Facebook Strategy

Facebook Strategy

Facebook Inc. is a social networking website/platform started out of a dorm room at Harvard. Facebook enables users to share ideas, opinions, pictures and activities. In order to propose a strategy for the future 3 to 5 years, we should do a macro and a micro environment analysis.

For the macro analysis, we should do a PEST analysis. About the political factor, users and governments have been expressing privacy concerns which could harm the company’s strategy which is using user information to deliver effective advertisement.
About the economic and financial factors, over the years Facebook has recorded strong growth rates compared to its competitors.

Google (2011 compared to 2010) Facebook (2011 compared to 2010)
Revenues Increased by 30% Grew by 88%


The revenue growth rates show the company’s ability to drive growth. Facebook is the market leader with strong potential in underpenetrated market of social network advertising. Facebook also has low expense base which has enabled it to drive higher margins compared to its competitors.

Google (2011) Facebook (2011)
Operating margins 30.9% 47.4%
Net profit margins 25.6% 18%


High margins compared to competitors indicate better aligned cost structure at Facebook. Due to its low expense base, the company will be well positioned to sustain low advertising rates which will provide competitive advantage. Given its low price, the company will be able to compete better. Facebook also has strong cash flows.

Google (2011) Facebook (2011)
Operating cash flow 41.7% 38.4%


High operating cash flow margin at Facebook reinforces the earnings quality. It indicates that the company has high financial flexibility. The average return on assets for Facebook is around 12%. A company like Facebook, with such a lofty stock valuation, has no excuse to ever be allocating capital inefficiently. For most of the last five years, Facebook has fallen short on financing its working capital.






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