Facebook IPO Feb01

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Facebook IPO

It’s hard to picture Facebook being afraid of much. But as the company has grown into a social juggernaut, so too have the opportunities for it to misstep.

Every company that files to go public is required to disclose to potential investors anything that could pose a risk to its business. With Facebook’s registration today for an initial public offering–likely to be the largest technology IPO in U.S. history and one of the biggest overall–the company has revealed what it sees as its greatest weaknesses.

Here’s a breakdown of Facebook’s biggest risk factors:

You. Facebook had 845 million monthly active users at the end of last year–probably you included–and is growing at a tremendous clip. But its growth rate will inevitably slow. As that happens, Facebook will have to keep its current users more and more engaged. That means if it doesn’t remain popular, it will die. In an apparent reference to former social champs Friendster and MySpace, Facebook noted that “other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously.” There’s no guarantee Facebook won’t befall the same fate.

Advertisers. The vast majority of Facebook’s revenue comes from advertising: 85% of it last year. But advertisers still aren’t completely comfortable with Facebook’s ad vehicles, some of which–like sponsored stories–are seen as experimental and unproven. If advertisers don’t stick around, Facebook has few other revenue options to fall back on.

via Facebook IPO: Lots To Like, But Also 845 Million Risk Factors – Venture Capital Dispatch – WSJ.

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