The Best Social Media Bet
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The last couple of months have not been good for the technology sector. It all started with the falling price of Apple over concerns of lower than expected iPhone 5 demand. The market fears might have been more correct than initially anticipated. In a recent report, the WSJ has reported that the technology giant has cut its parts orders for January in half. The stock fell 3.5% in pre-market trading and can continue to slide further if the company does not meet earnings expectations.
In all this turmoil, Facebook has been gaining favor with investors. The stock is already up approximately 50% from its low point and analysts are expecting it to stay strong. It all started with its last quarter results, when Facebook (NASDAQ: FB) beat analysts’ expectations for both revenue and earnings, showing impressive mobile monetization. There was impressive advertisement growth during the quarter with 12% of total advertisement revenue coming from the Mobiles Segment.
Last quarter’s earnings exceeded expectation and 14% advertisement revenue from the Mobile Segment suggests that Facebook is on the right track. Facebook’s investors would be excited about its Social Jobs app and Facebook Gifts as these new apps will play a major role in reducing Facebook’s reliance on advertisement revenue. These are good long term catalysts for FB and have improved my belief, in the long term value of this social media giant.
Social Jobs app
Facebook has been trying to diversify its advertisement related model with features such as Facebook Gifts. Yesterday, the company announced the launch of its much awaited Social Jobs app for the United States. The company announced plans of launching a ‘Jobs’ application last October. The app was announced as a joint venture with the labor department and a group called ‘Social Jobs Partnership’ was created. The Social Jobs app has already aggregated approximately 1.7 million listings, from companies like Jobvite, BranchOut, Monster.com, Work4Labs and so on. These are only a few of the many companies, which had already been using Facebook to reach out to recruits, and they are now using the more effective Jobs app.
Bad news for Linkedin
LinkedIn (NYSE: LNKD) is the leading job search site in the world with more than 175 million members. The company has a different model from Facebook. Where the Social Jobs app allows listings from other companies, LinkedIn offers paid accounts to recruiters and potential recruits. The recruits can sign-up for free accounts as well, but unlimited interaction is only available to paid account members.
The Social Jobs app will not have a direct effect on LinkedIn but it will indirectly hurt the job search site by increasing the social network access of LinkedIn’s competitors, such as Monster.com. In the past, LinkedIn has had an upper hand over its competitors because of its social networking capabilities, but now these competitors can use the Jobs app. Facebook has a network five times bigger than that of LinkedIn (1 billion on FB and 175 million LNKD), giving LinkedIn competitor’s access to a much broader market.
Facebook Gifts
The rrecent launch of Facebook Gifts is another exciting growth opportunity for the social media giant. The Gifts initiative allows users to order real times gifts for their friends and then track the delivery online. The company has a long list of partners, who will act as merchants for the Gifts application, e.g. Starbucks. The improved results for mobile monetization are coming through with more than 14% of total advertising revenue coming from the Mobiles Segment, during the previous quarter. The focus on advertising, with products such as Custom Audiences, Facebook Exchange, Offers, and mobile app install ads makes long term prospects of Facebook very bright.
Mobile Monetization
In an interview with Rom Keene on a Bloomberg program called 'Surveillance', David Kirkpatrick commended Zuckerberg and his company's recent efforts. David is the author of 'The Facebook Effect' and was very critical of Facebook’s IPO valuation. He went on to say that Facebook's management had finally started to understand the fact that customer satisfaction is not the only criteria anymore, and as a public company, they had to focus on profits.
The author also appreciated the renewed focus on mobile monetization, as described by Zuckerberg in his last interview to Techcrunch. In this interview, which took place in September, the Facebook CEO said that the company is focused on the new mobile monetization plan and accepted his mistake of focusing too much on PCs. I believe the future of social media is with handheld devices and the renewed success with mobile monetization, makes Facebook a long term value stock.
Conclusion
The stock is still trading at a forward P/E of 49x, that is significantly higher compared to that of similar companies. However, improved mobile monetization is a very good sign for Facebook’s investors and makes me bullish on the long term prospects of the company. The Gifts and ad exchange initiatives are pretty exciting, and I believe that the Jobs app could also drive revenue in the long run.
The Facebook management should be congratulated on their effective management of the lockup expirations which has limited the impact on share price. With more than 1 billion users, Facebook has unlimited monetization potential and the management is finally on the right path.
equityfinancials has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, LinkedIn, and Starbucks. The Motley Fool owns shares of Apple, Facebook, LinkedIn, and Starbucks. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!
