SWOT Analysis: Facebook
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
SWOT is a system of analysis that enables investors like us to break down a publicly traded company to see whether or not it is a buy or sell. SWOT stands for strengths, weaknesses, opportunities, and threats. Today, let's break down Facebook (NASDAQ: FB), a stock down 45% since its IPO, with a SWOT analysis. Facebook had the most anticipated IPO of the year, yet it was largely a flop. Has Facebook turned its fate around, or is it going to continue to head to $10.
1. Facebook now has over 1 billion active monthly users
2. Facebook's active monthly user base has doubled since July 2010
3. Facebook is experiencing extremely strong growth in emerging markets, with Brazil's monthly active user count doubling in 2012
4. Facebook's CEO and Founder Mark Zuckerberg has a large financial interest in Facebook's future. His wealth and his legacy is tied to the success of Facebook, so he has a strong drive to make sure Facebook becomes very profitable
5. Posted $150 million in revenue from the mobile advertising space last quarter, up sharply from $10 million in the prior quarter
6. High barriers to entry, what other company has over a billion users and can offer you the fullest social networking experience
7. A monopoly in the social networking space
8. MySpace continues to fade away from people's memories
1. Mobile Ad revenue is extremely lacking, with only 14% of Facebook's revenue coming from this sector, yet 60% of its users use the social networking site on their smartphones and other mobile devices
2. Facebook posted a loss in the last 2 quarters
3. Facebook is down sharply from its all-time high of $45, and is lower than the $38 IPO price
4. Facebook has seen very strong user growth over the years, but that will slow down as developed market user growth levels off and the developing markets start to see slower growth
5. China's government still doesn't allow Facebook to operate there
6. While Facebook is experiencing strong international growth, it only makes 55 cents per user in Asia, while it makes $3.20 a user in North America
7. Less than 20% of Facebook users live in North America, yet they account for 48% of Facebook's advertising revenue. The North American market is nearing complete saturation, and user growth has grounded to a halt. Which means even if it experiences strong growth overseas, those users will make much less than domestic users
1. Has a lot of room to expand in the mobile market, which is estimated to grow to $629 million by 2014 (estimate by eMarketer). But it beat expectations last quarter, so we may see its mobile ad revenue grow much quicker than eMarketer expects it to.
2. China, which is currently off limits to Facebook due to government restrictions, could eventually allow Facebook to operate there. Management wants to expand into China, with Sheryl Sandberg saying "you can't connect the whole world and not China."
3. China has a population of 1.35 billion, more than Facebook's total active monthly user count. Over 538 million people in China have internet access
4. Facebook is estimated to make 42 cents a share in 2013, much more than the expected 9 cents a share to be made in 2012. Keep in mind these are estimates, but that still is very good news if it turns out to be true
5. Advertising prices are also going up, with ad prices up 7% in the last quarter
6. In the mobile space, worldwide mobile advertising will reach $6.4 billion this year and will be over $23.6 billion by 2016, according to eMarketer. Facebook needs to be able to advertise heavily on mobile in order to monetize that growth. As I said before, 60% of Facebook users access the website via their mobile devices
7. Some estimates point to Facebook taking 9% of the mobile advertising market by 2013, up sharply from 3% this year
8. Less than 15% of the world's population has a Facebook account
1. Google (NASDAQ: GOOG) launched its own social networking service, Google Plus. While it hasn't been nearly as successful as Facebook, it could take away from Facebook usage and hurt its pricing power
2. Google continues to dominate the smartphone space, and controls 55% of the mobile advertising space, while Facebook has only 3%
3. MySpace used to be "the thing" yet quietly disappeared once Facebook popped up. It shows your users can lose interest in something if you don't keep it fresh and exciting
4. Bad investor sentiment towards Facebook's flop of an IPO, will hurt its image in the long run as well
5. A lot of Facebook users access Facebook on their Android phones, powered by Google. This is just pure speculation, but it makes me wonder what Google could do to FB, considering Google and Facebook are directly competing with each other and this is a very competitive market
Facebook has a lot of opportunities to grow in the future, with mobile being the biggest area to grow in. So far Facebook hasn't had much success in the mobile space, but after its last quarter maybe Facebook has turned a stone and is ready to see some stronger results going forward. Emerging markets continue to be a strong source of user growth, but in its biggest markets (North America, Europe), user growth is leveling off. I'm not a buyer at these levels, but its future will be interesting to watch.
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callumturcan has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.