Facebook: Strengths, Weaknesses, Opportunities, and Threats
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off their third quarter earnings report beat, which sent the stock soaring up 20%, I would like to focus on Facebook (NASDAQ: FB), the owner of the largest social network in the world.
Strengths:
- Facebook just recently eclipsed the 1 billion users mark, and the number of users Facebook possesses has grown explosively since its creation, as the chart below displays
- One in seven people in the world are on Facebook, however that is only 14.29% of the total population so the company still has room to grow.
- In 2011, Facebook was the most visited website and most searched term on the internet.
- Near absolute monopoly in the social network sector.
- Momentous Barrier to Entry: Facebook has a distinguished and highly recognized brand, and for any competitor to even come close to matching Facebook would take a huge amount of money and time.
- Brand Loyalty: People using Facebook are locked into the ecosystem, all their friends are on Facebook, and they are very unlikely to change as it would be a huge undertaking.
Weaknesses
- They went from zero to hero very quickly, they can go back to zero just as quickly.
- Before Facebook, MySpace was the premier social network, nothing is stopping anyone from inventing a bigger and better version of the same animal.
- The company is currently valued at $47 billion on the market, which values each one of its users at $47, an absurd valuation.
- According to Reuters, Facebook possesses a 232.39 price to earnings ratio, another example of the vast difference between what the company is valued at and what is should be valued at.
- The company has no dividend, and has expressed no plans to begin paying out dividends in the future.
Opportunities
- The opportunity in the mobile sector is immense, as COO Sheryl Sandberg put it, “Mobile is a great opportunity to grow our users, to grow engagement and to grow monetization, and we’re at a very early stage.”
- Just in the past quarter ads brought to people on mobile devices produced $150 million, 14% of total advertising revenue, up from just $10 million in the second quarter.
- Because of the plethora of information Facebook receives from each member, it can send advertisements that are more likely to interest that specific person, and therefore they can charge more for ads than other companies.
- Facebook’s platform is engrossing and users usually spend a lot of time on the website, allowing Facebook to again charge more for advertisements, in the last quarter advertisement prices rose 7%.
- While it very unlikely with their huge valuation and Zuckerberg’s attitude regarding getting acquired, Apple may find that acquiring Facebook and integrating it into their ecosystem could be beneficial and profitable, again not probable, but Apple has the cash required.
Threats
- Investor confidence was hurt severely with the IPO debacle, and many have lost confidence in the company as an investment.
- In the coming weeks share prices could come under significant pressure as more shares are unlocked for early investors to sell, however these investors may be encouraged by the recent earnings report.
- Companies have realized Facebook’s success and have tried to capitalize on this growing trend (Google+, LinkedIn, Twitter, and Tumblr) and many have accomplished significant amounts of success.
- Investors that had stakes in the company generally sold their shares when their lock-up expired, and while some merely wanted to close out the profitable position, it speaks volumes to the lack of confidence these investors have in the company’s future to sell their shares at these depressed levels.
Competitors
Major publically-traded competitors of Facebook include Google (NASDAQ: GOOG) and LinkedI (NYSE: LNKD). Google is a much larger and more diversified company, however they recently released a social network, Google+, to get their feet into the market. LinkedIn also is an operator of a social network, however theirs is more focused on the business man or women as a device to link them to potential customers or employers, and unlike Facebook, LinkedIn offers a premium service which they charge for.
Dig Deeper
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makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook, Google, and LinkedIn. 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.
