Facing down the flotation risks

San Francisco:  Facebook listed rivalry with Google, regulatory scrutiny, hacker attacks and the shift to mobile technology among the risks it faces after filing for an initial public offering on Wednesday.

Facebook's competition with Google, Twitter and other social-networking providers could impede growth, the company said in the risk-factors section of its filing. Facebook also said it would face competition in China if it manages to gain access to that market, where it is currently restricted.

"Certain competitors, including Google, could use strong or dominant positions in one or more markets to gain competitive advantage against us in areas where we operate," Facebook said.

Their tactics may include "integrating competing social-networking platforms or features into products they control", the company said.

Facebook, the world's biggest social-networking service, has attracted more rivals as its popularity among users and advertisers soars. The company said it faces "significant competition" in almost every aspect of its business.

Mobile strategy

The company also cited concerns about its mobile strategy. Almost all of its revenue comes from ads delivered to computers, not phones and tablets. Facebook's mobile software currently generates no "meaningful revenue", the California-based company said.

Facebook further cautioned that key mobile devices, such as Apple's iOS products and gadgets running Google's Android software, may not feature Facebook in the future.

If either of these companies gives preference to another social network — say, if Google promotes its own Google+ more aggressively — Facebook's growth could be jeopardised. Bigger pitfalls could yet emerge, said Kevin Landis, the portfolio manager for the Firsthand Technology Value Fund, which holds Facebook shares. Google, for instance, couldn't have foreseen the emergence of Facebook in 2004, when it went public.

No mention

"Let me put it this way: If you go back to Google's S-1 in their risk factors, there's no mention of Facebook," Landis said. Facebook was founded in 2004.

Facebook also has considered entering China, which would bring its own challenges. The country has censorship laws that have kept Facebook and other social-media companies, including Twitter and Google's YouTube, from operating there.

"We continue to evaluate entering China," Facebook said.

"China is a large potential market for Facebook, but users are generally restricted from accessing Facebook from China.

"We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government."

Another risk: Facebook relies on Zynga for 12 per cent of its revenue, according to the filing. San Francisco-based Zynga is the biggest developer of Facebook games, including CityVille and Texas HoldEm. The revenue comes from Zynga's sales of virtual goods and from direct advertising purchased by Zynga. In addition, Zynga produces a "significant number" of pages on which Facebook displays ads.

Results could be harmed

The dependence goes both ways. Zynga gets more than 90 per cent of its revenue from the social network.

"If we are unable to successfully maintain this relationship, our financial results could be harmed," Facebook said of Zynga.

Facebook also said it faces pressure from governmental bodies. It's possible that a regulatory inquiry might lead to changes to policies or practices, the company said.

"Violation of existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations," according to the filing.

The media could hurt Facebook as well, by portraying its privacy and product changes in a negative light. The company received a "high degree of media coverage", Facebook said.

The company has 845 million active users. That compares with more than 90 million for Google+, which started last year.