Is Facebook Getting Your IPO Money or Is It For The Birds?

Finding good stocks to buy is almost as tough as deciding which stocks to put your money into. Timing, pricing and ultimately patience are what comprise the three best factors needed when deciding on which investment to make. And so, with the upcoming Facebook IPO, 800 million registered users, and the global addiction and access to Rovio’s Angry Birds, over 500 million downloads, which would you choose if you had to bank on the IPO being a Google-type success? Which would be a better return on equity and worth the wait?

Facebook:  Expected IPO Date – Summer 2012

Before lining up to buy shares in the much anticipated Facebook IPO, there are some questions to consider if the stock is a deserving place for you to put your money. Facebook did more to force the online world into the social age than any single program in history of the world. In a sector that once had competition such as Friendster and MySpace, Facebook’s aggressive marketing has forced all social media websites to become victims to a website currently publishing over 800 million profiles.

Users were gravitated to Facebook’s simplistic design uploading photos, reconnecting with old friends, and opening up to the world. However, two questions which have been raised more than once in the media since the S-1 filing:

  • How will Facebook capture new users having 800 million profiles already?
  • Is it no longer “cool” to be on Facebook like it was when it was somewhat trendy?

To answer the first question: With twelve month revenues totaling $3.71 billion and a valuation of more than $100 billion dollars, Facebook stock trades for 26.9 times sales; an astounding valuation for a company whose sales growth is only 88 percent per year. The revenues may be authentic but there are many groups that are filled with commentary from people using obviously fake names which questions how many of the 800 million users are real and unique?

The second question is something that simply cannot be quantified or predicted. Aunt Margaret and Cousin Joe want to be able to keep in touch with each other while those who set our trends which the public follows increasing their commentary about how “lame” it is to hear a disconnect member of the 1% mention they Facebooked or check their Facebook for their comments, etc. It doesn’t seem to be a long enough lived trend to be able to predict how “dependent” we, the 800 million users, will be on Facebook as times and technology advance in the short-term.

Rovio:  Expected IPO Date – No set date but company has mentioned a 2013 Hong Kong listing

After having rejected a recent $2.25 billion offer from recent IPO Zynga, Inc. (NASDAQ: ZNGA), piracy may be bad for the music, movie and software industries, but the CEO of Rovio, Mikael Hed, knows the runaway success of Angry Birds in China was fueled because it was ripped off by just about everyone out there. In a risky move, Rovio sought out and hired the marketing guru that branded China with Hello Kitty, the same marketing specialist who has also been asked by Major League Baseball (MLB) to make China love baseball.

Hello Kitty has 120 stores in China compared to Rovio’s Angry Birds which has around 200 stores in China today and its owners are reaping massive rewards from that one risky move they made. Trema Holdings, the holding company of CEO Mikael Hed’s father Kaj Hed, owns a majority of the company (nearly 70 percent), while investors Accel Partners and Atomico own 10 percent each. With the recent offer from Zynga, that would value Rovio’s owners accordingly:

$1.57 Billion: Kaj Hed / Trema International Holdings
$96.8 Million: Co-founder Niklas Hed
$69.8 Million: CMO Peter Vesterbacka
$13.5 Million: CEO Mikael Hed
$29.3 Million: Employees
$225 Million : Accel Partners
$225 Million : Atomico Invest
$22.5 Million: Felicis Ventures

It appears, unfortunately, that MLB will not reap the rewards of having the largest growing economy love baseball. After having been approached, the marketing mastermind behind Angry Birds and Hello Kitty reported that there were no counterfeit baseball products in China, no demand. Merchandise supply demand laws are simple to interpret when you look at it in a simple way: “If you’re not copied, then there’s no demand.”

Bottom Line:

In the history of gaming, few games have ever been as accessible and addictive as Angry Birds is. Zynga has proven itself with their games featured on Facebook that an IPO in online gaming can be profitable. Activision Blizzard, owners of the largest online game, WOW, has proven to be able to sustain revenue growth with its gaming platform.

So what it all comes down to is:  Is the Facebook IPO going to be for the Birds or is Angry Birds just another one-hit wonder to put in the Book?

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