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Facebook IPO: what we've learnt from its S-1 filing

Facebook's S-1 filling is a huge document consisting of thousands and thousands of words - many of them just standard regulatory warnings to anyone who might be thinking about putting their money into the company. But it also contains many hints about how Facebook is going to be organised, how smoothly (or not) it runs, who will be in charge, and what its future looks like. In no particular order, here are the things to know about Facebook.
• It is extremely profitable. In 2011, it brought in revenues of $3.7bn and had an operating income (the profit after you subtract day-to-day costs, but before taxes) of $1.7bn. Its net income for that year was $1bn - giving it a 27% net margin. For comparison, most physical businesses have net margins of between 5% - 10%.
• The Like button - and user growth - turned loss into profit. In 2009 Facebook flipped from loss to profit, and the introduction of the Like button that February helped to target advertising.
• Mark Zuckerberg will remain in charge. The shares will be split into "A" and "B" shares, in which the latter get 10 votes per share, and the former get one. Zuckerberg presently owns around 28.2% of the share capital, so that will (on conversion) give him majority control of the votes.
• Active user numbers are still growing fast: at the end of 2011 had 845 million active users, up 39% from the same time in 2010.
• Facebook depends on advertising, but less of its revenue comes from that. The proportion of revenue from advertising in 2009, 2010 and 2011 was, respectively, 98%, 95% and 85% of revenue. The rest comes from in-app purchases such as in games like Zynga's Farmville. Speaking of which…
• Zynga is an important partner. In 2011, 12% of Facebook's revenue came from it (so between advertising and Zynga, that's 97% of revenues.) So much so that Zynga gets a special mention: "If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected."
• The rate of growth is expected to decline. That's not surprising given how rapidly it has grown - 154% from 2009 to 2010, but only 88% from 2010 to 2011.
• 2009 is the year when everything clicked into place. In the years up to that point, as recorded on the S-1, revenues were small compared to costs (which aren't broken down, but consist of activities such as running the site and getting advertising sales). But in 2009, it broke through: from 2008 to 2009, revenues grew from $272m to $777m, almost tripling, but other costs only doubled. Result, profit.
• Facebook's revenues for 2011 are about the same as Google's were in 2004, when it filed its S-1. But its profitability is much higher.
• Mobile is, potentially, the Achilles heel. Right now there aren't any adverts in the mobile version of the site, but more and more people are accessing the site via mobile - 425 million monthly active users in December 2011. As the filing notes, "our revenue may be negatively affected unless and until we include ads or sponsored stories on our mobile apps and mobile website. We believe that people around the world will continue to increase their use of Facebook from mobile devices, and that some of this mobile usage has been and will continue to be a substitute for use of Facebook through personal computers."
• Privacy only gets passing mentions. It doesn't have its own section with any warnings about what might happen if people get itchy.
• There are lots of rivals, especially in China. Facebook wants to get into that country, but notes there are already rivals such as Renren, Sina and Tencent established there. Russia and Korea and Japan also have entrenched social networking rivals.
• We don't know exactly what the offer share price is going to be yet. That has yet to be worked out with banks.
• It has started building its own data centres. The amount of investment isn't detailed, but it does say that "In 2011, we began serving our products from data centers owned by Facebook using servers specifically designed for us." We would like to know more about who's building the servers - does Facebook roll its own, like Google?
• The only "key personnel" named are Zuckerberg and Sheryl Sandberg, the chief operating officer.
• Lots of Facebook employees who have been there a while are going to be very rich. This isn't surprising, but there are 138m shares that have been issued to them for $0.83. At an expected price of around $45, that's almost $6.2bn of pure profit for all those staff.
Charles Arthur @'The Guardian'

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ACLU Sues U.S. for Information on Targeted Killing Program

Today we filed a lawsuit under the Freedom of Information Act to demand that the government release basic — and accurate — information about the government’s targeted killing program.
Our government’s deliberate and premeditated killing of American terrorism suspects raises profound questions that ought to be the subject of public debate. Unfortunately the Obama administration has released very little information about the practice — its official position is that the targeted killing program is a state secret — and some of the information it has released has been misleading.
Our suit overlaps with the one recently filed by The New York Times insofar as it seeks the legal memos on which the targeted killing program is based. But our suit is broader. We’re seeking, in addition to the legal memos, the government’s evidentiary basis for strikes that killed three Americans in Yemen in the fall of 2011. We’re also seeking information about the process by which the administration adds Americans to secret government “kill lists.” We think it’s crucial that the administration release the legal memos, but we don’t think the memos alone will allow the public to evaluate the lawfulness and wisdom of the program.
We know something about the fall 2011 strikes from media reports. On September 30, the CIA and the military’s Joint Special Operations Command (JSOC) jointly carried out the targeted killing of Anwar al-Awlaki, a U.S. citizen born in New Mexico, using missiles fired from unmanned drones in Yemen. A second U.S. citizen, Samir Khan, was killed in the same attack. Two weeks later, Anwar al-Awlaki’s son, Abdulrahman, a 16-year-old U.S. citizen born in Colorado, was killed in another U.S. drone strike elsewhere in Yemen. The administration has not adequately explained the legal basis for these strikes, and it has not explained the factual basis, either.
Soon after the fall 2011 strikes, we submitted a FOIA request to the CIA, Department of Defense, and Department of Justice (DOJ). Three months later, we have yet to receive a single document in response. Outrageously, the CIA and the DOJ Office of Legal Counsel responded by refusing to confirm or deny the existence or nonexistence of records responsive to our request. Essentially, these agencies are saying the targeted killing program is so secret that they can’t even acknowledge that it exists.

This response is incredible, in the original sense of that word—it simply lacks credibility. The press has reported since early 2010 that Anwar al-Awlaki had been placed on “kill lists” maintained by the CIA and JSOC, and articles have discussed in detail the secret process by which he was placed there. After the killings of the three U.S. citizens last fall, newspapers reported extensive details about the strikes, including how the CIA and JSOC coordinated and the number of drones involved. The Times described a “secret” OLC memo that lays out the Administration’s legal justifications for placing al-Awlaki on the kill lists and killing him. Much of the reporting was based on statements by government officials, albeit officials who were unwilling to be quoted for attribution.
Some officials, including President Obama, have spoken on the record about the program. They have publicly claimed responsibility for killing al-Awlaki, and they have more generally defended the government’s right to kill citizens after a secret non-judicial process. Just last week, Secretary of Defense Leon Panetta acknowledged on 60 Minutes that the U.S. can and does carry out targeted killings of U.S. citizens subject to the recommendations of the CIA Director and the Secretary of Defense and pursuant to the President’s authorization. And this week, President Obama publicly defended the CIA targeted killing program in a live internet interview [starts at minute 26:30].
The government’s self-serving attitude toward transparency and disclosure is unacceptable. Officials cannot be allowed to release bits of information about the targeted killing program when they think it will bolster their position, but refuse even to confirm the existence of a targeted killing program when organizations like the ACLU or journalists file FOIA requests in the service of real transparency and accountability. One news report indicates that the Obama administration may be planning to release more information about the targeted killing program. Let’s hope that’s true. The public has a right to know the evidence and legal basis for the deliberate targeted killing of U.S. citizens. So chilling a power must be opened to public scrutiny and debate.
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Nathan Freed Wessler @'ACLU'