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FACEBOOK REPORTS STRONG Q3 2013 REVS OF $2.02 BIL, UP 60% FROM 2012, MOBILE REVS NEARLY HALF OF TOTAL FOR QUARTER

Buoyed once again by strong mobile ad revenues, Facebook  (FB +3.14%) crushed investor expectations with a much higher-than-expected third-quarter profit of 25 cents a share on revenues up 60% from a year ago, to $2.02 billion.

Shares rose in immediate after-hours trading by as much as 15% to top a new high of more than $56 a share. As of 1:30 p.m. Pacific, before the earnings call when any guidance on the future may further influence investors, they had settled back to about a 10% rise.

Facebook (NASDAQ:FB) public shares dropped $1.79 or (-3.60%) in early Thursday morning trading, but rallied lto end the dat at $50.25, up $1.20 or (+2.44)  on news of its Q3 2013 earnings report. (Click Image To Enlarge)

Although investors initially were wowed, during the earnings call Chief Financial Officer David Ebersman mentioned a couple of facts that appeared to spook investors and eliminated most of that 15% jump. For one, he said Facebook would not increase the number of ads its users see in their newsfeeds, as it has in recent quarters. That’s significant because the increases in ads has been a big contributor to Facebook’s revenue growth.

Ebersman also cited a decrease in the number of younger teens using the service daily. Although he said overall teen users are stable, there have been persistent anecdotal accounts of a drop in teen usage of Facebook in favor of newer services such as Snapchat and Instagram (owned by Facebook, of course). All that said, Facebook also pointed out its wide lead over other services. With Instagram, Facebook commands more mobile time spent on the service than YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat, and LinkedIn combined, according to comScore.

At 3:45 p.m. Pacific, shares were hovering at a half-percentage point in the green, but later they were down a fraction. One analyst, Brian Wieser of Pivotal Research, said in a note to clients that investor concerns were overdone:

Reactions to comments on teen use of FB seemed an over-reaction to us. As teens aren’t the entities spending advertising on Facebook, there is little to worry about near-term, certainly. Of course, investors are concerned if these audiences favor other social media. However, so long as they can be reached on Facebook to a degree and so long as FB has a unique capability to reach more total people than any other media owner, Facebook retains advantage in its ad sales efforts against most advertisers. Further, Facebook’s holding of Instagram hedges risks against this audience. Other concerns arising during the call related to expectations on ad loads were also over-done, as statements highlighted that the company is intending to work within limits in not overwhelming consumers with commercials. Our view is that while limited inventory has some constraining effects on revenues, they will likely be more than offset by FB’s ongoing efforts to improve yield management, targeting and optimization. Further, brand advertisers may be somewhat indifferent to changes in prices per ad units so long as their broader media goals are satisfied.

Analysts had expected Facebook to post a profit of 19 cents a share, up from 12 cents a year ago, on a 52% rise in revenues to $1.9 billion. Facebook’s shares, which have nearly doubled in the past quarter to as high as $54.83, closed down a little under 1% today, to $49.01. The day after the second-quarter report that showed strong mobile ad revenues, Facebook’s shares jumped 26%.

Facebook CEO Mark Zuckerberg (Click Image To Enlarge)

“For nearly ten years, Facebook has been on a mission to connect the world,” CEO Mark Zuckerberg said in a statement. 

”The strong results we achieved this quarter show that we’re prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy.”

Revenue growth was “impressive,” Andrew McDermott, vice president of product at Facebook ad partner Spruce Media, said in an interview. But he said that the increasing number of ads in the newsfeed had been a “major driver of growth,” so Facebook’s intention to back off those increases means growth could moderate.

However, he said that the Instagram ads announced last week, as well as possible video ads in the Facebook news feed, should “more than make up” for that growth slowdown as they roll out. McDermott said.  

“That could more than compensate overnight.”

Some of Facebook’s ad growth may be driven by Instagram already, says Craig Elimeliah, VP of creative technology at the customer experience ad agency RAPP. That’s because Instagram’s mobile DNA is likely already informing Facebook’s own mobile ads and in any case has gotten many more advertisers excited about the prospect for more mobile ad formats on the social network. He said advertisers and agencies need both more creative formats and more control to target people by what they’re posting, where they are, and the time of day.

The highlights from the call are below, but Facebook provided its own as well:

• Revenue: $2.02B up 60% from last year (ahead of analyst consensus which was $1.91 billion on average)
  
• Revenue from advertising: $1.80B, up 66% from last year
• Mobile Ad Revenue: 49% of advertising revenue during the third quarter (up from 14% in Q3 2012)  
• Payments and other fees revenue: $218 million
• Earnings per share: $0.25 (beat consensus of $0.19)
• ARPU, average revenue per user, is up to $1.72
• Mobile revenue represented 49% of advertising revenue for Q3, approx. $881 million
• Mobile MAUs (monthly active users) grew 45% year-over-year to 874 million 
  
• Mobile DAUS (daily active users) were 507 million on average for September 2013
• MAUs were 1.19 billion as of September 30, 2013 up 18% year-over-year  
• DAUs were 728 million on average for September 2013 up 25% year-over-year

COMMENTARY:  The word “BlackBerry” did not come up during Facebooks Q3 earnings conference call yesterday, but you can see why such a crazy idea like the social network buying the beleaguered handset maker might have a sliver of plausibility to it. The company is moving closer to a tipping point where mobile usage and revenues will soon be outweighing that of desktop, and although Zuckerberg has ruled out the so-called “Facebook phone,” you never know how the company may want to capitalize on its mobile muscle in the future.

CEO Mark Zuckerberg today noted during the company’s earnings call that 48 percent of users on a given day are only accessing it from mobile. That comes as nearly half — 49 percent — of the company’s advertising revenues, its key revenue driver, now come from mobile ads. That means nearly $890 million in Q3 was made from Facebook’s different mobile advertising units such as app install ads and engagement ads.   He said.

“It’s a pretty incredible sign of how Facebook has evolved in the past year.”

This shows that Facebook is on track to match the prediction it made in Q2 that mobile revenues would pass desktop by the end of this year. And from the looks of it, the change of balance could come soon on mobile, too. Mobile continues to grow much faster for Facebook. Mobile MAUs grew by 45 percent over the last year (to 874 million in Q3 2013 from 604 million in Q2 2012) — these include both those who are using mobile exclusively for Facebook, and those who are using mobile at some point in the month in addition to desktop. That 45 percent works out to 2.5 times as much growth as MAUs overall, which were up 18 percent ($1,189 million in Q3 2013 and $1,007 million in Q3 2012).

Facebook points out its figures do not include Instagram-only usage, but during the call COO Sheryl Sandberg provided some striking figures that point to just how much time consumers are spending on Facebook’s mobile properties when you do add it in. Combined with Instagram, the very popular mobile-first, photo-based social network, Facebook now has 150 million monthly active users. It accounts for one of every five minutes spent on mobile in the U.S., Sandberg noted. And that is even having an impact on desktop: Facebook (again, with Instagram) account for one in 8 minutes on desktop, she said.

What does Facebook’s mobile traffic work out to compared to other popular properties? Sandberg noted that Facebook accounts for more mobile minutes in the U.S. than “YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat and LinkedIn — combined.” (It seems that this stat was taken from comScore research, which actually combined Instagram and Facebook.)

Mobile-only users on a monthly basis now stand at 254 million, Facebook noted in one of the slides that accompanied its presentation. The full deck of those slides, which also spell out other metrics like MAUs and DAUs across mobile and desktop, is here. With 1.19 billion MAUs overall, it means that 21.3 percent of MAUs are now mobile-only. That is up 2.3 percentage points from 19 percent in Q2.

The same may not be said for desktop. CFO David Ebersman noted that daily actives on web “declined modestly” in contrast to what is happening on mobile. Facebook’s daily active users on mobile worldwide now stand at 507 million, up by 38 million over Q2; while monthly active users are up to 874 million, up 55 million from Q2.

Courtesy of an article dated October 30, 2013 appearing in Forbes and an article dated October 30, 2013 appearing in TechCrunch

A CANDID LOOK AT TWITTER'S IPO FILING, AND WHAT IT MUST IT DO TO JUSTIFY ITS $12 BILLION VALUATION

 

Twitter Inc.’s initial public offering documents suggested a valuation of $12.8 billion for the microblogging service, underscoring the seven-year rise of a still unprofitable company that has helped revolutionize how people share information.

In the most anticipated technology offering since Facebook Inc. (FB), San Francisco-based Twitter made public its S-1 prospectus yesterday and said it’s seeking to raise $1 billion. Twitter pegged the fair value of its common stock at $20.62 a share in August. There are 620 million shares outstanding, according to people familiar with its financials, who asked not to be named because the number was not included in the filing.

The prospectus removes the veil of secrecy that surrounded Twitter’s financials since the company said on Sept. 12 that it had filed confidentially for an IPO. It shows how the microblogging service, founded in 2006, has evolved from a simple site for 140-character updates to a booming online-advertising business that generated revenue of $253.6 million in the first six months of this year.

Brian Blau, a San Francisco-based technology analyst at Gartner Inc., said in an interview.

“Whether it’s worth $12 billion or not is really going to come down to how they can embrace this real-time news and information vision, how they can extend it to other revenue lines and how they can grow around the world.” 

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Roadshow Soon

With Twitter taking the wraps off its S-1, the company will soon embark on a roadshow to promote the deal. The IPO will be a test for investors burned in recent years by the offerings of Internet companies such as Facebook, Groupon Inc. (GRPN) and Zynga Inc. (ZNGA), all of which plunged after their offerings. While Facebook shares have since climbed back, Groupon and Zynga are still trading below their IPO prices.

At $12.8 billion, Twitter would be valued at 28.6 times revenue over the past 12 months. Facebook debuted with price-to-sales ratio of about 26, while LinkedIn sold shares for 14.5 times revenue.

The offering will be pivotal for Chief Executive Officer Dick Costolo, who in 2010 became Twitter’s third CEO in as many years. He is credited with bringing management discipline, rapid hiring and a business plan to a company that was bogged down by a lack of focus and frequent technical outages.

Goldman Sachs Group Inc. (GS) was listed as the lead underwriter and was joined by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Deutsche Bank AG, Allen & Co. and Code Advisors. The stock will list under the ticker TWTR.

Twitter’s revenue in the first six months of the year more than doubled to $253.6 million. The company said advertising revenue per timeline view in the second quarter rose 26 percent from the same period a year ago to 80 cents.

Twitter Pricing Implied From Transactions - May 2007 Thorugh September 2013 (Click Image To Enlarge)

Robust Mobile

Twitter also disclosed that a majority of its revenue derives from mobile advertising, an area where rivals have struggled. In the three months that ended in June, more than 65 percent of Twitter’s ad revenue was generated from mobile devices. Facebook said in July that mobile accounted for 41 percent of revenue in the second quarter, up from 30 percent the prior period.

Twitter posted a net loss of $69.3 million in the first six months of 2013, compared with a net loss of $49.1 million in the same period a year ago. The company said that as of June 30, it had incurred an accumulated deficit of $418.6 million. 

Clark Fredricksen, vice president at EMarketer Inc. in New York, said.

“They have clearly built their business from the get-go in the direction of where users are spending time, which is on their phones.” 

Twitter Revenues and Net Losses by Quarter (In Millions) - Q1 2011 Through Q2 2013 (Click Image To Enlarge)

Risky Business

The company included 32 pages of risk factors, compared with 22 pages in Facebook’s IPO filing last year. Among those are Twitter’s dependence on U.S. advertisers, even as more than three-quarter of its monthly active users are located outside the country. Twitter also cited stiff advertising competition, the company’s youth, and even earthquakes as risks.

One challenge lies in expanding the site’s user base. In June, Twitter had 218 million monthly users, up 44 percent from the year earlier. That was slower than its 78 percent growth the prior year.

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Twitter’s average revenue per user in the latest quarter was 64 cents based on its monthly active users and $139.3 million in sales. That’s less than half Facebook’s $1.60 average revenue per monthly user.

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War Chest

The IPO gives Twitter’s backers and early employees a chance to cash in shares, and will supply the company with a war chest to use on acquisitions and international expansion. The funds will also help the company forge stronger ties with advertisers and media businesses who want to reach Twitter’s growing audience.

Twitter said.  

"We intend to use the IPO proceeds to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders.”

The company said it anticipates capital expenditures this year of $225 million to $275 million.

Twitter said its biggest shareholders include co-founder Evan Williams, with a 12 percent stake; venture capital firm Benchmark and partner Peter Fenton with 6.7 percent; co-founder and chairman Jack Dorsey, with a 4.9 percent slice and CEO Costolo with 1.6 percent.

Twitter - Principal Stockholders - Number of Shares Beneficially Owned By Named Executive Officers and Directors and 5 Percent Stockholders - S-1 Filing (Click Image To Enlarge)

Governance Structure

The S-1 also revealed Twitter is different from other Internet companies in its governance structure. Unlike the boards of Facebook, LinkedIn Corp. (LNKD) and Google Inc., which created multiple classes of stock to give extra voting power to their founders, Twitter has just one class.

