Facebook IPO notes

Some quick notes on the company and the IPO: * Overall: Facebook is an amazing company with some very nice numbers, even if most of them seem to have leaked previously. MAU, DAU, DAU/MAU numbers are amazing. * FB had $1.1 billion in Q4 2011 revenue, compared to $1.3 billion for Yahoo and $10.5 billion for Google * Nice margins and economies of scale with 25-30 % net margin (pre-RSU charges), but if I read the S1 correctly FB will incur $1 billion per year in charges related to restricted stock units over the next two years, likely leading to a net profit of about $1 billion 2012 (essentially flat from 2011), i.e. 10-15 % profit instead of 25-30 % next year. * Mobile is obviously under-monetized. Ads will probably be ok, but a big issue with the Apple Tax as FB's payments business could be stopped on iOS. * It is Mark Zuckerberg's company. The Class A and B shares with 1 and 10 votes make it Mark's and the insiders' company. Probably good for the Facebook service, not necessarily so for new shareholders. * From an investment perspective interesting data but not useful without a price, if the total valuation is $75-100 billion common stock investors don't have an attractive risk/reward profile IMO at 19-25x P/S and at least 75 P/E. Even if one assumes about 100 % growth in 2012. Probably not priced to perfection, but not far from.  * I'd give Facebook the benefit of a doubt to build a $20 billion in annual revenue with 30 % margin business, i.e. $6.7 billion in profits. To me that is ca $130 billion in valuation. 

SoundCloud raises money from KPCB and GGV

SoundCloud has raised money from Kleiner Perkins Caufield & Byers and GGV Capital. The company raised $50 million on a pre-money valuation of $200 million, according to TechCrunch Europe. Regardless of the exact valuation and financing terms, big congratulations to Eric, Alex & the rest of the team at SoundCloud!

Specialized consumption devices connected to the Internet

Over the Christmas holiday I've gotten a Kindle and an Apple TV. These purpose-built content-over-Internet Protocol devices are interesting as they change usage behavior (and changed usage behavior, mainly mobile, is a major reason why we're entering a post-PC world in terms of Internet connections).

The Kindle hardware seems to be built and optimized to compete with a paperback for reading experience rather than to compete with the iPad or iPhone, but the ability to store multiple books and the connection to a large store with digital distribution makes it so much better than a paperback. I've just had it a couple of days, but I'm pretty sure I'll read more as it is a convenient and cheap reading device.

My favorite new blog of the year: SplatF

My favorite new blog of the year is ex-Business Insider blogger Dan Frommer's SplatF. I think the following things make SplatF great:

- Reader-friendly tempo with 1-2 strong, original blog posts per day
- Charts and graphs to visualize data
- Voice and a smart point-of-view
- Great overall feel to the site made up by its design, text and visuals

Take a look at some of the recent posts:

• Amazingly, AOL still has 3.5 million dialup subscribers
• Netflix and AOL: A decade of moving in opposite directions
• Here’s the trouble with “Apps as TV channels”

Priced to perfection

With both Netflix and OpenTable stock prices down around 75 % since the beginning of the year, one could expect both companies to be doing badly. When both are actually doing quite ok operationally (even if the Qwikster detour wasn't Netflix's best moment).

The main reason behind the companies' lower stock prices is that both stocks were priced to perfection with magical valuations of around 100 times earnings. And when the companies didn't turn out to be perfect, the magical valuations vanished.

When shares are priced to perfection, the margin of error becomes really thin. Results not meeting expectations? Valuations can go down 20-30 % in no-time. In addition, public market investors are  not getting the same downside protection as late-stage private market investors get. Rather the opposite as free floats are small and insiders control the companies with supervoting shares.

It's worth remembering that Microsoft went public in 1985 with revenues of $172.5 million and 34 % pre-tax profit margins and ended up with a valuation shy of 800 million dollars on its first day of trading.

Having been CEO might be good for a VC, but is not a requirement

Steve Blank makes the case that partners in venture capital firms should have been CEOs for at least a year before becoming partners. In general it seems like good advice for a partnership, but I'm not convinced. Planning to be CEO for only a year, with close backup from the partnership, seems like a bit of a built to flip approach. Given how the history of a startup plays out, a year is not a long time (except if you're YouTube). And it's worth noting that neither John Doerr nor Mike Moritz were CEOs before becoming two of the arguably most successful venture capitalists of the last 25 years.

Microsoft to acquire Skype for $8.5 billion

I haven't blogged in a long time, but Skype has been a part of this blog for a long time so the announcement that Microsoft will acquire Skype for $8.5 billion warranted a post. From a first mention back in 2003, to comments around eBay's acquisition of the firm, to a note about eBay's sale to a consortium of investors.

As usual, it seems, Skype is fetching a high price, and as usual Niklas Zennström and Janus Friis make a few bucks (a billion dollars or so). On the other hand, at 10x revenue and ca 25x operating profit, the valuation is not as aggressive as some other Internet companies.

Some comments on the deal from Ben Horowitz.

Question: Is Quora a great site? Answer: Yes.

In the last two weeks I've started to use questions and answer site Quora more or less everyday. Both from my desktop and mobile phone, i.e. the site is quite addictive. It's also one of few new web sites that I feel is raising the bar for all online services (not surprising given the founders Facebook heritage).

Quora might only be Yahoo! Answers for the Silicon Valley (and wannabe Silicon Valley) crowd, but for this crowd the company has created something very interesting. If Facebook is about the social graph, Quora is more like a Facebook application in the sense that it uses the social graph and real identities to create something interesting.

Examples of questions on the site:

Which Nordic Internet startups are doing more than $10m in revenue?
How does Spotify split its contribution to artists?
How did AOL make the decision to go to an all-you-can-eat pricing strategy?

As interesting as the questions are, I find the answers and the people who are answering to be the main driver of value. The site really has managed to get a lot of startup people to be active on the site.

You can check out my Quora profile to get a sense of what a profile looks like and what a user can end up doing on the site.