Facebook, the world’s largest social network, was initially created for students at the prestigious American Harvard University. But Facebook, a victim of its success, quickly spread to other universities in the Boston area, other “Ivy Leagues” and finally to all universities in North America. Today, one in seven people in the world have a Facebook account
Creation and Expansion
This social network was founded by the famous Mark Zuckerberg and some of his classmates at Harvard including Eduardo Saverin, Dustin Moskovitz, Andrew McCollum and Chris Hughes.
Facebook was originally created on October 23, 2003 under the name Facemash.com. This site allowed visitors to compare two photos of the same student in order to choose the sexiest one. The site has gained popularity within the University but some shocked students have asked it to close the site permanently.
Marc Zuckerberg was also working on another website project called “HarvardConnection.com” for Cameron Winklevoss, Tyler Winklevoss and Divya Narendra, who later sued him for stealing their Facebook creation ideas. The trial was finally settled under undisclosed terms.
In January 2004, Zuckerberg officially registered the thefacebook.com domain, mentioned in an article published in “The Harvard Crimson” that it was inspired by the Facemash incident to create Facebook, and said he wanted to create a site that could connect people around the university.
Shortly after the launch of Facebook, the site was an incredible success and was discovered by Sean Parket (the former co-founder of Napster) who advised it. In June 2004, Facebook received its first private investment from Peter Theil, the creator of Paypal, for $500,000 in exchange for 10.2% of the company. Sean Parker also became president of the company. They continued to deploy the site on university campuses and as recently as December 2004, the site already had over a million subscribers!
Facebook has continued to grow to become the second most visited site in the world. In August 2009, Facebook acquired one of its FriendFeed competitors. In April 2012, Facebook made a lot of noise by acquiring Instagram for $1 billion.
Facebook officially registered for an IPO on February 1, 2012. The initial prospectus stated that Facebook intended to increase its investment capital by $5 billion. At that time, the company announced that it had 845 million active users and its site had 2.7 billion “likes” and daily comments. After the IPO, Zuckerberg will retain 22% of the company’s ownership with 57% of voting rights. The share was valued at $38, and the company at $104 billion.
The IPO was held on May 18, 2012, it was considered the largest IPO in the technology sector and in the history of the Internet. But as soon as the market opened, the share price fell and in the following months, fell by more than 50%. It took more than a year for the course to return to a level above the $38 tuition fee.
Although the company accumulated $16 billion during the offer, the IPO was considered “worthless” and the stock lost more than $50 billion in value until August 2012. The stock was initially valued in a range between $28 and $35 but 3 days before market entry, some major banks such as Morgan Stanley, JP Morgan, Goldman Sachs increased the range to $35-38, causing demand to rise. This change occurred despite a broad consensus among investors that Facebook was overvalued.
On the trading day, the market opened with a delay due to technical problems, the NASDAQ trading platform could not handle such a large volume of trades. On that day, the stock did not increase as much as expected and Morgan Stanley had to intervene in the market to stabilize the stock price.
The company has managed to overcome this disaster as Facebook is now estimated at more than $309 billion and shareholders have more than doubled the value of their initial investment. In January 2016, Facebook published its results for the 4th quarter of 2015, which literally beat the estimates. Following this publication of the result, the share price rose by more than 14%. Facebook advertising revenues increased by 57% compared to the 4th half of last year.
One of the reasons for this rebound is the mobile application, Facebook has decided to create a separate application for the chat “Facebook Messenger”. It was a success, since 15 months after its IPO, half of Facebook’s revenues came from the application’s ads.
Today Facebook Messenger has more than 900 million active monthly users, making it the most popular application after “WhatsApp”. The company is looking to innovate and add new features to the application. For example, in December 2015, Facebook announced its partnership with Uber to create a new transport platform within the Messenger application.
Despite some pessimistic views about the stock price, Facebook, along with other major technology mega-cap companies such as Alphabet, Amazon, Microsoft or Apple, remain innovative companies and in which to invest in the coming months is considered promising. You can find Facebook’s action at the binary option broker BDSwiss or on the CFD market with Markets.com.