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Charley Moore, founder of Rocket Lawyer Inc., a startup that provides legal service for customers, including Twitter employees, had this to say.  

“Here you have a company that is probably going to be more democratic than some of those other businesses may be.  They don’t have any special rights for their major shareholders.”

Twitter has rapidly expanded revenue since introducing advertising in 2010.  The company now lets marketers pay to give their posts prominent placement on timelines, where people get updates from the accounts they follow. The company also lets advertisers pay to be placed next to a list of popular topics on Twitter in different geographies.

Costs have soared as Twitter invests in infrastructure and hiring, totaling $316.5 million in the first six months of this year, up 87 percent from the same period in 2012.

Gartner’s Blau said.

“They are building their company for the long term and they have to spend money to do that.” 

Twitter has struck deals with video-content owners from the National Football League to Viacom Inc., seeking to get users spending more time on the site and watching more ads. It also bought Bluefin Labs, a Cambridge, Massachusetts-based startup that monitors social-media comments about TV shows, and partnered with Nielsen Holdings NV to measure the amount of online discussion being generated by TV programs.

COMMENTARY:    This is one of the most boring digital IPO's I have seen in a long, long time. Twitter conjures comparisons with Zynga and Groupon.  Lots of users and revenues, but no hint of a profit anywhere.  

I had estimated that Twitter was losing money, but I didn't think they had racked up cumulative net opeating losses (NOLs) of $418 million since they launched in 2006.   Having said this, it is not unusual for internet startups like social networks to incur significant NOL's.  This was the case for Groupon, Zynga, LinkedIn, Angie's List, Yelp, and even Facebook.  

History shows that fast growing digital technology startups must make significant investments in technology and personnel in order to provide users with a great user experience so that they keep coming back, and insure that they can access their personal pages without any hangups on a 24/7, 365-day basis.  

Since nearly all social networks, depend on an ad-supported revenue model, without these investments in technology and personnel, social networks would never be able to reach a critical inflection point where the number of user and website traffic metrics attract big advertisers.  The obvious question that investors will want to know is Twitter's strategy to grow revenues and generate a profit.  Something worth nothing: Only Facebook and LinkedIn have been able to attain profitability after their IPO's.   Twitter CEO Don Costolo certainly has his work cut out for him convincing investors during the upcoming roadshow.  

The recent runup in Facebook's shares, which had lingered well below its IPO price of $38, and at one point hit a historic low of $19.05 at the end of August 2012, rallied in mid-May 2013 following impressive earnings reports for Q1 2013 and Q2 2013, driven by strong mobile ad revenues, no doubt influenced Twitter's decision to file for an IPO now.   But, does an IPO even make sense?  Let's take a good look at Twitter.    

Who Uses Twitter?

The PEW Research Center's Internet & American Life Survey has updated their annual look at who is using Twitter and other social media sites.  In 2012, 15 percent of online adults were using Twitter, a small rise from 13 percent in 2011.

And in 2013? 16 percent of internet users are active on Twitter, and the service still skews favourably towards black and hispanic users, adults aged 18-29, and folks who live in urban areas.

Men are slightly more likely to use Twitter than women – two years ago the exact opposite was true – and almost one-third of Twitter users have at least some college experience. Relatively, Twitter remains unpopular with white users.

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Twitter faces increasing pressure from Pinterest (15 percent of all internet users) and Instagram (13 percent), and is still significantly behind Facebook (67 percent usage) in overall popularity.

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Twitter Must Broaden It's Appeal And Improve Engagement

According to Adam Shlachter, senior vice-president of media at DigitasLBi,

"Twitter needs a larger user base and improved engagement to win business from mass-market clients, according to ad buyers.  The company's monthly growth has slowed to 7% and it has less than one-fifth of the audience of rival Facebook. Twitter also needs to become a daily-use tool to assure advertisers access to a consistent audience to tap into ... not an audience that is just churning in and out." 

As of last December 2012, Twitter said it had 215 million people actively using their service, with most of those accounts overseas, nowhere near the following of Facebook, with 1.15 billion active users, or Yahoo, with 800 million. 

In the U.S., its audience is far smaller.  According to Twitter's IPO filing, it had only 49 million active users at the end of the second quarter 2013, up from 48 million in the first quarter 2013, an increase of only 2.1%.  By comparison, Twitter had 169 million international users at the end of the second quarter 2013, up from 156 million in the first quarter 2013, an increase of 8.3%. Facebook had 198 million monthly active users in the U.S, at the end of the second quarter 2013, but growth its U.S. growth has peaked, so it too depends on new international users in order to grow its user base. 

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The reason for Twitter's slower user growth:  Most people know what Twitter is, but many don't know how or why they should use it.  Search for "I don't get Twitter" and Google spits out 5.7 billion results.

Now that it is on the verge of selling its stock to the public, Twitter has to prove to investors it can broaden its appeal or risk being pigeonholed as a niche service, analysts say.

Max Wolff, chief economist and senior equity analyst at Greencrest Capital says.

"User base and growth have not been a problem to date, but Twitter is going to have to find a good system to reach tomorrow's Twitter users or eventually it will be a problem." 

The Twitter IPO has captured the public imagination because Twitter has become such an integral part of popular culture.

It's a real-time spin room for politicians, an organizing tool for government protests, a wire service for breaking news and an online hangout to talk about live events and television shows.

Even its unusual conventions have saturated popular culture. Hashtags, a way of using a word to group tweets by subject, are on movie billboards and television ads. And "tweet" no longer just means the chirping of birds in the Oxford English Dictionary.

Twitter’s Popularity Among Teens

According to a new study from the financial firm Piper Jaffray, Facebook is losing teens in droves (denied by Facebook, naturally), Twitter is more popular among teens than Facebook, and has apparently overtaken Facebook as the most popular social network among U.S. teens.   

The study found Twitter was preferred by 26 percent of adolescents while Facebook and its recently acquired unit Instagram were each chosen by 23 percent, down by 10% from a similar study in April 2013.

Twitter, Facebook, and Instagram are considerably more popular among teens than Tumblr and Google+, each of which can only claim less than 5 percent preference among trend-setting teens.

Teens spend a great deal of their time texting messages to their friends using their cell phones, and Twitter's 140-character tweets are a perfect fit, so it doesn't surprise me that teens are turning to Twitter for their favorite pastime. When you combine messaging with Twitter hashtags this is a marriage made in heaven.   If Twitter can target more teens, they could dominate in this growing demographic, and this means more advertising dollars. 

Twitter's Strategy To Increase Revenues and Generate Profits

So how exactly will Twitter increase revenues sufficiently in order to generate a profit?  

In it's S-1 IPO filing,  Twitter mentioned several areas to help increase revenues and profitability: 

1. Integrate More Twitter Partner Content - Twitter signaled intentions to integrate more content via partnerships and acquisitions of technology "to enable our platform partners to distribute content of all forms."  In recent weeks Twitter has been working on programs that help TV companies distribute video clips from their shows as the shows air live. Of course, the company released its short video app Vine earlier this year.
2. TV Ratings Products - On October 7, 2013, Nielsen introduced its Nielsen Twitter TV Ratings product to measure the reach of TV-related tweets, though interest from advertisers and networks remains to be seen.  Measurements will note programming-related tweets and how many times they are seen by accounts. Brands must not forget "the overwhelming majority of conversations about TV shows still take place offline," said Ed Keller, CEO of the Keller Fay Group.
3. Self-Serve Ad Platform - Its plans for advertisers include improve targeting capabilities. But the company also says it will launch self-serve ad platforms in select international markets to expand its ad business into new territories.  "Finally, we intend to develop new and unique ad formats for advertisers. For example, we recently introduced our lead generation and application download Twitter Cards and Twitter Amplify, which allows advertisers to embed ads into real-time video content.”
4. Monetize App Acquisitions - In 2013, Twitter acquired Vine, a mobile application that enables users to create and distribute videos that are up to six seconds in length, and #Music, a mobile application that helps users discover new music and artists based on Twitter data.   Twitter is hoping that Vine increases user engagement and advertisers use it to create video ads that are short, yet unobstructive.  This has already started to happen, but at a slower pace as advertisers experiment with the new app's value as an advertising tool. As more Twitter users begin using the #Music app, this should increase engagement between users sharing their favorite music with their followers.    

A snap response from one ad industry veteran and Pivotal Research analyst Brian Wieser was“positive on the company and its business as a while, as it clearly has established itself as one of the world’s most important media properties, and one which is increasingly important to advertisers.” Wieser noted that the Twitter user base is still small compared to Yahoo, AOL and certainly Facebook. But he also notes that these rivals may be more subject to commoditization than Twitter.  Key to the company profitability will be achieving scale and succeeding in an international expansion that is only starting, he says.

Twitter's average revenue per active user is $1.47 compared to Facebook's $4.10.   Twitter now has an estimated 554 million registered users or about $0.63 average revenue per registered user. These figures are abysmal to say the least.      

Twitter vs Facebook - Revenues, Net Income and Monthly Active Users at the time of IPO filing (Click Image To Enlarge)

With less than half of its users active (554 million registered vs 215 million active) compared to Facebook (presently 1.11 billion registered and 1.11 billion active users), Twitter must find a way to increase user engagement and site stickiness. This is going to be difficult to do with the growth in the number of monthly active users on the decline.  Twitter's partnerships with the television networks may become the secret to increasing engagement and site stickiness.   Increasing its share of the teen demographic is pivotal to increasing its base and increasing engagement.

Courtesy of an article dated October 4, 2013 appearing in Bloomberg, an article dated October 4, 2013 appearing in MediaPost Publications Mobile Marketing Daily, Twitter's SEC Form S-1 Filing, an article dated February 15, 2013 appearing in AllTwitter, an article dated October 3, 2013 appearing in The Wall Street Journal's Money Beat, an article dated October 7, 2013 appearing in Fast Company, an article dated February 11, 2013 appearing in the Twitter Blog, and article dated October 4, 2013 appearing in Mashable, and article dated October 3, 2013 appearing in PhysOrg, an article dated October 4, 2013 appearing in Advertising Age, and an article dated October 10, 2013 appearing in ValueWalk

TWITTER FILES FOR AN IPO, ANNOUNCES CONFIDENTIAL S-1 FILING IN A TWEET, GOLDMAN SACHS TO BE LEAD UNDERWRITER

Twitter announces their IPO filing via a 140 character tweet. (Click Image To Enlarge) 

Twitter Inc. said it has confidentially submitted an S-1 form to the Securities and Exchange Commission to begin the process for an initial public offering, a long-awaited move by the microblogging service.

In a tweet on Thursday, the San Francisco-based company said,

"We've confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale."

A Twitter spokesman declined to comment.

Goldman Sachs is the lead underwriter on the planned initial stock sale, people familiar with the matter said.

 

One person familiar with the matter said other banks are expected to join Goldman in managing what is expected to be one of the highest-profile IPOs since social-networking site  Facebook  went public last year. Deals like Twitter's planned IPO are a bonanza for the Wall Street banks, both in the fees they collect in underwriting the sale and the prestige of handling the high-profile offering.

Twitter's decision to tweet about its confidential IPO filing is perhaps fitting for a company that gave people a platform to broadcast private moments to the world. The company quickly followed its IPO disclosure tweet with another: "Now, back to work," the company wrote, with a photo from Twitter offices of employees working at their desks.

A securities rule change put in place last year allows companies with less than $1 billion in yearly revenue to file initial IPO paperwork confidentially. The advantage for companies is they can keep their financial results secret until they are closer to pitching their stock to investors.

Some startup advisers said the confidential IPO option is making some young companies more willing to accelerate plans.

Twitter's filing is a major milestone for a company that launched in 2006 as an extension of a podcasting company, and now has become a global brand with more than 200 million users each month, and the power to chronicle protest movements in Egypt and Jay-Z concerts in New York.

But questions remain about whether Twitter will prove lasting, both as a service and as a business. New digital services, such as photo-sharing app Instagram and messaging service Snapchat, have emerged to challenge Twitter as a primary tool for people to stay in touch with friends and congregate around major events. Instagram, now owned by Facebook, recently said it reached 150 million monthly users.

As a business, Twitter CEO Dick Costolo has been in his post for three years and made it a priority to turn Twitter's popularity into a financial strength. Twitter started selling ads on its service—it calls them "promoted tweets," among other names—and research firm EMarketer Inc. estimates Twitter will generate $583 million in advertising revenue this year.

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Clark Fredricksen, a vice president at research firm EMarketer Inc., said.  

"Their growth trajectory over the last few years has been very, very strong.  Twitter was able to monetize mobile user growth much more effectively than most other digital platforms."  

He pointed out that a higher percentage of Twitter's ad revenue comes from mobile devices compared with Facebook.

Still, people inside of Twitter and veteran advertisers question whether the company can ever grow to the scale of Google, which had $50.2 billion in revenue last year, or Facebook with $5.1 billion.

