How Did I Do On My 2012 Predictions?

2012: The Year Ahead

Photo: Mike Licht, NotionsCapital.com

From my Forbes.com blog The New Persuaders:

It’s that time of year: time to reflect on the past year, time to get wasted and watch a glass ball smash into the ground, time for people like me who foolishly offered predictions for the past year to face the music. So here’s how I did on my 2012 predictions:

* Facebook goes public, but won’t start an IPO landslide: Bingo! Indeed, Facebook’s ill-received IPO led to a months-long drought in IPOs as investors realized they were not a sure route to riches. The situation may be improving, but mostly for enterprise more than consumer companies.

* Facebook’s ad business booms–but not at Google’s expense: Bingo! While Facebook’s revenues slowed even before its IPO as it continued to experiment with new ad formats and scrambled to provide mobile ad units, ad revenues have since accelerated, up 36% in the third quarter over last year. At the same time, while Google’s revenue growth disappointed investors in the third quarter, it was mostly thanks to the impact of its Motorola acquisition, not a shortfall in its core ad business.

* Image ads finally find a home on the Web: Half-right. YouTube proved there’s a real market for TV-like video ads if you give viewers the choice to view them or not, as its revenues were expected to hit $3.6 billion in 2012, according to Citibank. But Facebook’s struggles to attract brand advertising despite a TV-scale audience, while partially successful, show that no one has yet come up with brand ad formats that work consistently and at large scale online. Or at least brands, which still spend most of their money on TV ads, don’t believe it yet. And they write the checks.

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LIVE: Facebook Shares Soar As Q3 Ad Revenue Growth Accelerates

DAVOS-KLOSTERS/SWITZERLAND, 30JAN09 - Mark Zuc...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After a rocky several months following its May IPO, Facebook finally provided some good news today as it reported third-quarter financial results that outpaced Wall Street expectations.

The key number: 36%. That’s the rate at which advertising revenues grew. And it’s noticeably higher than ad sales growth in the second quarter, which had flagged at 28%. Excluding the impact of foreign currency changes, ad sales would have risen 43% in the third quarter.

Mobile revenues, a key metric for a company that until recently had zero mobile ad revenues and offered little of note to its mobile users, were 14% of the total $1.09 billion in ad sales.

The other key number: 9%. That’s how much shares are rising in after-hours trading. Shares of FB rose a little less than 1%, to $19.50, in trading today. That’s still only a little over half of the IPO price.

* Update: Make that 20%+. After sleeping on it, investors like the results even better the next morning.

Facebook still faces many challenges, such as the need to provide a better mobile experience for users and advertisers. And thanks to rising expenses, including stock compensation and related costs–up 64% from a year ago–it’s actually losing money on a GAAP basis. But if advertising is returning, whether it’s from more interest in its social and mobile ads, in the Facebook ad exchange that’s getting a lot of attention, or even in the new Gifts e-commerce service, that’s good news.

We’ll hear more from CEO Mark Zuckerberg shortly when Facebook conducts its analyst earnings call at 2 p.m. Pacific. I’ll blog the highlights here, but you can also listen to the livestream.

The call begins. Zuckerberg will talk about the vision and strategy of the company–make the world more connected, etc. Three pillars to the strategy:

1) Build the best mobile product. This is the most misunderstood pillar. Mobile allows us to reach way more people, people spend more time on mobile devices, and monetization should be even better than on the desktop.

2) Improve the Facebook platform.

3) Strong monetization engine. On mobile, ads will be more like TV–more integrated into the core product experience, rather than on the side. We’re starting to see better ad products for people and better results for advertisers.

I want to dispose of this notion that we can’t make money on mobile. Until recently, Facebook didn’t even try. …

Read the rest of Zuckerberg’s comments and his Q&A with analysts at The New Persuaders.

Facebook CEO Mark Zuckerberg: We Burned Two Years Betting On Mobile Web Vs. Apps

English: Mark Zuckerberg, Founder & CEO of Fac...

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Facebook CEO Mark Zuckerberg hasn’t said much, if anything, publicly since the No. 1 social network went public in May. But oh, how much has changed since that day. Not only did the IPO fall flat, but Facebook is now dogged by slower growth perhaps partly due to its late start on mobile advertising.

Today, Zuckerberg went public himself at the TechCrunch Disrupt conference in San Francisco. Clearly the big “get” for the conference, Zuckerberg was in his element at the conference, which is aimed at tech startups and the software developers creating them. In a wide-ranging and surprisingly revealing interview with TechCrunch founder Mike Arrington, who has since become a venture capitalist, Zuckerberg said Facebook lost two years betting on mobile Web technology instead of native iPhone apps but said he thinks mobile will be even bigger than the Web for Facebook in terms of advertising.

Investors liked what they heard. Facebook shares rose 3.6% in after-hours trading, breaking $20 a share, on top of a 3.3% rise on Tuesday before his talk.

