How does Mark Zuckerberg make his wealth from Facebook?

Keshav Infotech

Keshav Infotech, Web Development and Mobile App Development Company

103w ago

Zuckerberg made a salary of $483,333 in 2011, in addition to a $220,500 bonus for the first half of 2011. He also received “other” compensation — which covers such things as chartered travel costs and security details — that totaled $783,529. Overall, Zuckerberg received $1,487,362 for 2011, excluding his substantial stake in the company.

Effective Jan. 1, 2013, Zuckerberg will reduce his base annual salary to $1.

Facebook Inc.’s initial public offering may value Mark Zuckerberg’s stake at $28.4 billion, making him richer than Google Inc.’s co-founders and almost on par with Larry Ellison, who started Oracle Corp. 35 years ago.

The 27-year-old founder and chief executive officer of Facebook is the company’s top stakeholder as it prepares to go public, with 533.8 million shares, or 28.4 percent, according to a regulatory filing yesterday. Investment firms Accel Partners and Digital Sky Technologies own a combined 16.8 percent.

Facebook said in its prospectus that it plans to raise as much as $5 billion in an IPO. The Menlo Park, California-based company is discussing a valuation of $75 billion to $100 billion, two people familiar with the matter said last week. At the top end of that range, Zuckerberg will own stock worth $28.4 billion. His command of the company goes beyond stock -- he controls 56.9 percent of the voting power.

“It looks from this as if Zuckerberg is maintaining a lot of control,” said Rebecca Lieb, an analyst at Altimeter Group in New York. “He’s shown a great deal of wisdom and maturity in bringing the company to this level of stability and profitability before going public.”

By comparison, Google’s Sergey Brin and Larry Page are each worth more than $15 billion based on their ownership of that company’s shares. Ellison, 67, owns stock worth about $31 billion in Oracle, the software company he founded in 1977.

Thanks,

Rahul Patel

works at Gandhinagar, Gujarat, India

84w ago

Where the cash comes from

I'm not going to bore you with cute statistics about how big Facebook is you probably already know that (answer: bloody big, some 850 million people). So let's, instead, talk about where Zuckerberg makes his moolah.

About 85 per cent of revenue comes from advertising and this is the first distinct difference between Facebook and Google.

When you're Googling you're usually looking for an answer (Who is Shane Warne's dentist? Who does Shane Warne's spray tan?), which Google sells targeted, and increasingly expensive, advertisements against.

When you're on Facey, as middle-aged women are prone to call it, you're chatting to your friends, stalking your ex-girlfriend, playing cyber games, or doing any number of things except being engaged with advertisers' messages.

The bad news

This explains why Facebook only manages to charge advertisers about half the rate that other, more targeted, websites do. The cost of showing an ad per 1000 impressions (CPM, cost per mille) is about 22c on Facebook, versus 50c for other websites. And Google charges more than $2!

As I said last week, Facebook's only asset is the personal data they've collected on us. And to continue to grow, Mark will have to convince us to be more open and connected so he can then sell our data at a higher price to advertisers.

In an interview in 2010, the former chief executive of Google, Eric Schmidt, said: "I don't believe society understands what happens when everything is available, knowable and recorded by everyone all the time." As more people change their names to escape their cyber past, you can bet privacy will be a big issue that eventually could threaten Facebook's business model.

The other problem facing Facebook is that half of all users check in via mobile phones, but because of the small screen size it doesn't (yet) serve any ads, so it doesn't make any dough. And in an increasingly mobile world, that's a problem.

The good news

The other 15 per cent of Facebook's revenue comes from payments that are the most ignored, but most exciting, part of the business. In 2011, Facebook made $US557 million from people buying "Facebook credits", mostly to pay for games (there are more than 250 million users who play social games on Facebook).

Think of it as virtual Facebook cash, because that's basically what it is. In the future we could see "Facebook credits" being used to watch movies and television shows online or even used to buy physical goods.

With 850 million users who more or less trust Facebook (or, more to the point, don't understand the privacy risks), the scale-up on Facebook virtual cash could be truly astonishing.

Should you like Facebook?

Yes, but it's by no means a done deal. And that's part of the problem with this IPO it's being priced like it is. Facebook made $US3.7 billion in revenue last year, which seems like a lot but Apple makes that every three weeks.

Having said that, at $US100 billion valuation it'll be more valuable than long-established companies such as Disney, McDonald's and Amazon and Facebook has only been profitable for the past three years.

Another thing to bear in mind is that when a company goes public the insiders are selling their shares to the general public (from the prospectus: there may be an overhang of a substantial number of shares sold up to 18 months following the IPO) including, perhaps, a very wealthy graffiti artist.

Not that any of that matters. IPOs are a lot like Hollywood blockbusters. If there's a good story and plenty of interest, the buzz will get you to the box office in the first few days. And that's why there's a good chance of making a quick trading buck on Facebook.

Just don't confuse it with real investing (buying shares in reliable companies and holding for the long term) at least not yet.

Source: Quota.com