By Pucong Han (People’s Daily Online)
The world’s largest social network site
Facebook (NYSE: FB) went public on May 18, 2012. The share price opened
above $42 per share, 10% higher than its IPO price of $38 per share.
Although the performance of Facebook on Friday was below investors’
expectations, it became one of the most heavily traded U.S. IPOs in
history. However, the heavy volume of trading on Friday did not prevent
the fall of its share price. Facebook closed at $38.23 per share, only
0.6% higher than its IPO price.
On the second day of trading, the share price
of Facebook opened below its IPO price and closed at $34.03 per share,
10.44% lower than its IPO price.
Compared with other publicly traded social
network sites, Facebook’s was not a unique occurrence on Nasdaq. Renren
(NYSE: RENN), the dominant social network site in China, lost
7% on Friday. It began the day trading at $6.31 per share and moved
between $5.61 and $6.38. Renren closed at $4.74 per share on Monday,
24.88% lower than its Friday’s opening price.
Both Renren and Facebook have moved beyond the traditional Internet business model of only displaying ads.
Facebook generates revenues from online ad
sales, third-party partnerships, data sharing / analytics, daily deal
& coupon E-commerce and virtual currency (Facebook credits). The
total revenue of Facebook has increased from $770 million in 2009 to
$3.285 billion in 2011.
According to the private
company financial report of Facebook published on July 20, 2011,
Facebook considered the possibility of loss of investor confidence due
to its partnership with Zynga. Since the health of Zynga’s business is
so strongly related to that of Facebook, investors may view Zynga’s
performance as an indicator of how well Facebook is performing.
The report also discloses
that Facebook has expanded its ad space to include three advertisement
slots per page, up from two, a move that PrivCo predicts will counteract
the trending increase in price per advertisement on Facebook.com.
According to the report,
Facebook plans to re-enter China after its ban in 2009. In order to
properly comply with Chinese law, Facebook plans to partner with a
Chinese search engine, most likely Baidu (NYSE: BIDU), which will
enforce proper censorship and compliance with Chinese laws.
This plan might shrink the market share of Renren, but it will not easily challenge the role of Renren as the leading social network site in China.
The consequence of this plan is creating opportunities for search
engine companies like Baidu to play a role in social networks.
Renren generates revenues from both online advertising and Internet value-added services (IVAS). The
IVAS provides creative online environments for users to have fun, to
communicate and interact with their friends and families.
According to its Form 6K – a report for
non-U.S. companies to disclose financial or important changes in the
company’s operations – about two-thirds of Renren’s revenue is from
IVAS. The rest of revenue comes from online advertising.
Renren’s IVAS revenues are
comprised of online game revenues, VIP membership fees, social commerce
revenues from merchants on nuomi.com, and fees from 56.com. According to
its Form 6K, its revenue from IVAS has increased from $12.422 million
in March 2011 to $22.749 million in March 2012.
Renren’s online advertising
revenue increased from $8.13 million in March 2011 to $9.33 million in
March 2012. Despite these improvements in revenue, the operating
expenses of Renren were US$40.2 million, an 89.8% increase from the
corresponding period of 2011.
The 45% increase in IVAS
revenue plus the 12.8% increase in online advertising revenue failed to
stop Renren’s losses before Facebook launched on Nasdaq. The net loss of
Renren increased from $2.6 million in March 2011 to $13.616 million in
March 2012. Excluding results of operations attributable to Nuomi in
both quarters, net loss in the first quarter of 2012 could be US$5.5
million, compared to a net income of US$1.0 million in the corresponding
period of 2011.
These negative results may
hurt the market confidence in Renren for its long-term performance. Its
share price has shrunk by 66.14% since it first launched on Nasdaq in
2011. There is no clear evidence whether Facebook will repeat Renren’s
market value loss, but, its 10.5% lossin share price suggests that the
performance of social network sites on Nasdaq are unpredictable.
(Pucong Han is an intern reporter at People’s Daily
Online. He is from Columbia Journalism School. Pucong can be reached
at: puconghan@gmail.com)
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