Here’s the interview, edited slightly for clarity and my inability to catch every single word the fast-talking Zuckerberg utters:

Q: You went public on May 18 and the stock has lost roughly half its value.

A: Just get right into it!

Q: Would you have done anything differently on the IPO?

A: The performance of the stock has obviously been disappointing. But the commitment we made was to fulfill this mission to make the world more open and connected.

The key will be how we do with mobile. A lot of stuff has changed in six months since we’ve been in the quiet period.

Literally six months ago, we didn’t run a single ad on mobile. So people can underestimate how good mobile can be for us. It’s the main thing that’s fundamentally misunderstood. For one, there’s just more mobile users–5 billion people have cellphones in the world. Second, they’re spending more time on it. We’re already seeing people more likely to be daily active users on mobile. And those stats are before the new iOS app. And third, we can have better advertising on mobile, make more money.

Q: You make money to build great services rather than build services to make money. Do you really mean that?

A: We are a mission-driven company. In order to do this, we have to build a great team. And in order to do that, you need people to know they can make a bunch of money. So we need a business model to make a lot of money.

Building a mission and building a business go hand in hand. The primary thing that excites me is the mission. But we have always had a healthy understanding that we need to do both.

Q: What about the stock causing morale problems?

A: Well, it doesn’t help. But first, Facebook has not been an uncontroversial company in the past. So people are fairly used to the press saying good things about us and bad things about us.

What really motivates people at Facebook is building something that’s worthwhile, that they’re going to be proud to show to friends and family.

We also haven’t done much on equity to incentivize people. The way we do compensation is we translate the amount of compensation we give you into shares. [So employees get more shares if the stock price is down, thus similar compensation, thus the stock price doesn't mean as much as it might appear.]

Q: I’ve been rough on the company on mobile products.

A: We were very self-critical too.

Q: Is mobile a strength or weakness for Facebook?

A: There are more users, they spend more time on Facebook, and we’re going to make more money on mobile ads. There are huge things we can do to move the needle. Mobile is a lot closer to TV than [to] the desktop. We’ve had right-hand-column ads and it’s been great, a multi-billion-dollar business.

But on mobile, we can’t do that. It’s clearly going to have to be different. We’re seeing some great mobile ad products being developed. There’s a huge opportunity. The question is getting there.

Clearly we’ve had a bunch of missteps there. The biggest mistake we made as a company was betting too much on HTML5, because it’s just not there yet. We went for this approach, an internal framework called Faceweb. We just couldn’t translate it to mobile with the quality we wanted.

We had to start over and rewrite everything to be native. We burned two years. It may turn out it was one of the biggest if not the biggest strategic mistake we made.

Two years ago, we decided to bet completely on HTML5. We believed that because it used the same technology as the desktop, we thought it could improve. But it wasn’t good enough. We realized the only way we could get there was to go native.

Q: Did you realize the previous Facebook mobile app sucked?

A: Yeah, it was not where we wanted it to be. We just decided to ship the same features as before, but faster. But in parallel, other teams have been building new features. Over the coming weeks and months, we can expect to see a lot of the cool stuff. …

Read the complete post at The New Persuaders.

No ‘Pinterest For Cats': Google Ventures’ Kevin Rose Shoos Away Copycat Startups

Worlds Collide Onboard the S.S. Jeremiah O’Bri...

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Few people have seen the ups and downs of startups more up close and personally than Kevin Rose, partner at Google Ventures and cofounder of Digg, the social news site that could have been Reddit but faded and is now trying for a comeback under new owner Betaworks. In an interview at the TechCrunch Disrupt conference this morning in San Francisco, Rose talked about his relatively new role as a venture capitalist.

Among the highlights: He said that he has helped speed up the way Google makes investments, that Google isn’t trying to lowball startups on valuations, and that he’s avoiding copycat startups (um, not to be too impolite, but like those dozens of companies in the conference’s demo hall?). Here’s what else he’s thinking about today, sometimes paraphrased:

Q: How has it been as a full-time venture capitalist?

A: I was doing angel investing for three or so years before joining Google Ventures. It was always a part-time thing, a casual investment every month or so. Now I’m seeing 10 or 15 companies a week. I always like seeing cool new ideas.

Q: Is it hard keeping them all straight?

A: Absolutely. I’m terrible at names.

Q: What’s up with the apparent drama between Y Combinator and Google Ventures, where the former accused the latter of lowballing startups on valuation?

A: We’re absolutely not going out there and trying to lowball companies. Some companies are worth $15 million and others are worth $6 million or $8 million. I’m closing three YC deals, all three we took the terms straight up. Another one, we just saw too much risk, so we didn’t do the deal.

Q: A couple of companies I talked to said the due-diligence process is longer with Google Ventures.

