SEC Expressed Mobile Concerns To Facebook In Pre-IPO Communications

By David Cohen 

The Securities and Exchange Commission expressed concerns about how the explosion of mobile users would affect Facebook’s revenue in a letter from SEC Assistant Director Barbara C. Jacobs to Facebook Chief Financial Officer David Ebersman Feb. 28, well in advance of the social network’s May 18 initial public offering.

CNET reported the release of the pre-IPO correspondence between the SEC and Facebook, saying that communications such as this are typical prior to an IPO.

On the subject of mobile, Jacobs wrote to Ebersman:

Your statement that users “could decide” to increasingly access your products primarily through mobile devices appears to contradict the first part of this risk factor. Further, assuming that the trend towards mobile continues and your mobile monetization efforts are unsuccessful, ensure that your disclosure fully addresses the potential consequences to your revenue and financial results rather than just stating that they “may be negatively affected.”

Please provide a more detailed discussion of the key challenges you are facing. For example, discuss how you plan to address the challenges associated with increased user access to and engagement with Facebook through your mobile products, where you do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers. For guidance, refer to Section III.A of SEC Release No. 33-8350.

Facebook addressed the SEC’s concerns in a revision to its S-1, filed May 9:

We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.

Readers: Do you think Facebook adequately responded to the SEC’s concerns?