Internet Darling Has a Rosy Future

Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB) has gone through a massive roller coaster ride ever since going public. The company went through a botched IPO, a shrewd synthetic share repurchase, and gained noteworthy momentum on its mobile monetization efforts. In order to develop a better understanding of its strategic road map in the near and distant future, a SWOT Analysis is called for. 

Strengths        

User Data: Facebook’s biggest strength undoubtedly is the number of its users which stands at 1.07 billion, making it the leading social media company in the world. Facebook has amassed huge amounts of user data, revealed by the users themselves, these datasets are utilized to provide highly relevant ads to the user. This represents Facebook’s very strong and unique value proposition for advertisers.

Engagement: People spend a lot more time on Facebook than other high traffic websites such as YouTube and Google, according to market research firm, Nielsen. More time spent means more revenue in the form of display ads.

Revenue Base: From a geographical standpoint, revenues flow in from all over the world, even though North American markets make up the lion's share. 

Brand Value: Facebook is a truly global company, and its brand name is a very powerful one that can easily resonate with people from suburban India to the farthest parts of Africa.

User “stickiness” and established network of friends and family creates a very strong durable competitive advantage for Facebook. 

App Developers: Currently 8 out of the top 10 iOS App Developers are integrated with Facebook. App developers bring in revenue for Facebook by buying ads, using the Facebook Payments platform and engaging users on Mobile and Desktop. Revenue from non-Zynga developers have gone up quarter-over-quarter.

Instagram has been a home-run acquisition for Facebook and it has grown from 27 million users in April to more than 100 million users at the end of Q3. And it has built a more robust user experience, increased user engagement and assisted on the monetization front for mobile.  

Weaknesses

Payments Platform: Payments platform hasn't done well and is down Q/Q. The amended contract with Zynga (NASDAQ: ZNGA), will likely lead to lower monetization for Facebook. Zynga is no longer required to use the Facebook Payments or display ads on Zynga's gaming platform.                                       

Clear-cut Monetization: While it has made substantial progress on mobile monetization, and in launching a number of new products for marketers, it hasn't struck a clear cut road to making money with all its users and the data it comes with. 

Opportunities

Advertising Market:  Advertisers chase user eyeballs and the users are shifting towards online and mobile from television and other print media. The likes of Facebook and Google (NASDAQ: GOOG) are very well positioned to capitalize even further in the long term.

Mobile: Perhaps Facebook's biggest opportunity in the near term is to gain more traction in Mobile. At the end of Q3, it had gain surprising strong momentum in Mobile, and it currently has a Mobile Run Rate in excess of $600 million in just its Mobile Ads business. 

Utilize User Data: Facebook has heaps of user data which it can use to roll out completely new business lines. Facebook’s pristine balance sheet, cash position and engineering capabilities will definitely help in such ambitious endeavors. Facebook just launched Gifts all across the U.S and also made some progress towards building a Job Search portal.

Search Engine: Facebook's CEO has portrayed his intentions to venture into the business of search engines. Facebook's partner in this endeavor is early investor and current partner in search, Microsoft's (NASDAQ: MSFT) Bing. Facebook in conjunction with Bing, can provide user data driven search, which has the potential to bring in substantial amounts of incremental revenue as the Search Ads market is a huge business.

Entry into China: It doesn’t have a presence in a number of countries, with the most notable being China. If it can overcome regulatory hurdles, and access even modest user penetration rates of 30%, it would translate into hundreds of millions of dollars of incremental revenue for Facebook. 

Threats

Highly Competitive: Online ad market is a very competitive arena with a number of well established, reputable companies with solid brand names and high traffic volumes competing for advertising dollars.

Google's Offerings of Google+ and Orkut can gain more user traction and be a more formidable competitor in the social media space and attract more users and engagement.

Other Social Networks like professional networking site, LinkedIn (NYSE: LNKD) and the likes of Twitter and Tumblr, can gain more momentum and be a little more recreational in nature, to step into Facebook's unique territory.

The Bottom Line

Facebook has built a terrific business of connecting users all over the world, and has gained a solid footing on its monetization efforts. It has very good engineering capabilities, a solid mobile presence, and a very talented Management team who managed to spearhead solid acquisitions like Instagram. While there is a very small probability that the likes of Google+, Twitter and LinkedIn can pose some threat to its economic castle, for now, Facebook is a clear cut winner in its own space.                                                                                                                                                                                                         

 


ishfaque has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, LinkedIn, and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook, Google, LinkedIn, and Microsoft. 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!

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