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Facebook Pestel Essay

1130 words - 5 pages

Facebook Inc. (Facebook or “the company”) is a social network platform which enables users to share ideas, opinions, pictures and activities.
Political Factor
Users and governments have been expressing privacy concerns which could harm the company’s strategy to use user information to deliver effective advertisement. While the class action law suit filed against the company could potentially imply damages of more than $15 billion if successful, the claimants could stifle Facebook’s ability to collect data about its users and hinder its ability to grow advertising revenues. Similar concerns were expressed in other countries as well. For instance, German data protection official also ...view middle of the document...

4% and net profit margins were at 18%. Comparatively, Google’s operating margins during FY2011 were 30.9% and net profit margin was 25.6%. High margins compared to peers indicate better aligned cost structure at Facebook. The company will be well positioned to sustain low advertising rates due to its low expense base which will provide competitive advantage. This is of particular importance amid the doubts of effectiveness of social media ads. The company will be able to compete better given its low price.
Facebook also enjoys strong cash flows. The company’s operating cash flow margin in FY2011 was 41.7% which is higher than 38.4% in Google during the same year. High operating cash flow margin at Facebook reinforces the earnings quality as it indicates that the company is able to effectively convert sales into cash. Furthermore, the company converted 12.6% of its sales into free cash flow. The ratio of free cash flow to sales is a measure of how much of a company’s revenue is transformed into cash. The company’s high cash flow generation capability indicates that the company enjoys high financial flexibility. Facebook faces several challenges in terms of monetizing its reach and drive revenues. The company’s free cash flow position enables it to invest in expansion inorganically. Facebook will be able to fund its expansion plans at feasible rates.
Social Factor
Facebook forayed into mobile application market with the launch of App Center and thereby took the first step into monetizing the mobile user base. App Center is a new place for people to find social apps. The App Center gives developers an additional way to grow their apps and Facebook provides the insights that facilitate apps to be successful. The App Center can be accessed on the web and in the iOS and Android Facebook apps. The App Center does not sell these mobile apps but rather directs users to apps on Android and iOS stores. Facebook does not earn revenues as the operating system owners are the only players that can sell apps. However, Facebook will promote social apps that use Facebook login which is a requirement to be listed on the App Center. Consequently, Facebook has more users utilizing its network even if it is just a login feature. This further enables Facebook to collect more data on its users which in turn enables the company to further its core targeted marketing proposition. In addition, Facebook also...

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