Facebook Shares Rise, Fall, Rise, but End Up Where They Started

Stock closes 23 cents higher than $38 opening price

Mark Zuckerberg started today a rich man. Then he rang the Nasdaq opening bell from Facebook's Menlo Park, Calif., headquarters and two hours later his company made its stock market debut at $38, immediately surging to $42.05 per share before dipping to $41.31 an hour later. By the market's close, Facebook shares cost $38.23.

Before the market even opened on Friday Facebook had already nabbed $16 billion, having sold 421.2 million shares for $38 a pop in initial trading after the markets closed yesterday, according to Bloomberg.

In the week leading up to the IPO-that-everyone's-obsessing-over, questions have swirled around the sustainability of Facebook’s business model. Advertising accounted for 82 percent, or $872 million, of the company’s $1.06 billion in first-quarter revenue. Attention has focused on that period’s ad revenue falling 8 percent from Q4 2011. There’s usually a quarter-over-quarter advertising decline from the holiday-fueled fourth quarter, but that quarterly decline was limited to 3 percent for the previous year.

Facebook has fessed up to an “unproven” ability to monetize its mobile user base—Facebook received 488 million monthly active users (MAUs) on mobile devices in March versus 901 million total MAUs that month—but advertising’s share of Facebook’s overall revenue has trended down each year, dropping from 99 percent in Q1 2010 to 87 percent last year. And of course advertisers would have a hard time ignoring Facebook, considering that the social network accounts for 15 percent of U.S. users' time spent online and 16 percent of total page views, per a February 2012 comScore report.

Payments and other revenue from fees totaled the remaining 82 percent. Social games—which has users purchase in-game services or items such as virtual goods within Facebook games via Facebook Credits—”are currently responsible for substantially all of our revenue derived from Payments,” according to a company regulatory filing.

But beyond social games in general, Facebook is especially tied to the performance of Zynga. That single social gaming company contributed 15 percent of Facebook’s Q1 revenue through a mix of payment processing fees, in-game advertising and ads on Zynga’s Facebook pages. Given the link between the two companies' performance, the good news is that Zynga’s first-quarter revenue jumped 32 percent year-over-year to $321 million. The bad news is that Zynga is reducing its dependency on Facebook’s platform, announcing in March that it was launching Zynga.com as a hub for users to play its games.

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