In its IPO, the spotlight will be on Twitter not to repeat the mistakes of Facebook's botched offering.  With the social network's much publicized but disastrous IPO in May 2012, the stock price dropped in its first day as a public company and trading hiccups that day left investors holding stock they didn't want.  Twitter executives have said they are wary of repeating the mistakes that dented Facebook's IPO process and its reputation.

COMMENTARY:    According to most Wall Street analysts, and this social media technologist, Twitter was not expected to file for an IPO until early 2014.  This was before the latest stock rally and Facebook shares exploded shortly after its one year IPO anniversary.  This obviously had a bearing on the decision to file papers for an IPO now.  

Twitter only began monetizing its users in the second half of 2010, when it ended the year with estimated revenues of $45 million.  On the other hand, Facebook had revenues of $3.71 billion at the end of 2011, the year before it filed its IPO, and six years after it began selling ads.       

With the launch of Twitter's advertising API and mounting suspicions of an IPO, it's a good time to look at how the social site grew to this point.

Twitter Users and Traffic Stats

Between Q2 and Q4, account ownerships grew from 408 million to 485 million. Active users increased from 208 million to 288 million in that period. According to internet market research firm GlobalWebIndex, that makes Twitter the fastest-growing social platform in that period.

GlobalWebIndex created an infographic that not only shows Twitter growth between Q2 and Q4 of 2012, but it also breaks down Twitter's data by country, device, activities, and key demographics.

See everything you need to know below. Click to enlarge or see the original here:

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Twitter could potentially do a billion dollars in revenue next in 2014, according to Eric Jackson of Ironfire Capital.   Yahoo! Finance reported Jackson saying  

“The chatter is that (Twitter) is going to do $600 million in revenue this year (2013) and a billion in revenue next year (2014).”

Twitter Valuation Based on Secondary Market

GSV Capital Corp. values its shares in Twitter at around $18.50 per share,Bloomberg reported on May 11, 2013, valuing the social service at – using a diluted share figure of 530 million – around $9.8 billion.

We know how GSV values its Twitter investment as it is a public company, and thus listed the following in its most recent 10Q:

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This figure is large, but not surprising. Blackrock recently purchased shares from Twitter employees at a price that valued the company at $9 billion. The Wall Street Journal tried to make the case that Twitter was worth $10 billion using some odd math, but that the company is prized among investors is no secret.

GSV owns a mere 0.3% of the firm, but its filings represent a rare look into the current thought-worth of a private company.

Twitter Valuation Based on Revenue Multiplier

How much will the revenue multiplier be for Twitter’s valuation when it goes public? A valuation of 15 to 20 times the company’s revenue is possible. The high-end revenue multiplier — if Twitter can manage a billion dollars in revenue in 2014 — would give Twitter a valuation of $20 billion…

The share numbers are the same, but the ‘Fair Value’ figure falls. It’s a small change, down about 2.5% from earlier highs, but at the prior price, Twitter’s valuation would have crested the $10 billion mark. What caused the easing in Twitter’s price isn’t clear.

Courtesy of an article dated September 12, 2013 appearing in The Wall Street Journal, an article dated March 27, 2013 appearing in Advertising Age, an article dated February 27, 2013 appearing in Business Insider and an article dated May 11, 2013 appearing in The Next Web

FACEBOOK Q2 2013 EARNINGS BLOW AWAY WALL ST FORECASTS, REVS $1.81 BIL OR +11.72%, EPS 19¢ OR +35.71%, MOBILE REVS $656 MIL

Facebook's Q2 2013 earnings have blown away expectations on both topline revenues and bottom line earnings per share.

The beat came on a massive increase in mobile advertising, which was ~$656 million in Q2, up from $375 million in Q1.

Going forward, that big increase in mobile is going to give Facebook harder comparable numbers to beat in the coming quarters. Mobile wasn't part of the mix last year.

CEO Mark Zuckerberg played up the growth of Instagram on the call, and also underlined his belief that the U.S. imply doesn't produce enough engineers to fuel tech company hiring.

He also denied the accusation that teens are getting bored of Facebook.

Lastly, COO Sheryl Sandberg confirmed our report from yesterday that Facebook's video ad product is NOT yet ready for prime time. She declined to say when it might appear.

More details on the financials are at the bottom of this post.

EPS: 19 cents (expectation was 14 cents).

Total Revenue: $1.81 billion (expectations were $1.62 billion).

Keynotes of The Q2 2013 Earnings Call Conference:

CEO Mark Zuckerberg began the conference call.  

"We now have more daily actives on mobile than on desktop ... soon we'll have more revenue on mobile than on desktop."

"Our mission is to reach the next 5 billion people."

FB added 45 million monthly active users during Q2.  700 million daily active users worldwide.   Zuckerberg said.  

"People are spending more time on Facebook than ever before." (Because of mobile.)

Teens are NOT abandoning Facebook:  

"That just isn't true."

Zuck says he's done the research and the numbers bear him out.

On to Instagram. Video is a success, he says. (When he mentions "Kevin," he's presumably referring to Instagram CEO Kevin Systrom.)

FB now has 1 million active advertisers.  They're still satisfied with ROIs.  Zuck said.

"This quarter marks the end of our first year as a public company."

Happy IPO anniversary, everyone!

COO Sheryl Sandberg is spoke next.

"E-commerce companies increased their spend significantly." 

Spend doubled in the second quarter.  They have high click-thru rates.  She mentioned mobile app install ads, as well. (My take: This is part of Facebook's push to position itself as a direct-response medium with robust ROI analytics.)   Sheryl said.

"Every night 88-100 million people are using Facebook during the nightime hours while watching TV." (Sandberg seems to be addressing Twitter's moves into the social media/TV ad market here.)

Custom Audiences clients more than doubled, she said.  (Those are the advertisers who use their own lists to target customers. It's one of Facebook's key pushes to demonstrate that ads on FB actually work.)   Sheryl said.

"We have one of, if not THE, most effective mobile ad product."

CFO David Ebersam spoke next.

He said about Instagram:

"There are 130 million actives using the service."

Average price per ad on FB is up 13%.  No. of impressions served is up, too.

He said.

"We were pleased to see King's rapid growth in Q2." (Note that the maker of Candy Crush Saga gets the first shout out — Zynga has yet to be mentioned! Ouch!)

Questions from analysts!

Question 1 is about effectiveness of ads in the news feed.

Sheryl answered:

"All four marketer segments are growing ... increased supply and increase in demand."

Question 2: Mobile app install ads.

Sheryl answered:

"All four segments are growing. Mobile app install ads are small but they're important and they're growing rapidly."

Question 3 is on Custom Audiences.

Sheryl answered:  (Long answer about targeting. Bit dry, frankly.)

Question 4 is on monetization of Instagram!

Zuckerberg answered:

"Kevin (Systrom) has always been clear that we're building Instagram as a business. ... probably through advertising."

...focus will be to increase footprint of Instagram. Not at advertising point yet.

Sheryl also spoke:   Says she wants to increase share of consumer packaged goods (CPG) marketers.

Question 5 is on growth of ad sales force and ad ops, particularly outside US.

Sheryl answered:

"Our growth was very strong across regions. ... we're up to over 40 offices, we have sales teams on the ground in 40 offices."

... [strong in Asia.]

Question 6 is on programmatic selling (that's FB's ad exchange, FBX).

Sheryl answered:

"FBX ... is actually a very small part of our business and sometimes people don't understand that."

(My take: Ouch! Hundreds of real-time bidding adtech execs just died a little inside. Previously, people thought this was worth hundreds of millions or maybe billions of dollars a year, eventually.)

Question 7 is on impression-based selling v. performance selling.

Sheryl answered:

"Advertisers are looking for discovery. ... We have a big brand opportunity ... up to 100 million engaged during primetime hours. ... T-Mobile did a campaigns ... used offer ads ... they had a 20X return on adspend. That's what we can do with impressions, taking it all the way through the funnel."

Ebersam is talking about capex. Not too dramatic.

Question 8 is on mobile. Why so lumpy?

Ebersam answers:   ... News feed ad integration was a big, smooth success.  Ad prices held up even though more inventory was supplied. ... clicks in system is still increasing, increasing supply, but cost per clicks for news feed ads increased anyway, Q-Q.

Question 9 is on mobile news feed ads, again. He wants a breakdown of how growth pricing works.

Ebersam answers:

"We're trying to find the right balance for each user."

Wants better creative so ads are more engaging. Everything contributed. Supply, demand, cost per click all went up.

"A nice balanced contribution from the variables."

Question 10: Video ads! Finally! What are the hurdles?

Sheryl answered:

"We have a current video ad product, because advertisers can embed a video in a page post ... demand is there ... we are exploring how to expand that but we don't have anything new to announce today."

(My take: Reports back in April that a video ad product was on its way were premature.)

Question 11:  Platform strategy 

Zuck answered:    

"We've found the mobile app install ads work. People like them."

Question 12: Big picture question for Zuck, views on long-term aspirations.

Zuck answered:

"Yeh, I think we're early. ... reaching a billion people was this big rallying cry for the company for a long time. ... no one had ever built a service that had a billion people signed in ... the real goal is to connect everyone in the world..."

Question 13 is on 40% increase on y-o-y price per ad:   please call out one of two enhancements that were contribs to that; challenging comps (comparisons or comparables) in second half of year?

Ebersam answered:  

"Pricing is really strong all over. Comp: if you're looking at the percentage growth rates, last year the quarter didn't have much mobile revenue attached to it.  Comps will get harder because old numbers had no mobile revenue in them."

Sheryl answered:

"E-commerce doubled year over year. Mobile app install ads saw a lot of growth."

(Sandberg is really hammering on those two areas.)

Question 14 is on e-commerce spend doubling. What drove it?

Sheryl answered:  

"We've made a major investment in helping DR (direct response) marketers measure returns. ... their budgets are flexible around ROI .... They adjust to their budgets."

Question 15 is on hiring, are their pressures on finding talent? Also, what are the mix of advertisers and how are they growing?

Zuck answered:

"Hiring great people is one of the biggest challenges that any tech company has. We're doing really well ... but there's a systemic issue where our country doesn't produce the volume of engineers that companies want to hire. ... we have a strong program on colleges ... it's really important."

(My take: Zuck has barely restrained himself from going into a diatribe about immigration reform — he wants it relaxed so he can increase hiring of foreign engineers.)

Sheryl answered:

"CPG (consumer packaged goods), gaming, retail, these are categories where we're really strong."

She calls out GE's Instagram work.

Question 16: On adoption / targeting / programmatic.

Sheryl answered:  

"We like having an ecosystem of PMDs and 3rd party sellers ... we'd like to see all sales channels continue to grow and thrive."

Question 17 is on Graph Search and Facebook Home. What have you learned?

Zuck: He's taking a long run-up to answer the question ... Instagram video is doing really well, it fits really naturally ... things like Home and GS are new use cases. ... I think of it more as a seed we're planting that will create a new pillar of the ecosystem ... [long term bets] ...

That's it!

+++

The stock took a big leap after the numbers came out, up 15% in seconds. FB has been trading around $26.30 all day. It's now above $30 for the first time in weeks.

Investor slides: see them here.

Here are the highlights from the press release:

The revenue gain came after Facebook for the first time signed up 1 million-plus active advertisers. Ad revenue was $1.6 billion. Mobile ad revenue is now 41% of Facebook's ad revenue. Payments revenue was $214 million. (Payments is turning out to be a not-very-interesting business for Facebook.)

Facebook for Every Phone passed 100 million users. FEP is Facebook's feature phone app, which is popular in developing countries. There are also now 100,000 Facebook apps available for users.

User numbers:

• Daily Active Users: 699 million, up 27%.
• Monthly Active Users: 1.15 billion, up 21%.
• Mobile MAUs: 819 million, up 51%.
• Mobile daily active users: 469 million.
• Mobile only monthly users: 219 million.

Here's a snapshot of the top and bottom lines:

Click Image To Enlarge  

COMMENTARY:     Facebook shares went ballistic right after Facebook's earnings conference call with investors.  Shares quickly jumped from $26.51 at the end of regular trading on Wednesday, July 24, 2013 to $33.87 right after trading resumed on Thursday, July 25, 2013.  Facebook closed at $34.359, an increase of +$8.449 or +31.87%.  Over 350 million shares changed hands on July 25, 2013. That's speculation.  Quite an increase in price.  Here are the charts.  You be the judge.

Click Image To Enlarge  

dd

Before you think FB stock is now the hottest investment of 2013, take a closer look at what’s going on.

dd

 First off, some of the gains are very likely thanks to a short squeeze. Heading into the release, some 39,754,124 FB shares were sold short, making it currently one of Nasdaq’s most heavily shorted stocks.

Volume suggested a race to cover shorts was in play.

And despite the solid gains, Facebook stock still isn’t trading over its May 2012 IPO price of $38, a level not seen since the famously flawed debut.

