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Thesis: Facebook’s Economic Viability Attracts Backing From Investors. Featured

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Thesis: Facebook’s Economic Viability Attracts Backing From Investors.


  purpose

This case study aims to examine the investor trends for Facebook during its short history. In connection with this, the case study examines the impact of strategic and financial analysis on investment decisions. Although Facebook Inc. is barely a decade old, it has had the capacity to attract investors from different parts of the world (Laudon, p. 6). The case study will also encompass the development of a model for Facebook. In designing such a model, the theory of convergence will serve as a crucial platform. Finally, the case study will also comprise an evaluation of the economic feasibility of this company.


 Overview

Phenomenal growth of revenues has been evident in Facebook’s financial results since 2004. Initially, the growth was minimal in comparison with the current trends. Inevitably, the growth in revenues results into profits for the company. Aspects such as marketing and technological advancements have been essential contributors towards Facebook’s financial performance (Miller, p. 21). Consequently, investors’ interest in the company has been on the rise despite Facebook’s short history. The feasibility analysis indicates that the company’s performance is positive.


 Question 1: The Role of Strategic and Financial Analysis

Prior to investing in any company, investors seek to understand its financial performance. It is impractical to invest in a firm whose financial results indicate losses and minimal revenues. From a strategic perspective, the investors seek to evaluate the company’s future financial position. In essence, a company might be posting losses currently but be in a strong financial position in the future. Facebook’s financial results have been impressive since its establishment in 2004 (Fernandez, p. 78).

The quarterly financial results for June 2011 indicate that the company had $895million worth of revenues. Twelve months later, the company had tremendous improvements since it posted a figure of $1.6billion. Since 2004, the quarterly results indicate steady growth in Facebook’s revenues. This has also been the case with net income with the exception of the second quarter of 2012 (Miller, p. 26). With such an excellent financial performance, it is easier for the investors to back the company. This was evident during the company’s recent initial public offering. The IPO was a massive success in that the company raised more than $10 billion (Fernandez, p. 86).

Investors are confident about the company’s future performance as a result of growth and exemplary marketing strategies. The increasing popularity of social networking is another factor that results into strong backing from investors. Long term financial feasibility of a business entity is a critical factor of consideration while making investment decisions.  These perspectives highlight the numerous roles of financial and strategic assessment in attracting backing from investors (Sutherland, p. 57).


 Question 2: Model of Facebook

The concept of convergence provides an excellent framework for developing a model of Facebook. In accordance with the stipulations of this concept, the model will have three components. The first component encompasses communication technologies. The efficiency of this model is strongly dependent on technological inputs. Considering that Facebook’s operations are based on the internet, it is inevitable that the company must integrate different kinds of technological innovations. The online community is so demanding and always looks for innovative products (Griffin p. 117).

This is why the Facebook model must develop effective communication technologies. The second component of Facebook’s model is the issue of regulatory frameworks. The e-commerce sector has different types of regulations. Some of these regulations are from the government while others are result from the industry. In essence, these regulations have direct or indirect implications on the company’s performance. The third component of Facebook’s model is the management. The management methods in a company have direct implications upon its financial performance. Additionally, the management has the responsibility of developing appropriate strategic plans for the company (Sutherland, p. 19).


 Question 3: Economic Viability of Facebook

While assessing the economic viability of Facebook, it is essential to examine the company’s financial results. During the first half of 2012, the company had in excess of $2.2billion worth of revenues. This was a tremendous improvement in relation to the 2011 fiscal period. Twelve months earlier, the Facebook’s total revenues were $1.6billion (Miller, p. 29).

This shows an improvement of over $500million in twelve months. The company’s financial viability is also strong considering the excellent results from the initial public offering. There are various factors that would help in illustrating Facebook’s economic viability. Firstly, the company has a global reach. This means that people from all parts of the world use Facebook on a daily basis. This is an excellent aspect from a business point of view. With such a high number of users, Facebook has the capacity to offer a lucrative platform for advertisements. In essence, almost all of Facebook’s revenues come from advertisements (Griffin, p. 61).

Through this social networking site, companies can communicate with specific audiences. For instance, an advert might cover a small geographical area. On the other hands, some company’s seek to reach the global audience using Facebook adverts. This social networking site also provides numerous business opportunities for other companies. For instance, some gaming companies are solely dependent on Facebook for revenue generation. The field of information technology is evolving at rapid rates. This perspective also helps in justifying the financial viability of Facebook. This is through the integration of such innovations into the social networking website. Additionally, this company has an excellent management framework. This is another factor that will boost Facebook’s performance in the foreseeable future and also in the long term (Sutherland, p. 87).


 Conclusion

According to the thesis, Facebook’s economic viability attracts backing from investors. The different sections of the case study exemplify this statement. From a strategic perspective, the investors seek to evaluate the company’s future financial position. In essence, a company might be posting losses currently but be in a strong financial position in the future. Facebook’s financial results have been impressive since its establishment in 2004. The increasing popularity of social networking is another factor that results into strong backing from investors. Long term financial feasibility of a business entity is a critical factor of consideration while making investment decisions.

 The e-commerce sector has different types of regulations. Some of these regulations are from the government while others are result from the industry. In essence, these regulations have direct or indirect implications on the company’s performance. Almost all of Facebook’s revenues come from advertisements. Through this social networking site, companies can communicate with specific audiences. For instance, an advert might cover a small geographical area. On the other hands, some company’s seek to reach the global audience using Facebook adverts.


References

Fernandez, P. (2012). Revenue disruption, Hoboken, NJ: John Wiley & Sons

Griffin, R. W. (2012). Management, Mason, OH: South-Western

Laudon, K. C. (2012). Business, technology, society, New Jersey: Pearson Education, Inc. 

Miller, N. (2012). The Facebook IPO primer, Sebastopol, CA: O’Reilly Media

Sutherland, A. (2012). The story of Facebook, New York, NY: Rosen Publishing Group


 

Last modified on Tuesday, 25 June 2013 14:55
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