To much fanfare, Facebook’s IPO hit the stock market this morning, quickly raising over a billion dollars in early trading. But Facebook’s goals are much larger than just a mere billion. Their ultimate goal is to become the world’s first trillion dollar company. But just because “tri” comes after “bi” doesn’t mean that achieving the trillion dollar mark will be easy. It’s a long way from here to there.
The social network is expected to go public Friday at a valuation of around $100 billion. Should Mark Zuckerberg find a way to multiply that value by 10 in the coming years, it would have a value higher than the GDP of all but 17 countries.
The grandiosity of the goal has has not, however, stopped Facebook from reportedly telling its new employees that it aims to be the first company to reach the milestone. Facebook’s high-level employees are fond of saying it is “1% finished,” and, according to a Facebook representative who lead a recent tour of the headquarters, the phrase is one of Mark Zuckerberg’s favorites.
While the idea that a seven-year-old social network could become the world’s first trillion dollar company — blasting by established giants like Apple, Exxon Mobil and Walmart — might seem ridiculous, it’s not out of the question.
To put it in the words of technology analyst and Enderle Group president Rob Enderle:
“It’s not probable, but it’s possible.”
Facebook brought in $3.7 billion in revenue last year. It is valued at around $100 billion — 27 times that revenue.
In theory, if this multiple were to remain constant, Facebook would need to bring in $37 billion in order to reach a $1 trillion valuation. Let’s say Facebook somehow managed to continue the 120% annual revenue growth it has experienced on average over the last two years. It would hit $37 billion at some point in 2014.
But by at least one analyst’s watch, that puts it neck-and-neck with Apple. Piper Jaffray analyst Gene Munster predicted in April that Apple shares will reach $1,000 — pushing the company over the $1 trillion valuation mark — in 2014.
To be first, Facebook would have to grow revenues even faster than it has in the past.
The most likely source of this growth would be advertising. Facebook, which depends on advertisers for 85% of its income, announced a new suite of advertising products in February. Meanwhile, a report from BIA/Kelsey released earlier this week predicts social media ad spending will grow from about $3.8 billion in 2011 to $9.8 billion in 2016.
Facebook also has heaps of unleashed mobile advertising potential. Facebook didn’t offer mobile advertising until two months ago, and it hasn’t figured out how to monetize the 500 million users who log in on mobile devices.
“Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results,” the company wrote in its IPO filing.
Cracking this problem, however, could open up a new growth area. In any case, as an Internet communication company, rather than a hardware company, Facebook has a huge advantage over Apple in increasing its growth rate.
“You don’t have the distribution problem, you don’t have the manufacturing problems, you don’t have problems that typically limit growth,” says Enderle. “Facebook’s limits are simply the speed at which it can grasp a particular group.”
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