Money Morning Chief Investment Strategist Keith Fitz-Gerald said.

“Bottom line to me is Facebook may prove to be a great short-term trading opportunity, but I remain absolutely convinced it has no place in a long-term investor’sportfolio.  Where’s Eastern Airlines today? Where’s Palm Inc.? Research in Motion (Nasdaq: BBRY)? AOL Inc. (NYSE: AOL)? Myspace?”

While some investors get lured into this Facebook exuberance, here’s why Fitz-Gerald warns against it.

Sure, Facebook Earnings Weren’t Bad…

FB stock opinion aside, there’s no question this was the best Facebook earnings report since the company went public.

The social media giant posted earnings of $0.19 a share, a nickel better than forecasts, and up from $0.12 a year earlier. Revenue climbed to $1.81 billion, also beating projections of $1.62 billion, and up 53% from $1.18 billion a year ago.

The big question on everyone’s minds was how the Menlo Park, CA-based company tackled mobile. Facebook was late to the mobile arena and has been playing catch-up since. It finally appears as though it’s making headway.

Mobile advertising revenue accounted for roughly 41% of Facebook’s $1.60 billion in total advertising revenue in Q2, up from 30% in the first quarter.

RBC Capital Markets analyst Mark Mahaney told CNBC. 

“They’ve taken three or four quarters to try to fix the mobile issue.  They’ve gone from zero of their revenue being mobile to almost 50% now. That’s pretty good evidence that they’ve fixed the mobile issue.”

The mobile monthly active user tally at the end of the quarter was 819 million, up 51% year-over-year. Daily active mobile users averaged 469 million in June.

The overall daily active user count grew at a more modest pace, up 27% to 699 million on average for June, while monthly active users averaged 1.15 billion at the end of Q2.

The efforts stemmed from some deliberate Facebook moves to morph the company into a truly mobile-focused operation.

David Ebersman, Facebook CFO, told CNBC.

“The investments we have made over the past year are really paying off to position the company to thrive in a mobile world.” 

But, Investing in FB Stock Still Isn’t Good…

We here at Money Morning give Facebook CEO Mark Zuckerberg the proverbial “pat on the back,” but we still don’t think these shares are a good “Buy.”

 Fitzgerald said. 

“From the headline hype this morning, you’d think that Moses had parted the Red Sea again, and that Zuckerberg was ready to walk on water, but I think if you look behind the numbers, a couple things are really apparent, things long-term investors can’t ignore.  Number one, there really weren’t any comps last quarter, so it’s only natural that they have some big upside numbers to report, when coming off a low base.  Number two, the company appears to have solved the mobile user problem, but I think they’re going to run up against competition for eyeball time and additional applications.” 

The “comps” he’s referring to are the mobile growth and revenue numbers from previous quarters – which were so low, they make any growth now appear phenomenal.

While Facebook’s explosive growth phase saw phenomenal numbers that caught the eye of money-hungry Wall Street players and eager tech followers, that phase is over.

Fitzgerald said.  

“The law of natural selection says there are only a finite number of people on this planet. And the first law of natural selection is that exponential growth can’t continue forever.” 

As more social media businesses come to market, they’ll be going after Facebook’s customers – meaning that user base could not just plateau, but decrease.

For the company, without an increasing user base, the biggest long-term challenges remain: How to keep its user base spending, how to avoid trouble from the massive amount of personal data is has collected, and how to profit overseas.

The bulk of its revenue still comes from North America, and to a lesser extent Europe.

North American ad revenue slipped to 45% in Q2 from 48% in the prior quarter, perhaps a sign that Facebook is diversifying its geographical revenue reliance. But revenue per user in Asia, a key territory because it has the potential of offering explosive growth, was just $0.68 versus $3.76 in North America.

Facebook is still is spending a lot of cash on experimental ad formats, programs and platforms. Yet, many of these costly endeavors won’t stick.

So, Instead of Investing in FB Stock…

As for competitors, there are many and they are growing – but none are as intimidating as Google Inc. (Nasdaq: GOOG).

For all of last year, Facebook took in about $5 billion revenue, a little under one-tenth of what Google pocketed.

Moreover, in the mobile advertising business, Google reigns.

In 2012, Google took in more than half of all mobile ad revenue. That number is expected to swell to 56%, or $8.84 billion, this year.

Facebook earned just $470 million in mobile ad revenue in 2012. That number is expected to grow to $2.04 billion in 2013, but Facebook still remains a mere shadow in Google’s path.

So, great job Team Zuckerberg on a great quarter – but we’re still going to pass on investing in FB.

I totally agree in ETF's assessment of Facebook and its stock price.  This is still a very speculative stock. Institutional investors almost immediately short Facebook shares.  They are all looking short-term. There are no real long-term investors buying into Facebook. Sure, there are a few small Main Street holders, but they are still waiting to get back what they lost when Facebook ended its IPO trading at $38, and just went south since then.  Many of them are still waiting, but most of them bailed out over the year since the IPO. 

On June 24, 2013, Seeking Alpha recorded the following transcript of Facebook's earnings conference call with investors: 

Facebook q2 2013 earnings conference call of july 24, 2013 from turk5555

Facebook prepared the following slideshow for investors:

Facebook Q2 2013 Earnings Conference Call Investor Slideshow from turk5555

  

Courtesy of an article dated July 24, 2013 appearing in Business Insider and an article dated July 24, 2013 appearing in Seeking Alpha

WALL STREET FORECASTS STRONG REVS AND EARNINGS FOR FACEBOOK IN Q2 2013, TOTAL REVS COULD HIT $1.62 BIL, UP 37% FROM 2012

Facebook has scheduled a Q2 2013 earnings call conference call to begin after the close of trading (1:00 p.m.) on Wednesday, July 24, 2013 (Click Image To Enlarge)

Wall Street may not have warmed to Facebook yet -- but the company is expected to report another solid quarter on Wednesday, fueled by continued mobile ad growth.

Analysts, on average, project second-quarter revenue of $1.62 billion for the social networking giant -- up 37% from a year ago -- and earnings of 14 cents a share, up two cents. That compares to a 39% revenue gain in the first quarter, and profit that was flat from a year earlier at 12 cents a share.

Advertising revenue, which accounts for the vast majority of Facebook’s overall sales, is forecast to rise 40% to $1.39 billion, according to a research note released Monday by JP Morgan analyst Doug Anmuth. Mobile advertising, which was virtually nil 18 months ago, is estimated to account for $446 million of that amount, or nearly a third of ad revenue.

That would represent a gain of 19% from $375 million in the prior quarter. Desktop advertising, by contrast, is expected to fall almost 4% from a year ago, and 8.3% from the first quarter to $944 million, as ad dollars continue to shift to mobile devices. Payments revenue is projected at $205 million, up 7% from a year ago.

Underscoring its commitment to mobile expansion, the company announced on Sunday that its “Facebook for Every Phone” app, designed for feature phone users in emerging markets like India and Indonesia, now has more than 100 million monthly users. While reaching that milestone will not bear on Facebook's second-quarter results, it highlights the company's efforts to play a key role in mobile as those markets mature. 

Facebook for Every Phone app screenshots (Click Image To Enlarge)

As of the end of the first quarter, Facebook had 751 million monthly mobile users in all.

Click Image To Enlarge

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Facebook has recently launched other initiatives that will not necessarily bear fruit immediately, but could help bolster revenue over time. These include its move to simplify the ad-buying process by cutting the number of ad formats it offers in half. It also rolled out its upgraded search service more widely after announcing it in January.

If Facebook eventually begins showing ads on Graph Search as expected, that would add another revenue stream. Also looming on the horizon is the long-rumored introduction of video advertising later this year, which the addition of video on Facebook-owned Instagram this month did nothing to dissipate.

We believe ad formats/products like Newsfeed ads, FBX in the Newsfeed, video ads in 2H13, Mobile App Install Ads, and Custom Audiences are likely to be key drivers of growth going forward,” stated Anmuth in his earnings preview. Still, investors have remained skeptical that Facebook can maintain strong sales growth and user engagement.

The company's stock closed Monday at $26.05 -- 31.5% below its IPO price of $38 a share in May 2012. Lately, the rise of popular messaging apps like WhatsApp and SnapChat -- along with the continued growth of non-Facebook properties like Twitter and Instagram -- have raised questions about the social network's hold on younger users.

Amidst heightened competition, Anmuth noted that Facebook’s share of total minutes across desktop and mobile (smartphones only), increased to 15.7% in May from 11.8% a year earlier. Even so, analysts will be looking to get more detail from CEO Mark Zuckerberg and other Facebook executives during the company's earnings conference call on user engagement and ad performance during the quarter.

One thing that investors and analysts are not likely to get is any formal revenue or earnings guidance for the current quarter or the rest of the year, which Facebook historically has not provided.

COMMENTARY:   A representative from Spruce Media, a Facebook marketing agency, said Facebook pleased advertisers in Q2 by simplifying and improving current products rather than launching new ones. Spruce Media has seen an increase is mobile advertising spending on Facebook.

Advertisers are also optimistic about new opportunities for video advertising on Facebook. Facebook announced video capabilities coming to its subsidiary Instagram in June, leading to more videos on Facebook.

Spruce Media said.

“Facebook has been pitching ad agencies about a completely new updated video ad product centered around TV-like reach with costs approaching $1 million per spot.”  

If this catches on, and Facebook users don't leave the platform because of an influx of video ads, it could provide a profitable new revenue stream for the social network.    

Those updated video ads better deliver the audience, CPM's and CTR's that will attract advertisers willing to pony-up $1 million per spot.  

Recent research shows that ads appearing in a user's newfeed have significantly higher CTR's than regular marketplace ads.  As usual, the effectiveness of the new video ads will depend largely on the message and offer.  Certainly video has much more appeal from a strictly aesthetic basis.

I am looking forward to the Q2 2013 earnings call conference since it marks the 1st year anniversary of Facebook's IPO.  It's a good benchmark for determining whether Facebook is making the right moves to optimize its monetization strategy, especially capitalizing on its growing base of mobile users.    I also want to see if Facebook is able to meet Wall Street's revenue and earnings expectations.  Anything short of this, would be a disaster for Facebook shareholders. 

To listen to Facebook’s Q2 2013 conference call, visit this link at 5 p.m. EDT Wednesday.

 Courtesy of an article dated July 23, 2013 appearing in MediaPost Publicatons Online Media Daily and an article dated July 23, 2013 appearing in International Business Times

FACEBOOK REPORTS Q1 2013 EARNINGS: BEATS WALL STREET ESTS WITH $1.46 BIL REVS, UP 38%, BUT MISSES WITH FLAT EPS OF $0.12

 

Facebook has just posted its earnings for the quarter that ended March 31, 2013. Facebook hit $1.46 billion in revenue up 38% from Q1 2012, beating Wall Street estimates of sales of $1.44 billion. Facebook reported earnings of $1.06 billion for the same quarter a year ago. Earnings per shared missed estimates, staying flat at $0.12 (analysts had expected earnings per share of $0.13.

Net income was up 7% to $219 million, versus $205 million a year ago (GAAP figures).

Click Image To Enlarge

While revenue only grew slightly, the amount of its 1.11 billion monthly users that returned daily, 665 million, was slightly better than last quarter. For more details on user growth, read our post by Drew Olanoff.

Facebook also noted in an SEC filing issued today that Chief Accounting Officer David Spillane is leaving the company. Spillane had been the company’s revenue controller since 2008, overseeing growth and IPO. He is getting replaced by Jas Athwal effective May 10.

Initial reactions from the stock market were mildly positive, with the Facebook’s share price increasing slightly in after-hours trading just after the earnings were released, though the price had fallen 1.22% and closed at $27.43.

UPDATE:  At the end of trading on May 2, 2013, Facebook shares closed at $28.97, up 1.54 or 5.61%.  Volume was three times higher than average volume indicating renewed interest in FB shares and profit taking by short sellers.

Click Image To Enlarge

The percentage of Facebook’s total ad revenue that came from mobile surged to 30%, up from 23% last quarter. Read more on Facebook’s mobile progress from Kim-Mai Cutler.

In Q4 2012, Facebook posted earnings of $1.59 billion, a rise of 40% year-over-year. Last quarter the company had 1.1 billion monthly users, 618 million daily users, and 680 mobile monthly million, up 57% year-over-year.

In the lead-up to today’s earnings, there were a lot of expectations about how Facebook would perform around some key metrics.

User numbers. As noted in the WSJ, one area where Facebook will be scrutinized will be in its proportion of daily to monthly active users. In Q4 the figure was 58.5% globally. Mark Mahaney of RBC Capital Markets told the newspaper that he expects that to go up to 59% but “anything less than 58% would be a negative for Facebook.” Elsewhere, there have been some reports of user attrition. However, Facebook hit a 60% daily to monthly users, showing slightly better engagement.

