Mark Zuckerberg has proposed an arrangement that will allow him to maintain long term control of Facebook while pursuing his charitable giveaway, by creating a new class of stock with no voting rights.
The company announced the proposal at the same time as it beat earnings and revenue expectations, after posting a 52 per cent surge in first quarter sales, bucking a trend that has seen Apple, Twitter, Microsoft and Google’s parent company Alphabet disappoint investors this earnings season.
Shares jumped more than 9 per cent in after-hours trading to above $ 119 each.
Facebook has proposed a Class C of stock — echoing an arrangement implemented by Alphabet, Google’s parent company, last year — as Mr Zuckerberg’s voting control fell from 67.2 per cent to 60.1 per cent in the last two years.
Mr Zuckerberg pledged last December to give away 99 per cent of his stock during its lifetime to fund health, education and environmental causes before he dies as part of the Chan Zuckerberg initiative launched with wife Priscilla. Mr Zuckerberg still intends to sell no more than $ 1bn of his Facebook stock each year for the next three years.
If approved at the annual shareholders’ meeting in six weeks, the new class C stock would also give the social network currency for acquisitions or to give to employees without diluting Mr Zuckerberg’s control of the company. As Mr Zuckerberg currently maintains control, the measure seems likely to pass.
Mr Zuckerberg argued that being a “founder-led company” had helped Facebook focus on its mission. “This structure has helped us resist the short term pressures that often hurt companies,” he said, adding it had also helped the company invest in new apps such as Instagram, which it purchased for $ 1bn.
Colin Stretch, general counsel, said the new structure would allow Facebook to focus on Mr Zuckerberg’s long term vision for the company and “encouraging Mark to remain involved with Facebook in a leadership role”, thereby “mitigating succession risk”.
“This is not a traditional governance model, but Facebook was not built to be a traditional company,” he said, in an echo of Google’s founder’s letter, sent ahead of its initial public offering in 2004.
Facebook already has two classes of stock, with a class B holding ten votes to a class A’s one vote. Under the proposal, Facebook will issue holders of class A stock with two more class C shares, in a 3 to 1 stock split. The class C stock will presumably trade at a discount to the A shares, due to the lack of vote. Alphabet’s class C shares trade at a 2.2 per cent discount to the A shares.
In the first quarter, Facebook reported earnings per share, on a non-GAAP basis of 77 cents, significantly beating the consensus forecast for 62 cents. Net income was $ 1.5bn on a GAAP basis.
Revenue at the world’s largest social network was $ 5.38bn, just above the average analyst estimate for revenue of $ 5.3bn, and up from $ 3.5bn in the same quarter the year before.
The social network continued to grow its userbase, with monthly active users up 15 per cent year-over-year to 1.65bn. More than a billion users logged on every day on average in March 2016, for 16 per cent growth year-on-year.
Facebook unveiled its longer term plans at its F8 developer conference in San Francisco earlier this month. Mr Zuckerberg also spoke about Facebook’s ten-year plan which he said centred around spreading connectivity around the world, developing artificial intelligence and virtual reality. It hired Regina Dugan from Google, poaching the former director of the US research agency Darpa to lead a new research and development lab.
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