A: I don’t know that we’re more strict about that. I took $200,000 from GV for my last startup, Milk. The diligence process was a little longer. But I’ve been working personally on streamlining that. We do $5 million to $10 million that absolutely take good due diligence, when you’re investing that much. I think we’re in a great place now.

I have nothing bad to say about Y Combinator. I’m investing in several of their companies. Nobody’s mad at anyone.

Q: What YC companies have you invested in?

A: We just closed on BufferBox, kiosks for people to get packages at, like Wal-Mart stores.

Q: Are there certain kinds of companies you like?

A: I’d be lying if I said I have this grand vision. When I see a company that’s really doing something disruptive, that gets my interest. I don’t want to do a Pinterest for cats. I’m more of a surgical investor. The only way to do that is to pare down the total number of deals you do. I may do 10-12 deals a year, but they’re companies I really believe in. …

Read the complete post at The New Persuaders.

Reid Hoffman: Social Networking Isn’t Over Yet–And Neither Is Facebook

Reid Hoffman

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Reid Hoffman is one of the most prolific angel investors in tech startups from Facebook and Zynga to Airbnb and Zipcar. It’s a talent he transferred to more traditional venture capital in 2009 when he joined Greylock Partners. He’s also a cofounder and executive chairman of LinkedIn.

In a “fireside chat” at the TechCrunch Disrupt conference in San Francisco today with TechCrunch founder Mike Arrington, who has since joined the VC world as well with his own CrunchFund, Hoffman proffered comments on everything from Facebook’s struggles to Twitter’s battles with developers. Here, paraphrased at times, is what he had to say:

Q: You are exceptionally wealthy. What changes?

A: There is a bunch of weird things. I had had a long-term plan to be affiliated with universities, like teaching. Overnight all those changed to donor relationships. Also, I would never have imagined I would fly in a private plane by myself, and now I have. It has its advantages.

Q: You wrote a book [The Startup of You]. How’s it doing?

A: It’s sold 120,000. In the consumer Internet space, we’re used to much higher numbers. I don’t think we’ve created a movement yet.

Q: You were one of the very first investors in Facebook.

A: $37,500 at a $5 million valuation. [That means he made 3,000 times his investment, or $111 million.)

Q: So you did very well. What do you think of Facebook’s stock now?

A: I’m a big believer in Facebook’s long-term position. The real question is how it plays out over the next year or so. People’s hand-wringing about not making money on mobile is an innovation problem that is not that hard to solve.

Q: Did Facebook screw up its IPO or was it inevitable it played out that way?

A: In some ways, it was inevitable. You had unprecedented demand, and you couldn’t know NASDAQ servers would go down. We at LinkedIn were criticized for leaving too much money on the table. …

Read the complete post at The New Persuaders.

Why Investors Love Yelp Even As They Hate Other Social Stocks

Image representing Yelp as depicted in CrunchBase

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Unlike those other two little social media companies whose disappointing second-quarter reports last week knocked their shares to all-time lows, Yelp today wowed investors with better-than-expected second-quarter earnings and outlook for the rest of the year. After falling almost 6% today to $18.82, shares in the local business reviews site have rocketed up in after-hours trading by 14%.

Needless to say, a good quarter and outlook both help, but there’s more behind investors’ enthusiasm about Yelp versus Facebook and Zynga. They perceive some key positive fundamentals, too:

* Reviews of local businesses present a clear, understandable opportunity for advertising, and local advertising is a nut that no one online has yet cracked the way the Yellow Pages did in phone books. Yelp’s reviews provide a prime place for this advertising to appear. Local advertising rose 89% in the quarter. Meantime, fairly or not, both investors and advertisers still aren’t sure about Facebook’s and Zynga’s business models.

* Yelp has network effects in its favor, since the more reviews it gets (up 54% from a year ago, to 30 million), the more businesses are likely to create Yelp pages and advertise, in a self-reinforcing cycle. Active local business accounts rose 113% from a year ago, to 32,000. …

Read the complete post at The New Persuaders.

Zynga Shares Tank, Down 40% On Q2 Earnings Miss, Lower 2012 Outlook

Image representing Zynga as depicted in CrunchBase

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Unforgiving investors are hammering social games company Zynga in after-hours trading following a disappointing second-quarter earnings report.

Shares were down 38% from Wednesday’s closing price of $5.08 a share–already half their IPO price last December. The swoon appeared to take down Facebook too. Shares in the social network, which reports its second-quarter results Thursday, were down 8% in late trading.

The problem: Zynga, creator of popular games such as FarmVille, Mafia Wars, CityVille, and other Facebook games, provided an outlook that can’t be construed as anything but alarming to investors. In particular, Zynga’s acquisition of mobile games startup OMGPOP, maker of the Draw Something game, now looks unwise. …

Read the complete post at The New Persuaders.

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