Click Image To Enlarge

The fact that Facebook saw a higher DAU/MAU ratio means that Facebook was more engaging this quarter than last, a strong sign rebuking critics who claim people are using the site less. However, Facebook’s user growth is currently coming predominantly from developing markets that don’t earn it nearly as much money as users in first-world markets like the United States.

Click Image To Enlarge

Advertising and payments. Last quarter Facebook’s ad revenue was $1.33 billion, up 41% on the year before, and payments revenue came in at $256 million. Facebook’s payments revenue in Q1 was $213 million, it’s biggest payment three-month quarter yet. [Correction: We original said payments revenue fell, but that's because Q4 2013 was a four-month quarter, irregularly boosting its revenue on the books.]

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213M for 1Q13 payments. This was biggest payment quarter – there were four months included in 4Q revenue.  We talked about it on call but should have reminded people.

X

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Mobile. Last quarter mobile revenues revenues grew to make up 23 percent of the company’s total sales. Mobile revenues effectively equals mobile advertising, since gifts, also sold on mobile, are negligible. Next quarter, however, Facebook will start making another revenue stream in mobile by way of Parse, the mobile development platform. Parse has around 60,000 developers, and offers a freemium model based on usage, with the cheapest paid version priced at around $199 per month. This was still a relatively small business when it was acquired last month for a price believed to be around $85 million so it’s not likely to grow and become a significant revenue source for another couple of years. Another specific area proving to be a significant driver within Facebook’s mobile ads business are app install ads, where app publishers pay a fee for an add to appear in a person’s mobile news feed.

Click Image To Enlarge

Note:  Actual Facebook advertising revenues for 2012 were closer to $500 million for the year.

Facebook Home; Graph Search. This past quarter saw the launch of two major initiatives for the company, Facebook Home on mobile and Graph Search, the “third pillar” after News Feed and Timeline, according to CEO Mark Zuckerberg. Facebook Home saw a little surge of interest with 500,000 downloads in its first five days across a limited amount of devices that currently support it.

COMMENTARY:  Again, Facebook miraculously meets Wall Street analyst estimates.  I keep waiting for the social giant to stumble and its stok price come stumbling down like humpty-dumpty.

The entire transcript of Facebook;s earnings call conference of May 1, 2013 can be found by clicking HERE. 

Courtesy of an article dated May 1, 2013 appearing in TechCrunch

APPLE REPORTS Q2 2013 RESULTS, $43.6B IN REVS, $9.5B IN PROFITS, EPS OF $10.09, BUT POSTS FIRST EARNINGS DECLINE SINCE 2003

 

The Cupertino company has just released its fiscal Q2 2013 earnings — it reported $43.6 billion in revenue (up from $39.2 billion in the year-ago quarter) along with $9.5 billion in quarterly net profit, which works out to earnings of $10.09 per share.

That means that the rumblings were true — Apple posted EPS of $12.30 back in Q2 2012, which makes this the company’s first year-over-year quarterly earnings decline in nearly a decade. Naturally, the bigger question is whether or not this ignominious milestone will mean anything for Apple going forward and there’s no clear answer to that just yet. Financially speaking, it was bound to happen sooner or later, but Apple’s recently cultivated image as a computing juggernaut could take a very prominent hit. Apple has $145 billion in cash in its coffers, so we can all lay off the doomsday scenarios, but CEO Tim Cook admits that the company’s growth has slowed. Cook also noted during Apple’s customary earnings call that the company would kick off an effort to buy back Apple shares to raise the value of its stock.

Click Image To Enlarge

These past few days have been surprisingly turbulent ones for Apple (the company’s share price tumbled below the $400 mark just last week to a new 16-month low), so it’s no surprise to see that analysts weren’t quite as bullish on Apple as they usually tend to be. According to Bloomberg Businessweek, the analyst consensus was for Apple to announce earnings of $10.02 per share on $42.4 billion in revenue, which the company managed to beat. On the other hand, Apple’s own (once notoriously conservative) guidance from its last earnings release forecasted revenues between $41 and $43 billion. And Apple’s guidance for next quarter? The company expects to pull in between $33.5 billion and $35.5 billion in revenue and gross margin between 36 percent and 37 percent.

Apple CEO Tim Cook noted in the release.

“We are pleased to report record March quarter revenue thanks to continued strong performance of iPhone and iPad,.  Our teams are hard at work on some amazing new hardware, software and services, and we are very excited about the products in our pipeline.”

Despite the fact that Apple didn’t release or unveil any new hardware in Q2 (as some eagerly suggested it would), device sales were still nothing to sneeze at. As always, we’ve got more detailed breakdowns of how Apple did in terms of hardware this quarter courtesy of Jordan and Darrell, but here’s how the company did during Q2 2013 in a nutshell:

• iPhones - 37.4 million iPhones sold during the quarter. 
• iPads - 19.5 million iPads sold during the quarter 
• Macs - 3.9 million Macs sold during the quarter. 
• iPods - Apple did not provide any figures for the number of iPods sold during the quarter.

Click Image To Enlarge

Not too shabby considering that iDevice sales are up across the board compared to the year-ago quarter (and in the iPad’s case, dramatically so likely thanks to the iPad mini), but the lack of any new standout products has weighed heavily on some people’s minds over the days and weeks that have led up to today’s release. Apple hasn’t pulled back the curtain on a new product since the iPad mini was unveiled back in October 2012. There’s nothing intrinsically wrong with that — the company likes to stick to its timetables after all — but the release of impressive new smartphones from Samsung and HTC could mean that Apple could be facing even stiffer competition as it works to dominate the mobile market. That could all change very shortly too, as rumblings of a new iPhone to be unveiled sometime this summer (along with a possibly cheaper model to follow) continue to circulate.

While Wall Street may have had concerns about Apple prior to the release, Apple’s stock price is up roughly 4 percent in after-hours trading.

Click Image To Enlarge

COMMENTARY:    

The Apple App Ecosystem

Apple took time to update investors on the status of its ecosystem during Tuesday's earnings call conference, revealing that it had crossed the 45 billion total app download mark, just over four months after it crossed the 40 billion download mark back in January 2013. Apps are being downloaded at a rate of 800 per second, from a total pool of 850,000 iOS apps in total, with 350,000 apps designed for iPad alone.

That 350,000 is the same as the number of total iOS apps reported by Apple as of January 2011, just a year after the launch of the iPad. At the time, Apple had only 60,000 iPad apps, which means iPad-specific titles have seen a 483 percent increase in the intervening years.

Apple also revealed that it has App Stores in 155 countries, covering 90 percent of the total iOS user population, and that it has so far paid out more than $9 billion to developers. That’s a $1 billion increase from the total it reported it had paid out to developers as of mid-February.

Apple now pays out $1 billion per quarter to devs, Oppenheimer said at the close of the call, and $4.5 billion or half of the grand total has been paid out during the past four quarters alone.

Retail Sales

Apple's retail arm reported a 19% year-over-year surge in sales.

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Revenue By Product Category

iPhone sales represented 53% of total Apple revenues during the quarter, but are down year-over-year compared to Q2 2012 when iPhone sales represented 58% of total revenues.  iPad sales represented 20% of total Apple revenues during the quarer, but are up year-over-year compared to Q2 2012 when iPad sales represented 17% of total revenues. 

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Cash On Hand

Meanwhile, the amount of Apple’s cash on hand has swelled to $145 billion — to put that in perspective, Facebook’s market cap is only about $62 billion.

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Where Is That $145 Billion Invested?

For the fiscal quarter ending March 31, 2013, Apple reported $39.1 billion in cash and short-term investments and $105.6 billion in long-term investments.  So where is Apple investing all this money?  Nobody has a clear answer.   An article dated October 26, 2012, The Guardian, reported that Apple formed Braeburn Capital in 2006, a State of Nevada-based, privately-owned investment hedge fund, to manage and invest its cash.  Braeburn Capital invests most of that $145 billion in cash into a variety of investments.  According to The Guardian, Apple maybe one of the largest private holders of U.S. government securities.  

Since Braeburn Capital works only for Apple, it is not required to file disclosure reports to the SEC or Investment Advisor Public Disclosure registrar.  However, it is known that much of Apple's money is invested overseas, sheltered from U.S. taxes.   If Apple repatriated that money back to the U.S. it woul be taxed at a rate of 35%.  But it can be invested at home in the form of U.S.-backed government debt like treasuries and bonds.

The decision to locate Braeburn in Nevada rather than Apple's home state of California makes sense because Nevada does not collect corporation tax or capital gains tax. California, by contrast, has a corporate tax rate of 8.84%, a rate of contribution to the public coffers that has not been enough to prevent a school funding crisis in a state that houses some of the world's most valuable companies. Managing its money from Nevada also allows Apple to lower its tax bills in other states. Florida, New Jersey and New Mexico discount taxes when a company's financial management is in another jurisdiction.

Apple declined to comment on Braeburn's activities, but in the year its investment arm was established, an Apple spokesman explained that it would function as a regional treasury office, on a par with existing offices at its Cupertino headquarters, in Singapore and in Cork, Ireland.

The Nevada Annual Report, a register of companies located in the state, lists three Braeburn officers: Apple attorney Gene Levoff, Michael Shapiro and Gary Wipfler, who as Apple's treasurer is the person officially responsible for the management of the technology titan's billions.

What Wall Street Analysts Are Saying

The reactions of analysts who tuned into Apple's (AAPL) earnings call Tuesday, April 23, 2013, were all over the lot.  According to CNN Money, there were things they liked, things they didn't and things they have to ponder some more.  

I did a quick sampling and a clear majority of the stock analysts lowered Apple's price target considerably from the previous quarter.  Many analysts described Apple shares as "Overweight," meaning that there was still room for further declines.  Some analysts, in spite of lowering their price target, recommended Apple as a "Buy," while others still believe that Apple "Outperforms" the market meaning that for them Apple still has upside potential.   Others mainted "Neutral" or "Hold" positons meaning that Apple share prices are nearing their bottom and the price is likely to rebound, and there is no need to sell at this time.   

Here's what a few of them said:         

Bernstein's Toni Sacconaghi: Debrief -- Several Puts and Takes; GM Erosion Worrisome, but the Fundamental Debate Remains the Same.  Lowers price target to $600 from $725. Maintains Outperform.

"Overall, Apple's FY Q2 results were largely in-line with expectations, with revenues modestly higher and gross margins somewhat weaker. However, guidance was disappointing... On balance, we were pleased with the magnitude of the return, but would have preferred a higher dividend and lower buyback, and a cash return commitment that was expressed as a percentage of free cash flow" 

Goldman Sach's Bill Shope: $100 bn capital allocation partly eases sting of big EPS cut. Lowers price target to $500 from $575. Maintains Buy. 

 "Apple reported better than expected March quarter results, but June quarter guidance was far worse than feared. The financials, however, were partly overshadowed by a remarkably large capital allocation program. Our sense is that the tepid guidance and increasingly depressed earnings trajectory will remain the key focus for investors, and concerns on this front are unlikely to completely subside until it becomes clear that Apple's next product and ecosystem refreshes can begin to form a bottom for earnings power. "

J.P. Morgan's Mark Moscowitz: Results Beat; Soft Outlook Might Weigh Momentarily; Boost to Dividend/Buyback Could Set the Floor.  Lowers price target to $545 from $725. Maintains Overweight. 

"We are ... removing Apple from the J.P. Morgan Analyst Focus List, as we think the soft Jun-Q outlook could weigh momentarily and our estimate revisions result in our price target declining 25%. Despite the reset, we think that a compelling part of the stock's risk-reward profile is that upside potential can return to the model moving toward C2014. The company signaled on its Mar-Q earnings call that new products/categories stand to be introduced this fall and in F2014, which could render the softer Jun-Q outlook as near-bottom, in our view."

Deutsche Bank's Chris Whitmore: These Apples won't harvest before fall. Lowers price target to $480 from $575. Maintains Buy.

"Apple more than doubled its capital return program from $45B to $100B by 2015 through a combination of: 1) share buyback authorization increased from $10B to 60B, 2) dividends increase and 3) RSU net share settlements of ~$1B per year. These shareholder friendly initiatives will certainly appeal to investors but does not hide the fact that Apple needs to introduce a 5 inch iPhone, a new 5S and a low cost iPhone for Emerging markets. We believe there is substantial appetite for a lower priced iPhone & believe AAPL would be well served to address the market with a 'good / better / best' segmentation strategy. Moreover, until investors get more visibility on new product launches, we expect AAPL to remain range-bound."

RBC Capital's Amit Daryanani: Awaiting Product Innovation... Now Till Fall.  Lowers price target to $475 from $550. Maintains Outperform. 

"There was plenty for both bulls and bears to hold onto during the March-qtr call. Bulls will point towards - better capital allocation and new product launches, while Bears will focus on declining gross-margins and delays in new launches. We believe the stock is stuck in a trading range ($375-425) till we witness the launches in "fall" time frame."

Morgan Stanley's Katy Huberty: New Products and Easier Comps Drive Growth in Dec.   Lowers price target to $540 from $600. Maintains Overweight. 

