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SOCIAL MEDIA RICHARD CHEN HANSEL FUNG COLTON GABARA WEIJING GAO

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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

    Facebook

    S&P 500

    SOCL LinkedIn

    Twitter

  • 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

    LinkedIn

    Twitter

    Facebook

    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

    LinkedIn

    BBM

    Pinterest

    Vkontakte

    yy

    Snapchat

    LINE

    Sina Weibo

    Viber

    Skype

    Baidu Tieba

    Twitter

    Instagram

    Tumblr

    Qzone

    WeChat

    QQ

    Facebook Messenger

    WhatsApp

    Facebook

    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

    1,5141,864 1,739

    1,9672,256

    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

    279322316307

    256

    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

    • 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, 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

  • 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 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