States Africa
Fixed and Mobile Broadband Connections
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2015201420132012201120102009200820072006
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
0
10
20
30
40
50
60
70
80
90
201620152014201320122011201020092008
Asia Pacific North America Western Europe Eastern Europe Middle East & Africa South & Central America
Internet/Other Advertisement Revenue
0%
10%
20%
30%
40%
50%
60%
70%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
20182017201620152014201320122011201020092008200720062005
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
72,54263,700
53,48846,36039,66934,65828,55824,82725,18322,53417,820
52,034
47,413
42,81037,546
32,60329,100
24,78320,49618,361
14,81110,323
49,733
42,996
35,133
27,591
21,863
17,454
14,26911,53010,961
9,171
6,075
6,526
5,696
4,894
4,025
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
20162015201420132012201120102009200820072006
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 growingARPU with the right monetization methods, data gathering, and various other enhancements to the platforms.
Desktop and Mobile Internet Advertisement
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
201620152014201320122011201020092008200720062005
Desktop Mobile Mobile % of Total
Internet Advertisement Revenue by Format
96,88088,45079,98569,10760,14851,26744,48837,88333,34127,475
112,417
99,655
86,811
74,004
59,903
48,10538,496
31,10127,174
21,816
21,723
20,270
18,727
17,213
15,030
12,199
11,072
10,3369,879
9,244
0
50,000
100,000
150,000
200,000
250,000
2018201720162015201420132012201120102009
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 tocontinue 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
732737741741738736734
622633646656653652648
361350345344347347342
350351353355359364363
0
500
1,000
1,500
2,000
2,500
Q1 2016Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014
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
68,75877,933
96,96094,114111,931
84,991
35,263
29,597
30,617
36,06342,280
44,083
44,115
46,870
15,443
18,119
21,56020,754
14,494
10,687
7,859
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2015201420132012201120102009
Facebook Yahoo Google
Ad Exposed Unique Visitors
11812213614414612186
135157168157165
161155
164156
157150141134
121
88104
110110108111
97
0
100
200
300
400
500
600
2015201420132012201120102009
Facebook Yahoo Google Microsoft
Stock Overview 1 year
IPO to Present
Facebook Overview (Q1 2016)
Facebook is founded
February 4, 2004
December, 1 2004
June 22, 2007April 1, 2006
September 5, 2006 April 6, 2008
1 Million active users
Launch of Facebook on
Mobile
Launch of Newsfeed
Launch of Facebook Video
Launch of Facebook Chat
Launch of Like Button
February 9, 2009
Introduction of Timeline
September 22, 2011
Acquisition of Instagram
February 9, 2009
Facebook IPO
May 18, 2012
Over 1 billion users
October 4, 2012
Acquisition of Whatsapp
February 19, 2014
Acquisition of Oculus
March 25, 2014
Timeline
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
175173169167164161157155152150147144142
252249240233228225217212206203195188182
346329309300285270253242228216200189181
355339
319308291
280263256
244233216
208195
1,1281,090
1,0401,010
968936
890864829
802757
728699
0
200
400
600
800
1000
1200
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14Q4'13Q3'13Q2'13
US & Canada Europe Asia Rest of the World
Monthly Active Users
226222219217213210208206204202201199198
338333323315311307301296292289282276272
592566540522496471449426410390368351339
556533
509492470
453436423411395376362346
1,7121,654
1,5901,550
1,4901,440
1,3931,3501,317
1,2761,227
1,1901,150
0
200
400
600
800
1000
1200
1400
1600
1800
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14Q4'13Q3'13Q2'13
US & Canada Europe Asia Rest of the World
Mobile Daily Active Users
1,033989934894
844798
745703654
609556
507469
0
200
400
600
800
1000
1200
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14Q4'13Q3'13Q2'13
Mobile Monthly Active Users
1,5741,5081,4401,390
1,3101,2501,1891,1201,0701,008945
874819
0
200
400
600
800
1000
1200
1400
1600
1800
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14Q4'13Q3'13Q2'13
Mobile Only Monthly Active Users
967894
823727
655581
526526456
399
0
200
400
600
800
1000
1200
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14
Mobile Ratios
65.63%65.58%64.86%64.32%64.43%63.84%62.66%62.77%61.12%60.42% 61.44%59.28%
57.15%
52.30%50.00%
46.48%44.24%
46.96%
42.62%39.58%
56.48%54.05%
51.76%
46.90%43.96%
40.35%37.76%38.96%
34.62%31.27%
91.58%90.73%89.81%88.51%87.19%85.26%83.71%