"The key to AAPL working from here is 1) consensus Sept Q estimates moving closer to our $35B Rev / $7 EPS, 2) iOS7 preview with hints of new services, like mobile payments, at June WWDC, 3) return to EPS growth in C4Q13 on the back of new product launches and annualizing iPad Mini introduction."

Piper Jaffray's Gene Munster: Soft Guidance Offset By Capital Allocation And Talk Of New Products.   Maintains $688 price target and Overweight rating. 

"Our thesis on AAPL remains intact as CEO Tim Cook stated during the company's March earnings call that the company is looking at new product categories and has exciting product launches planned for the fall and throughout 2014. The announced additional $50B in share repurchases (using debt) was at the high end of buy side expectations. Additionally, we expect many analysts on the Street to re-set forward expectations to adjust for lower core iPhone growth. As we approach these product launches, paired with re-set numbers, we continue to believe that AAPL shares can trade higher through the back half of 2013."

Merrill Lynch's Scott Craig: Later product launch(es) offset by capital allocation.  Maintains $540 price target and Buy rating. 

"1) Disappointing guidance means another negative revision... (2) New product launches later than expected. New iPhone(s) likely in late F4Q13/F1Q14, not F3Q13 as some expected. (3) Increased dividend (15%) and buyback by $50 billion through C2015, a clear positive, although dividend increase modest."

Citi's Glen Yeung:  Buyback in Rearview Mirror, Weakening Fundamentals Now in Focus.   Lowers price target to $430 from $480. Maintains Neutral rating. 

"While bulls will laud Apple's substantial buyback increase, we note that its impact to EPS is more than nullified by Apple's below-consensus guidance. With capital allocation no longer a future catalyst, investor attention will likely revert back to fundamentals. Here we remain concerned about Apple share, noting that loss is clearly evident in F3Q13(Jun) guidance. Meanwhile, with iPhone mix already negatively impacting GM, our concerns about Apple's longer-term gross margin sustainability are supported. When then factoring in a relatively weak result from China (another area of concern for us), and the likelihood that iPhone5S is delayed, and we think the bear case outweighs the bull case. Although it is fair to say much has been built into the shares, in our view, we found little from Apple's results to warrant buying the shares: we remain in the minority by NOT recommending Apple shares."

Credit Suisse's Kulbinder Garcha: Cash Today, Recovery to Follow. Lowers price target to $525 from $600. Maintains Outperform.

"We see the recent announcements as mixed. On the one hand, the June quarter guidance suggests that investors will need to wait until 2H13 for new products. On the other hand, the company is returning $100bn to shareholders which should prove to be a near term benefit. Fundamentally, with a structural advantage in the compute market, Apple could deliver [long-term] EPS power of $60."

Nomura's Stuart Jeffrey: Creaking Fundamentals Offset Cash Returns. Lowers price target to $420 from $490. Maintains Neutral. 

"Falling ASPs, gross margins and market share might be a product-cycle issue, but it seems unlikely to us. Rising demand for iPhone 4 and lower storage versions all point to saturation of high end – at least for 4" screens – and point to further ASP and gross margin weakness. An evolutionary iPhone 5S will likely struggle to change this dynamic, while a mid-range iPhone could further pressure gross margins and ASPs... We had anticipated a late July to August launch of the iPhone 5S and mid- range iPhone, a date which component supply timings seem to support. Yet CEO Cook spoke of a Fall product release cycle, suggesting that the September quarter may see little benefit."

Barclay's Ben Reitzes: The Cash and the $7 Guide We Expected – Now What? Maintains $465 price target and Overweight rating.  

"In line with our lowered estimates from last Friday, Apple issued guidance for $7 in EPS for the June quarter. While this guidance may provide a "jolt" to some investors, it does serve the purpose of reigning in outlandish predictions while maintaining margins above the key 36% level and helps make the stock investable into new product cycles that likely start in September (with builds hitting in June). The share repurchase also could help smooth the ongoing transition from growth to value holders. While the reception of the iPhone 5 and execution of late has tested our patience, the cash announcement, performance and guidance sets Apple up better into product cycles predicated on platform/service innovations."

Conclusion

I am of the belief that the only thing keeping Apple from truly going south is its huge army of loyal Apple evangelists who are willing to buy anything Apple produces, and are willing to pay premium prices on the belief that Apple products are superior to those of competitors.  

However, in previous blog posts, I pointed out that Apple is facing serious competition from numerous fronts.  Samsung is giving Apple its money's worth when it comes to smartphones, and is the clear global leader in all cellular phones, and a very, very close second behind Apple in smartphones.  According to many mobile experts, the Samsung Galaxy S4 is clearly superior to the Apple iPhone 5, and I expect Samsung to jump ahead of Apple in smartphones when the S4 begins shipping later this month or early May.  

In tablets, Amazon's Kindle Fire HD (7 and 9.7-in tablets), Google (Nexus 7 and 10-inch tablets) and the Microsoft Surface are giving the Apple iPad and iPad Mini strong competition.  Many mobile device experts have called the Nexus the "best tablet" on the market, and you have to give Jeff Bezos credit for single-handedly expanding the market for 7-inch tablets with the Kindle Fire. Steve Jobs once called 7-inch tablets "dead on arrival," but Apple has quickly entered that market with the Mini, and this could end up canibalizing sales of the larger of the larger iPad 4.

Apple still has an advantage in mobile apps with well over 600,000 iOS apps listed in its iTunes store compared to only 450,000 Android apps listed in the Google Play store.  Amazon now has about 50,000 Android apps in its online app store.  The latter two wipeout any competitive ed Apple held in mobile apps, and in the coming years, that gap will narrow even more. 

Apple has clearly become too dependant on consumer electroics mobile devices -- 73% of its revenues come via the iPhone (53%) and iPad (20%).  If it is not careful, it could lose its market leadership in smartphones and tablets, as mobile devices become more commoditized due to a lack of innovation.  Clearly, Apple must innovate much better, and think beyond the smartphone and tablet.  When Steve Jobs was CEO, there was never any question that Apple could innovate. This is no longer the case under Tim Cook, the new Apple CEO.   

Product life cycles are now measured in months for most new versions of a moble device, and the pressure to reduce costs, yet pack each device version with new product features, is becoming much more difficult, putting huge pressure to maintain profit margins.

The stock market has spoken, sending a clear message to Apple management -- innovate or die.   

Courtesy of an article dated April 23, 2013 appearing in TechCrunch, an article dated April 23, 2013 appearing in TechCrunch, an article dated April 24, 2013 appearing in CNN Money and an article dated October 26, 2012 appearing in The Guardian

FAST COMPANY EXCLUSIVE: ANDREW MASON'S LAST INTERVIEW AS GROUPON CEO

Groupon CEO Andrew Mason (Click Image To Enlarge)

One month ago, Fast Company contributing writer Elizabeth Spiers interviewed then-Groupon CEO Andrew Mason for a forthcoming Fast Company feature on the future of Groupon. His performance--at turns, defensive, weary, combative, and naïve--foreshadowed his firing on Thursday.

Groupon CEO Andrew Mason was fired on Thursday. This is a not entirely surprising development given that on Wednesday afternoon, he and his fellow top executives reported quarterly earnings that can only be characterized as disastrous. Revenue was up, but no one expected the losses the company announced, and first-quarter guidance was far below what analysts hoped for. As Mason himself acknowledged in his resignation letter to employees,

“If you're wondering why...you haven't been paying attention."

Mason continued. 

"From controversial metrics in our (initial public offering) to two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price, the events of the last year and a half speak for themselves.  As CEO, I am accountable."

Four weeks ago, I saw it coming. And I think Mason surely did, too.

He and I met in Palo Alto on the first of February to have breakfast, a continuation of my reporting on the company for a future Fast Company story. We sat in the dining room at Madera, a Michelin 1 star-rated restaurant in the Rosewood, a luxury hotel that’s partly owned by Stanford University. The Rosewood is located on Sand Hill Road, across the street from legendary venture firm Kleiner Perkins Caufield & Byers. (This fall it was the subject of a story on a satirical website called the Silicon Valley Pasquinade alleging that undercover detectives had arrested several prominent VCs for soliciting prostitutes at the restaurant’s famed and very scene-y bar. The story was noted by several prominent news outlets and was often mistaken for the truth, in part because the restaurant’s Thursday night, aka “Cougar night,” crowds allegedly exhibit a certain type of transactional behavior that isn’t restricted to term sheets.)

On this Friday morning at 7:30 a.m., the restaurant was still a good 12 hours away from its weekly influx of glamour, money, and what economists would classify as utilitarian behavior. Only a handful of tables in the vast dining room were occupied, and to a man (literally, there were no women) by people in suits reading newspapers or checking their smartphones.

Mason was not wearing a suit. He was wearing a brown sweater over a gray T-shirt and jeans and he looked like he just crawled out of bed, which given the hour, may well have been the case. (He once experimented with sleeping in his clothes to see if it would allow him to get out of bed later. He immediately deduced that this was a bad idea and the experiment terminated fairly quickly.)

He seemed simultaneously alert and exhausted, in the sense that you would be if you’d been pursued by a bear and turned to find it was gone; you'd remain physically drained but twitchy with the knowledge that the predator could reappear at any moment.

And this was understandable. Mason was nearly eaten alive by the market and the press in the last year. And while there were some bright spots--an analyst upgrade here and there like a daisy in a vast landscape of weeds; a vote of confidence from prestige hedge fund Tiger Management, which picked up a not-insignificant 9.9% stake in the company--for the most part you got the sense that the bear was always there, looming, waiting to maul Groupon--and Mason--at any sign of weakness.

He was four weeks away from announcing fourth-quarter earnings, and the last quarter had not been so great for him. In November the Groupon board met to discuss, among other things, whether Mason should be replaced as CEO. Groupon co-founder and chairman Eric Lefkovsky reportedly stood by Mason at the meeting, but discussion was heated and it was unclear whether Lefkovsky would continue to support him under pressure from other directors.

I asked Mason how often he talked to Lefkovsky.  He said.  

“Every so often.”

Specifically? He snorted.

“No comment.”

When I contacted Lefkovsky’s office, his spokeperson noted that Lefkovsky had decided to pull back involvement with Groupon over the summer and referred me back to Groupon’s head of communications Paul Taaffe for questions. Neither party was inclined to talk about the other.

Mason was defensive, even in discussing issues that were relatively innocuous, as if he suspected that every inquiry was a trick question. I had been heavily pitched on Groupon’s new R&D projects and the interesting technology the company was developing, yet when I asked Mason if Groupon was becoming a tech company, he protested, as if the question was some sort of accusation.  He said.

“What does it mean to think of someone as a tech company?  We don’t have a small division working on a space elevator, if that’s what you mean.”

I clarified that my definition of tech company was very much a business definition, unencumbered by innuendo: a company whose value is primarily defined by its tech-related intellectual property portfolio.

He softened a bit.

“I think in the first phase of our company, we were a glorified mailing list. We had a completely unintelligent email that we sent out once a day and we had a human sales force that was going around and procuring the deals... Absolutely IP is going to be an important and necessary part of our success. I suppose that makes us a technology company. I suppose somebody could ask us, are we a marketing company? Yes. Are we an e-commerce company? Yes. Are we a technology company? Yes.”

Part of Mason’s legitimate challenge was that Groupon was not easy to define at that point. Groupon Goods was one of the company's fastest-growing revenue segments but also one of its lowest-margin businesses. It had acquired interesting emerging technology companies, many of which were promising but were too early stage to yield meaningful numbers. It had seen enormous growth in the international sector the year before only to see it tank on Europe’s macroeconomic woes, integration issues, and problems replicating what Groupon called its “North American Playbook” in international markets.

One of the impressive things about Andrew Mason is that he’s not especially threatened by other entrepreneurs. This may seem like a small matter, but entrepreneurs are a delicate species, with easily wounded egos. They’re not the types that take well to working for other people. It’s very difficult to go from directing operations with no bureaucratic or authoritative friction, no need to ask anyone for permission, to taking direction from someone else. Many of Mason’s staunchest loyalists are entrepreneurs whose companies Groupon acquired. COO Kal Raman describes him as one of the best listeners he has ever known. (Wall Street would dispute that, but I’d wager that Raman might not be wrong. Mason is just selective about who he listens to.)

SVP of product management Jeff Holden bonded with him over a two-day stay at Holden’s house where Holden says they had “one of those conversations where you see the world exactly the same way.” The founder of Breadcrumb, Groupon’s point of sale system for restaurants, Seth Harris, was “a restaurant guy--it’s in your blood” but was convinced to go to Groupon because he liked Mason’s vision for empowering local businesses with better infrastructure and tools. And as Mason put it,

“Whatever you think of me, I have a great team below me that’s had a lot of success.”

To his credit, this is something that many public company CEOs never learn how to do.

But it was Mason’s job to define Groupon not just to a hand-picked team of executives but to the world. And communication, at least in that context, wasn’t his strong suit.

