When Facebook’s IPO finally happened late last week it broke a few records, including being the largest technology IPO in history. This IPO has been a huge subject of debate among fund managers, mainly because of the high premium on the listing share price, as measured by EPS (Earnings per Share ratio) of 85 at the time of publishing this post.
Facebook’s share price fell by -18% in 3 trading days since its Nasdaq listing, to a closing price of $31 on Tuesday, May 22nd. It will be interesting to see what transpires in the coming days and weeks, as I am certain we have not heard the last of this share price performance story, with memories of dot-com bubble burst in early 2000 rushing back into the minds of some of the fund managers and investors.
With all investment experts agreeing that the $100 billion question is how Facebook is going to make money in the future to justify its high share price, it made sense to look at how this social network is doing in Africa, the second largest mobile market by connections after Asia, and the fastest growing mobile market in the world, according to GMSA.
The objective of this post is to review Facebook’s performance in its top 7 African markets – Egypt, South Africa, Morocco, Nigeria, Algeria, Tunisia and Kenya. Some of the data is 5 months old and may be outdated, but I did a quick validity test and I am satisfied that trends coming out of this analysis are not adversely affected.
According to Internet World Stats, there are 40 million Africans on Facebook, and 79% of them come from the top 7 countries in Figure 1. Facebook owns the largest share of Internet users in South Africa, Algeria and Tunisia. Nigeria, the continent’s most populous country, deserves special mention due to a small number of Internet users who are also on Facebook.
Converting Figure 1 numbers into penetrations (shown in Figure 2) indicates that Africa still presents future growth opportunities for Facebook across all the top 7 countries.
Facebook’s growth prospects are mainly due to rapid expansion of mobile Internet access that favor this social network platform given that it is in the top 2 most visited Websites in at least 3 of the top 7 countries – South Africa, Kenya and Egypt.
Next logical step is analysis of Facebook’s share of the social media market in the top 7 countries.
Facebook is losing share of the social media market in Africa, as shown by performance in the last 3 months to April 2010 (Figure 3). South Africa is the most competitive social media market, followed by Kenya. At the opposite end, Facebook is still strong in Tunisia and Algeria.
Click here for further analysis of social media competition in these top 7 African markets
Figure 4 below brings it all together, emphasizing the point that further growth in Facebook usage in Africa depends partly on social media market expansion.
One key insight from analysis above is that Facebook is in the pound seat for further growth in Africa.
However, the $100 billion question still remains – will Africa’s growth in Facebook usage bring with it the expected revenue growth? There is one point to consider as part of answering this question. The continent’s Internet future is mobile; and Facebook, whose fortunes rely mainly on advertising revenue, is currently battling to fully monetize this platform. My guess is, this newly-crowned public company’s investors are still nervous.