81.37%78.89%
75.94%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14
Mobile Daily/Mobile Monthly Mobile Only/Mobile Monthly Mobile Only/MAU Mobile Daily/DAU
Average Revenue Per User Q2’14-Q2’16
$-
$2
$4
$6
$8
$10
$12
$14
$16
Total ARPUUS & CanadaEuropeAsiaRest of the World
Revenue
848 9621,206 1,179 1,308 1,514
1,864 1,7391,967
2,256
2,951 2,7403,212
505538
727 698824
844
1,030908
1,037
1,085
1,4341,307
1,585
247278
341 354
431492
554542
623
709
846
862
1,025
213238
311 271
347
353
403
354
415
451
610
473
614
1,8132,016
2,585 2,502
2,9103,203
3,8513,543
4,042
4,501
5,841
5,382
6,436
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
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
Third-party Ad Revenue
95%
Payments and Other
Fees5%
Third-party Ad Revenue
92%
Payments and Other
Fees8%
Third-party Ad Revenue
89%
Payments and Other
Fees11%
Mobile80%
Other20%
2015 2014 2013
Mobile69%
Other31%
Mobile53%
Other47%
Ads Delivered and Price per Ad (YoY % Change)
4950
29
-10
-55-62-65
-56
-25-17
92
16
43394627
9521
61
220
285
335
274
123118
-8
42
133-47
-100
-50
0
50
100
150
200
250
300
350
Q2'16Q1'16Q4'15Q3'15Q2'15Q1'15Q4'14Q3'14Q2'14Q1'14Q4'13Q3'13Q2'13Q1'13Q4'12Q3'12
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 Delivered
Platform Limitations
Pages Viewed/Time
Spent
Number of Users
Price per Ad
Algorithm Efficacy
Marketer Demand
Economic Growth
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)
239251
292290
259
227229212
196
0
50
100
150
200
250
300
350
Q1 2016Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014Q2 2014Q1 2014
Global Usage Minutes (Billions)
291291257224201171163
279322316
307256
154107
8486
8889
94
88101
8066
5997173
225239
0
100
200
300
400
500
600
700
800
900
2015201420132012201120102009
Google Facebook Yahoo Microsoft
U.S. Desktop and Mobile Unique Visitors
732737741741738736734
622633646656653652648
361350345344347347342
350351353355359364363
0
500
1,000
1,500
2,000
2,500
Q1 2016Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014
Google Facebook LinkedIn Twitter
Original Sharing Decline
Original Sharing
Mid 2014 – Mid 2015
21%
• Potentially very problematic as original sharing is what differentiated Facebook from its competitors.
• If original sharing continues to decline 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 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
1,414 1,508
2,166
2,5172,664
2,853
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
500
1,000
1,500
2,000
2,500
3,000
2010 2011 2012 2013 2014 2015
Free Cash Flow and Capex
-40%
-20%
0%
20%
40%
60%
80%
100%
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
2009 2010 2011 2012 2013 2014 2015
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
Mark Zuckerberg , Executives,
and Directors
3%
BlackRock7%
Fidelity7%
Vanguard6%
Other Investors
79%
Class A Shares
Mark Zuckerberg
76%
Dustin Moskovitz
9%
Other Executives
and Directors0%
Eduardo Saverin
9%
Other Investors
6%
Class B Shares
Mark Zuckerberg
60%
Other Executives
and Directors1%
Dustin Moskovitz
6%
Eduardo Saverin
6%
BlackRock2%
Fidelity2%
Vanguard2%
Other …
% Voting Power
• 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 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
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, it is stated: “We’re seeing a continuation of the trends discussed last quarter with less overall advertiser demand than expected. This is reflected in both our Q2 performance and Q3 outlook.”
• This statement is complimented by a survey of advertisers conducted this year
• The Strata survey asked 83 advertising agencies which social platform their clients preferred 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, Costoloannounced 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
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 advanced search filters and unlimited people searches within a subscriber’s network up to third degree connections.
• Sales Solutions (Sales Navigator): provides sales professionals with the ability to quickly find, qualify and create new 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
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
1 2 3 4 5
Operating Cost Structure(2011-2015)
+ Other Operating Expense IS_OTHER_OPERATING_EXPENSES_GAAP — —
+ Depreciation & Amortization IS_D&A_GAAP — —
+ Research & Development IS_OPEX_R&D — —
+ General & Administrative IS_GENERAL_AND_ADMIN_GAAP — —
+ Selling & Marketing IS_SELLING_EXPENSES 5.0 17.0
+ Selling, General & Admin IS_SG&A_EXPENSE 11.8 30.0
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