However he connected with people internally, he struggled to do it publicly. In part, this is because Mason was uncomfortable with the spotlight. He attributes some of his legend as prankster to this.  

He said.

“I think that story built up, and part of it was my way of dealing with the lack of comfort of being in public. But it doesn’t reflect reality or the way I behave day to day.  I’m weird. But I’m a pretty serious person.”

Mason never could convince Wall Street of that, and he seemed disillusioned with his experience dealing with it.

“What’s just depressing to me is how--and it’s not just for us, let me generalize it--the moment a company goes public the conversation shifts from how they’re trying to change the world and the product they’re building to how they’re making money.”

“All the coverage around Facebook’s new search tool was a little bit about the feature, and then it gets immediately into how the market is reacting to it. Like, who the fuck cares?”

He said.  

“If you look at a lot of the issues we’ve had since going public, it feels like we’re at Wimbledon and we just keep on double-faulting.  It’s like we don’t even get to play the match.”

He thinks the Street is callously unsympathetic.

“It’s the nature of a four-year-old business that’s trying to get its arms around 11,000 people in 48 countries, a lot of them strung together from acquisition.”

Part of Mason’s downfall was that he’s an idealist. He feels betrayed by a market that does not understand what he’s trying to accomplish or appreciate his good intentions. There is of course an arrogance in that--an expectation that the market should conform to one’s own ideals instead of the parameters in which it has always operated. He seems wounded by the fact that Wall Street doesn’t care as much about the quality and efficacy of Groupon’s products as it does about raw profits.

This is at best naïveté, but then naïveté has plagued Mason all along. In 2012, Groupon filed statements with the Securities and Exchange Commission that had to be restated because Groupon had used an accounting metric--ACSOI (Adjusted Consolidated Operating Income)--in its required filings that suggested a net gain in its operating income. Conventional SEC-required metrics would have suggested a loss.

To be fair, ACSOI is an important metric for Groupon internally. It’s a measurement that helps them think about long-term costs before they spend money on marketing. And considering that they believe their marketing budget is variable, it’s important for them to know what sort of profits they’re looking at without taking marketing into consideration.

But it’s not what the SEC asks for. And it’s rare that a company blatantly flaunts what the SEC wants.  Mason said.  

“Looking at it in retrospect,  like many stupid things that people do, it looks obvious. But at the time, we were in a different world. We were the darlings of the tech world. Everything was and had gone our way, and we thought, we’ll put this metric [ACSOI] in here because we think it’s helpful. And people were like, We think you put this metric in here because you’re evil.”

He continued.

“They were basically like, Here’s the list of companies that have made up metrics and these companies suck. So you probably suck, too.”

Mason admits that it was unsophisticated.

“That was us not realizing what we were getting into in going public.”

When I asked him whether he regretted going public--whether he thought he could have accomplished more without the market pressure--he became incensed.

“I feel like the only reason you could be asking me that question is because you think I’m stupid or because you’re trying to see if I’m going to lie to you.”

Like most reporters—and let’s face it, most human beings--I’m always interested in whether people will lie to me. But it was an honest question. I know entrepreneurs who have regretted exits for precisely that reason. And I sincerely wonder what Groupon would look like if it weren’t a public company now. I suspect Mason does, too.

But Mason fails to see why the market behaves the way it does. It is callous, to be sure, but it isn’t stupid. The Street is not unaware of the fact that it has a regimented system that does not reward eccentric behavior. Mason’s lack of prior experience and personality quirks were at odds with Wall Street’s platonic ideal of a public company CEO: a numbers-driven operator who is experienced, polished, reliably predictable, and predictably reliable. In other words, not the kind of guy who makes jokey yoga videos in his underwear or who nearly presents the mayor of New York with a pony (a GrouPony, to be exact) as a party favor for an office visit. Certainly not the kind of guy who creates an entire room in his corporate headquarters for an imaginary tenant named Michael whose belongings include an exercise bike that plays Sade when pedaled, Cheerio boxes as décor, and a toilet full of Almond Joy bars. All of which Mason had done.

The presentations that public company CEOs have to make to institutional investors are called “dog and pony shows” for a reason. Wall Street knows some of it is superficial and irrelevant. It recognizes that it’s inconvenient and annoying for the CEO to have to trot the company out, brush its hair, decorate it with pretty ribbons, and walk it around the stage. The CEO has better things to do, after all. Isn’t the CEO supposed to be building the company?

Well, yes and no. Mason failed to accept that if you’ve taken money from public investors, you have to acknowledge that you owe them. Or you shouldn’t take the money at all. If you’re a public company, you have stakeholders whose interest in your company is entirely tied to fiscal performance. Mutual funds buy you for individuals who want to invest. Institutional funds buy you because you seem promising. Individuals in Peoria buy you because they think you will perform the way you said you would, even though that fourth quarter miss wasn’t your fault. It’s cold comfort to those people that you’re empowering small businesses if your management policies disempower them by draining their investment accounts. Those people were not investing in an ideal; they were investing in a security.

So it disturbs the Street when a public company CEO won’t do these things. They think it’s disrespectful to institutional investors who have invested in the company and deserve an audience. They think it’s a sign that the CEO is trying to hide something. How hard is it to give a simple presentation about where the company is going with no drama?

Julie Mossler, Groupon’s PR director was upset on his behalf. She mentioned a 60 Minutes episode earlier in the year wherein the show’s staff was annoyed that Mason didn’t present himself as the clownish prankster they had hoped to capture on camera.  SheMocked.  

“Andrew’s not being funny!  Where’s funny Andy?”

To be honest, I was relieved not to see funny Andy, if such a persona exists. As a human being, I’d rather see the sincerity--the irritation, the exhaustion, the frustration of being misunderstood, even if part of the misunderstanding is a function of self-inflicted difficulties that could be remedied by an acceptance of the realities to which Mason has consigned himself by virtue of going public. I’d rather see Mason as a complete person and not a character optimized for amusement. I ask him how his wife would describe him, and he says,

“She’d say ‘I wish he was home more so I was capable of characterizing him.”

It’s intended as a joke but there’s a tinge of sadness to it. Mason doesn’t like talking about himself. It makes him uncomfortable. But even his attempts at self-deprecation fall flat.

Mossler, both by virtue of her role and her longstanding relationship with the company (she has been at Groupon from whatever constitutes "the beginning"), is extremely sympathetic to Andrew. Like several of the other senior executives with whom I spoke, she seemed protective of him, and not simply because it was part of her job. She believed in him.

But the market did not.

Mason is by most accounts a passionate, smart guy who cares deeply about creating a superior product. He hires people who have more experience running companies than he does and finds ways to gain their trust. If he can learn how to tolerate the things that the public company CEO must do for the public market and come to peace with the fact that it entails walking the be-ribboned pony around the enclosure and smiling while doing it, maybe he has the potential to be an effective CEO of another public company.

But I don’t think he’d like it. And I don’t think it would be the best use of Andrew Mason.

COMMENTARY:    I don't feel bad for Andrew Mason one iota.  As many startup CEO's have quickly discovered after going public -- it's not the end of the journey, but the beginning.  As the CEO of a startup, if you are smart, you hire the best people possible, and give the responsiblity to execute the company's corporate initiatives.  Although early and late venture capital investors may exert some influence over operations, they don't call the shots.  Very often the CEO puts himself in the position where he controls the votes on the board of directors, and is somewhat immune from being fired.  Facebook CEO Mark Zuckerberg  and Zyngao CEO Mark Pincus have voting control by virtue of holding enough Class A and Class B shares to veto any effort by the board to fire them.  They are the luck few.   Andrew Mason did not have full control over the board, and his longivity as CEO depended on how many bad quarters Groupon had.  

Groupon Inc only had one quarter (Q2 2012) when it reported a profit.  It lost money every quarter prior to that and every quarter after that.  And, I have a feeling it will continue to lose money because of its controversial business model.  Yes, it was only a matter of time before Little Andy Mason was canned, but I am surprised they let it go this long.   Here are the financials and stock prices.  You be the judge.   In a world of stock analysts and institutional investors, there is no room for idealism, just profits, profits and profits. 

Groupon Inc - Profit & Loss Statements - Year's Ending 12-31-09 through 12-31-12

Click Image To Enlarge

 Groupon Inc - Stock Prices - 11-11-11 through 3-7-13

Click Image To Enlarge

Courtesy of an article dated February 28, 2013 appearing in Fast Company

AFTER MOUNTING LOSSES AT GROUPON, A BOARD OF DIRECTORS REBELLION INSUES, AND CEO ANDREW MASON IS FINALLY FIRED

Groupon CEO and co-founder Andrew Mason (Click Image To Enlarge)

Like many a defeated and depleted executive before him, Groupon co-founder and CEO Andrew Mason emailed his staff yesterday, then, in his typically offbeat style, he did what most executives don’t and he wrote: 

“I am leaving to spend more time with my family.  Just kidding –- I was fired today.” 

Although the note was “for Groupon employees,” carrying the valediction “Love, Andrew,” Mason wrote:

“I am posting it publicly since it will leak anyway.”

He told employees.

“You are doing amazing things.  It's time to give Groupon a relief valve from the public noise.”

He told his former workers not to worry about him, then said.

“I'm OK with having failed at this part of the journey.”

Mason referred to the part where a promising business model actually gets executed and becomes a viable enterprise against mounting competition.

Groupon (NASDAQ:GRPN) - Profit and Loss Statements - Calendar Yrs Ending December 31, 2009 through December 31, 2012 - Google Finance (Click Image To Enlarge)

The dismissal was not a surprise. Mason had been “buying time” since late last year and dismal fourth-quarter results, as MediaPost’s Gavin O’Malley reported yesterday, sealed his execution. The growing mob shouting “off with his head” seemingly was pleased; stock quickly shot up as high as 12% to $5.10 in after-hours trading before receding, TechCrunch’s Colleen Taylor reports. The share price was at $4.72 at 6 a.m., up from a close of $4.53, which constituted a drop of 24% after Wednesday’s earning’s report. 

Groupon (NASDAQ:GRPN) Share Prices - Feb 25, 2013 through Mar 1, 2013 (Click Image To Enlarge)

Stifel, Nicolaus analyst Jordan Rohan tells the NewYork Times’ David Streitfeld.

“I view Mason as a visionary idea generator.  Few would argue with how impressive the Groupon organization was as it grew. However, at some point it became the overgrown toddler of the Internet -- operationally clumsy, not quite ready to make adult decisions.”

Mason was asked to “exit the company immediately” at a board meeting yesterday morning, according to a source who talked to the Wall Street Journal. Reportedly, “tensions had flared” between Mason and Groupon co-founder and chairman Eric Lefkofsky before the meeting, Evelyn M. Rusli, Geoffrey A. Fowler and John Letzing report. Lefkofsky had been “agitating for change” and “urged Mr. Mason to be more vocal in defending Groupon, which was dealing with a precipitous stock-price decline, one person has said."

One year and for months ago, Groupon went public.  It priced at $20 a share, opened at $28, and then peaked around $30.  Since then, it has done nothing but collapse. As of today, Groupon shares are worth $5.42 with a market cap of $3.57 billion (Click Image To Enlarge)

Mason had left the building by the time Groupon conducted a company-wide meeting that was streamed to its distant outposts, the WSJ reports, presumably puttering around the house with an eye on the trending Twitter feed about his ouster. Tthe Times’ Streitfeld wrote.

“Mr. Mason himself retweeted a comment that said: ‘First the pope and now Andrew Mason!?! Our esteemed leaders are falling like flies.’” 

Some observers point out that Yahoo’s former CEO, Carol Bartz, was similarly forthcoming about her dismissal in September 2011, but she was, in fact, a tad more strident about it publicly in an exclusive interview with Fortune’s Patricia Sellers.

Lillian Cunningham, the Washington Post’s “On Leadership” editor wrote.

“Honesty and authenticity are so profoundly lacking in today’s leaders that it really is a thrill when a frank memo appears, like the one that freshly ousted Groupon CEO Andrew Mason penned Thursday evening,”

Authencity? Well, Mason has long been known as quirky. Reuters’ Poornima Gupta, Alexei Oreskovic and Malathi Nayak wrote that Mason “garnering props for [the letter's] self-deprecating style … should come as no surprise,” and then they lay out the evidence. Some of the anecdotes: Mason purportedly doing yoga in his underwear in a video posted to YouTube, his giving a pony to gazillionaire Michael Bloomberg and turning down an interview with the New York Times in 2010 on any topic other than “my other passion, building miniature dollhouses.”

The Chicago Tribune’s Ameet Sachdev and Robert Channick said that the resignation note is “filled with the same offbeat humor, charm and candor that defined his tenure as chief executive.” The company is headquartered in the Windy City, and the Tribune reporters observe that

“Groupon's struggles have been stunning, and dispiriting, to many in Chicago because so many expectations were wrapped up in its early success.”

But, in addition to mounting competition “from imitators from LivingSocial to Amazon,” they point out that “consumers' appetite for heavily discounted deals on restaurants, yoga classes and pedicures has shrunk.”

