4 Reasons To Anticipate Facebook's IPO

by: Ryan Elblein

The time has finally come when the social networking giant, Facebook, will let the public own a piece of the pie. Rumor has it that April is most likely the time of the Facebook IPO. Several reasons lead me to believe Facebook will be the best IPO of 2012. The huge member base, the large amount of diversity, and the massive amount of profit that can and has been made by Facebook, are all reasons to anticipate this IPO.

Member Base: In 2004 Facebook was founded and that same year, in about 10 months, the social media giant reached 1 million users. It currently has over 800 million users. Almost 8 years from the day Facebook was founded it has gained a user base of 800 million people, which is an amazing feat. The real question here is how fast are they currently growing and how much room for member growth is left. Between July 2010 and July 2011 Facebook gained 250 million members, which was a 50% increase in members. For a company to be 8 years old and still be able to increase its customer base by 50% is huge. The good news is that Facebook does indeed have growth potential. As young children get older many of them will create Facebook accounts and become sucked into the Facebook world, as many people have. The great thing about Facebook is that once a person is a Facebook user, they will likely be an active user for the rest of their life since Facebook lets them connect with friends and family, no matter how far away they are. I do not see an end to growth in sight, at least not for many years to come.

Diversity: Facebook has one of the most diverse communities in the world. Virtually any culture that is connected to the Internet can be found on Facebook. Facebook has created a fabulous opportunity for advertising since with one website an advertising company can reach all sorts of ethnic groups such as, Asian, African American, Hispanic, Caucasian, as well as many others. In fact, the Facebook website is available in over 70 different languages, granted one of them is Pirate English, but many are popular languages of other countries. Facebook gives advertising companies access to the entire world, with just one convenient website.

Revenue: Facebook has two main sources of revenue. Perhaps the largest opportunity is advertising. Virtually any major company that wants to advertise can reach their target group by using Facebook. This allows Facebook to make a huge amount of profit since an abundance of companies can and will pay large amounts of money to advertise on the social networking site. The second way in which Facebook accrues revenue is through virtual credits. Although the apps on Facebook are free to play, many of them require you to purchase Facebook credits in order to get ahead of those who play for free. Paying just to play a Facebook game may seem silly to adults, but to those of the younger generations paying for a few Facebook credits to beat their friends at a game is essentially the same as paying a monthly fee to play Xbox. With over 7 million apps and websites being integrated into Facebook that leaves a lot of money to be made through Facebook credits for games and other apps.

Competition: Facebook does not currently have much competition. Although some may argue that several other social networking sites exist, none of them is as big as Facebook. The reason that Facebook has almost no real competition is that many of its users have years worth of pictures and other content built up on their profiles and would lose all of that if they switched to another social networking site, which is not a very appealing idea. Also, because there are so many Facebook users, new potential users will most likely be pulled to Facebook as opposed to any other social networking site due to the fact that many of their friends and family already use Facebook. The best way to connect with them would be through Facebook as opposed to some other new website with a much lower member base.

Conclusion: The bottom line is that Facebook has a huge member base that is constantly growing which is great news for advertisers and investors. Competition is very low, and the ability to make profit is great. Facebook will remain the top social networking site for many years, which is great for investors. Once this company IPOs I believe it will see nothing but positive earnings and an increase in stock price for a long time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.