Executive chairman Lefkofsky and AOL veteran and vice chairman Ted Leonsis will be sharing the steering wheel as the search for a new CEO is conducted. Neither is in consideration for the permanent role of jumpstarting the vehicle stalled on the Skyway –- a task that begs for a master mechanic.

Therese Poletti wrote in a MarketWatch commentary.

“Many investors, joined by several Groupon analysts, don’t believe Mason was the core problem with the company, and they can only wish the interim CEOs luck in tackling its fundamental issues.  What CEO would want Mason’s job on a permanent basis is another question whose answer will only become clear in the coming weeks and months.”

COMMENTARY:   I have been waiting for Groupon's CEO Andrew Mason to be fired, and that day has finally come.   If you've beeing following my blog posts, I have extensively covered Groupon since before its IPO.  I am very surprised that Mason's firing did not come sooner, considering all the management screwups, poor decision-making and controversey surrounding Little Andy Mason.  It turns out that according to Groupon's filings, Mason did not have a golden parachute, something that is customary for top management.  In spite of this, I still don't feel the least bit sorry for Little Andy Mason.   Mason sold around $28 million worth of Groupon shares before Groupon's IPO in the fall of 2011.  After the IPO his shares in the company were valued at more than $1.3 billion. In November 2012, the value of his shares topped $1 billion, making him an official billionaire, at least on paper.  Groupon stock has subsequently plummeted, but his shares are still worth $200 million.  Bye bye, Little Andy.     

Courtesy of an article dated March 1, 2013 appearing in MediaPost Publications MarketingDaily Top of the News and an article dated March 1, 2013 appearing in CNBC

LINKEDIN ANNOUNCES 4TH QUARTER AND FULL YEAR 2012 FINANCIAL RESULTS, BEATS WALL STREET ESTIMATES FOR 7 STRAIGHT QUARTERS

LinkedIn Corporation (NYSE:LNKD), the world's largest professional network on the Internet with more than 150 million members, on Thursday, February 7, 2013, reported its financial results for the fourth quarter and fiscal year ended December 31, 2011:

• Revenue for the fourth quarter was $167.7 million, an increase of 105% compared to $81.7 million for the fourth quarter of 2010
• Net income for the fourth quarter was $6.9 million, compared to net income of $5.3 million for the fourth quarter of 2010; Non-GAAP net income for the fourth quarter was $13.3 million, compared to $5.2 million for the fourth quarter of 2010. Non-GAAP measures exclude tax-affected stock-based compensation expense and tax-affected amortization of acquired intangible assets
• Adjusted EBITDA for the fourth quarter was $34.4 million, or 21% of revenue, compared to $16.3 million for the fourth quarter of 2010, or 20% of revenue
• GAAP EPS for the fourth quarter was $0.06; Non-GAAP EPS for the fourth quarter was $0.12
• For the full year 2011, revenue increased 115% to $522.2 million from $243.1 million. GAAP EPS increased to $0.11 from $0.07 and Non-GAAP EPS increased to $0.35 from $0.24. Adjusted EBITDA increased to $98.7 million from $48.0 million

"Q4 once again exceeded our expectations for member engagement and business growth. It was a fitting end to a memorable year in which we reinforced our position as the pre-eminent professional network on the web," said Jeff Weiner, CEO of LinkedIn. "We believe continued focus on our members and technology infrastructure positions us well for accelerated product innovation in 2012."

Fourth Quarter Financial Details and Operating Summary

LinkedIn reported revenue of $167.7 million for the quarter ended December 31, 2011, an increase of 105% compared to the fourth quarter of 2010, and the 6^th straight quarter of greater than 100% year-over-year growth.

• Hiring Solutions: Revenue from Hiring Solutions products totaled $84.9 million, an increase of 136% compared to the fourth quarter of 2010. Hiring Solutions revenue represented 50% of total revenue in the fourth quarter of 2011, compared to 44% in the fourth quarter of 2010. 
• Marketing Solutions: Revenue from Marketing Solutions products totaled $49.5 million, an increase of 77% compared to the fourth quarter of 2010. Marketing Solutions revenue represented 30% of total revenue in the fourth quarter of 2011, compared to 34% in the fourth quarter of 2010. 
• Premium Subscriptions: Revenue from Premium Subscriptions products totaled $33.3 million, an increase of 87% compared to the fourth quarter of 2010. Premium Subscriptions represented 20% of total revenue in the fourth quarter of 2011, compared to 22% in the fourth quarter of 2010.

Revenue from the U.S. totaled $112.0 million, and represented 67% of total revenue in the fourth quarter of 2011. Revenue from international markets totaled $55.8 million, and represented 33% of total revenue in the fourth quarter of 2011.

Revenue from the field sales channel totaled $95.8 million, and represented 57% of total revenue in the fourth quarter of 2011. Revenue from the online, direct sales channel totaled $71.9 million, and represented 43% of total revenue in the fourth quarter of 2011.

GAAP net income for the fourth quarter was $6.9 million, compared to net income of $5.3 million for the fourth quarter of 2010. Non-GAAP net income for the fourth quarter was $13.3 million, compared to $5.2 million in the fourth quarter of 2010.

Adjusted EBITDA was $34.4 million in the fourth quarter of 2011, or 21% of revenue, compared to $16.3 million in the fourth quarter of 2010, or 20% of revenue.

GAAP EPS was $0.06 based on 108.6 million fully-diluted weighted shares outstanding compared to $0.03 for the fourth quarter of 2010 based on 49.4 million fully-diluted weighted shares outstanding; Non-GAAP EPS was $0.12 based on 108.6 million fully-diluted weighted shares outstanding compared to $0.05 for the fourth quarter of 2010 based on 95.0 million fully-diluted weighted shares outstanding.

"LinkedIn grew over 100% for the sixth consecutive quarter and posted all-time high adjusted EBITDA," said Steve Sordello, CFO of LinkedIn. "Our fourth quarter results underscore the company's success in 2011, which saw revenue and adjusted EBITDA more than double. In 2012, we will continue to invest in our product, engineering, and sales infrastructure to capitalize on our long-term opportunity."

For additional information, please see the "Selected Company Metrics and Financials" page, updated through the end of the fourth quarter of 2011, on LinkedIn's Investor Relations site.

Fourth Quarter Highlights and Strategic Announcements

• LinkedIn completed the latest phase of the re-architecture of its software development and deployment process, known internally as InVersion, which is the foundation for accelerated product innovation in 2012.
• LinkedIn continued its international expansion and localization with the addition of three new offices (Tokyo, Japan; Bangalore, India; and Sao Paulo, Brazil), and five new languages (Japanese, Swedish, Indonesian, Malay, and Korean.)
• At its Talent Connect conference in October, LinkedIn announced Talent Pipeline, a new solution that allows recruiters and hiring managers to manage, track, and stay in touch with active and passive candidates, regardless of source. Talent Pipeline is currently in pilot testing phase with select Hiring Solutions customers.
• LinkedIn unveiled two new offerings for Marketing Solutions customers at Connect:11 in October. Company Status Updates and the Certified Developer Program give brands more powerful ways to connect and engage with LinkedIn members.

Business Outlook

As of today, LinkedIn is providing guidance for the first quarter of 2012 and for the full year 2012 on revenue, adjusted EBITDA, depreciation and amortization, and stock-based compensation. 

• Q1 FY12 Guidance: Revenue for the first quarter of 2012 is projected to be in the range of $170 million to $175 million. For the first quarter of 2012, the company expects to report adjusted EBITDA of $25 million to $27 million. The company expects depreciation and amortization in the range of $15 million to $17 million, and stock-based compensation in the range of $13 million to $14 million. 
• Full Year FY12 Guidance: Revenue for the full year of 2012 is projected to be in the range of $840 million to $860 million. For the full year of 2012, the company expects to report adjusted EBITDA of $155 million to $165 million. The company expects depreciation and amortization in the range of $70 million to $80 million, and stock-based compensation in the range of $65 million to $75 million.

COMMENTARY:    According to iStockAnalyst, LinkedIn Corporation (NYSE: LNKD) is a stock to look for in 2013 due to its strong growth potential as it is turning out be a leading employment site. But, the stock should consolidate, given a lack of catalysts.

Founded in 2003, LinkedIn is a social professional network. Through its platform, members can create, manage, and share their professional identity online while finding business opportunities, building their professional networks, connecting with business contacts, and finding potential employees/employers.

LinkedIn has more than 200 million members and is replacing job boards and other sources while emerging as the go-to source to find employees – something which should propel strong growth for the foreseeable future.

LinkedIn invested over the past year in developing new products that have led to higher user engagement and better advertising opportunities. LinkedIn is slowly rolling out its mobile monetization plans and is ahead of the game in distinguishing between tablet and smartphone, creating different strategies for both.

LinkedIn gets revenue from talent, marketing and premium subscriptions. Talent solutions, which accounts for 50 percent of its revenue, includes the largely self-service LinkedIn Job Slots and the LinkedIn Corporate Solutions suite, which includes the Talent Pro and Job Seeker subscription products. The solutions are built to be an effective way for enterprises and professionals to find, contact, and hire the best qualified candidates.

Marketing solutions represents 30 percent of revenue, enables advertising agencies and direct marketers to use display and text ads on LinkedIn to reach a targeted audience. LinkedIn Ads is a self-service platform that allows marketers to create and place ads directly while LinkedIn Ads for Enterprise provides dedicated account management and additional marketing solutions.

BMO Capital Markets analyst Daniel Salmon wrote in a note to clients.

"In Marketing Solutions, we believe the distinction between tablets and smartphones and a focus on "content marketing" show impressive and improving sophistication, as the industry moves more toward a bifurcated view of mobile ads, and native advertising like content marketing get more attention."

Premium Subscriptions targets small and medium-sized businesses, professional organizations, individual members and business groups in larger enterprises. Subscriptions products include the Business/Business Plus/Executive suite of products, as well as the Sales Navigator product. The segment accounts for 20 percent of sales for LinkedIn. 

Salmon said.

"Management is taking a slow approach with Premium Subscriptions, however, long term we expect integration with multiple CRM platforms and see it as a valuable tool for sales people, a key user group for LinkedIn."

A strong focus on new product rollouts in 2012 helped LinkedIn create a more engaging platform for users and a more useful one for recruiters.

LinkedIn's investments started bearing fruit, with the company delivering a blow-out results for its fourth-quarter. Profit for the October to December period rose 67 percent to $11.5 million or 10 cents a share, share from $6.9 million or 6 cents a share last year. Adjusted earnings for the quarter almost tripled to 35 cents a share, way ahead of the 19 cent consensus estimate of analysts polled by Thomson Reuters.

LinkedIn's revenue for the fourth quarter jumped 81 percent to $303.6 million, which topped Street view of $279.5 million for the quarter. Linkedin ended the year with about 202 million members, up 39 percent from last year

Looking forward to the first quarter, LinkedIn sees revenues of $305 million to $310 million. For the full year 2013, the company expects revenue of $1.41 billion to $1.44 billion. Analysts currently anticipate revenues of $312.93 million for the quarter and $1.48 billion for 2013.

The company is set to clock profit growth of 94 percent in the first quarter and 49 percent this year. In the next five years, profits are expected to surge 60 percent a year, compared to industry's 20 percent, sector's 18 percent and S&P 500's 9 percent.

Investors were a little skeptical on the expensive valuation of the stock, which trades at 113 times its 2013 consensus earnings estimate. In comparison, the P/E figures for the industry, sector and S&P 500 amounts to 22, 19 and 15, respectively.

Shares of LinkedIn, which went public on May 19, 2011 at $83 versus its IPO price of $45, are currently trading at $150 levels and looks set to cross $175 before year-end. They were trading between $84.10 and $151.89. During the past 52-weeks and above its 50-day moving average of $117 and 200-day average of $109.28.

I believe that the future growth is fully reflected in the stock's high valuation. Since there are no near-term catalysts to boost shares (barring the next quarterly report in April), investors should wait for the right time as the price may correct after 22 percent rally on Friday. 

The fourth quarter 2012 marked the 7^th straight quarter that LinkedIn's earnings and revenue exceeded analyst forecasts.   LinkedIn shares have now more than tripled (up 342%) since the stock's IPO price of $45 in May of 2011.  Shares as of today, Tuesday, February 12, 2013 at 10:17 a.m. hit $154.38 with another 3 hours to go before the market closes. 

LinkedIn hosted an earnings call with analysts to discuss its fourth quarter an full year 2012 financial results and business outlook on Thursday, February 7, 2013 at 2:00 p.m. Pacific Time. Jeff Weiner and Steve Sordello hosted the webcast.  The transcript of the earnings call is shown below:

LinkedIn Earnings Call Report Transcript Q4 2012 from turk5555

 

 Courtesy of a press release dated February 7, 2013 issued by LinkedIn and an article dated February 7, 2013 appearing in Seeking Alpha and an article dated February 11, 2013 appearing in iStockAnalyst