Facebook Graph Search Fails To Impress, But Threatens Yelp

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Facebook (NASDAQ: FB) unveiled its latest search tool called the Graph Search on Tuesday, but it seemed investors were un-impressed. The stock price of Facebook climbed to almost $32 per share as investors anticipated the social network giant’s announcement of new products and services, including a Facebook phone, video advertising, and the social search engine. However, the shares went down down by 2.74 percent to $30.10 after trading hours.

Facebook’s Graph Search is different from Google’s (NASDAQ: GOOG) web search engine. It allows users to find contents that have been shared with them. According to Facebook CEO Mark Zuckerberg, the new search tool provides exact answers to users, and it is currently focused on people, places, photos, and interests.

Graph Search is still limited, and Zuckerberg did not provide further information regarding its monetization prospects. These are probably the main reasons for the lukewarm reception from investors, despite an indication from the company that it would expand its social search with mobile support, new languages, and a more indexed content.

According to Zuckerberg, Facebook and Microsoft’s (NASDAQ: MSFT) Bing have a close partnership. Bing integrated its web search results with Graph Search to ensure that users could still find the content they are looking for if it is not available on Facebook. Users will be connected to Bing’s search automatically. This will increase Bing’s traffic and boost the advertising revenue of Microsoft. Shares of Microsoft went up by 1.19 percent to $27.21 after trading hours on Tuesday.

The social network giant said it is willing to work with Google or any other web search company as long as they are willing to honor the privacy of its users, and its primary objective is to make search more social.

In an interview with CNBC, Stifel Nicolaus analyst Jordan Rohan commented that Facebook could be central and useful in many ways besides playing games and looking at photos. He explained that being central in the internet is the first point of importance. Jordan said, “Once you're central you can do what Google has done and be the Internet's great toll-taker."

According to Jordan, people reacted on the news, but they need to understand that some infrastructure achievements need to roll out first before businesses are developed. Although the stock fluctuated and declined today, Jordan pointed out that Facebook's shares were performing well among the internet companies over the past couple of months.

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The news regarding Facebook’s Graph Search threatens Yelp (NYSE: YELP). Shares of the review site plummeted by more than 6 percent to $20.61 per share. With Graph Search, users would easily be able to find their friend’s favorite restaurants, comments, or reviews for a particular establishment. Users would be more interested in knowing what their friends are saying about an event, restaurant, or a place than checking out the reviews of strangers on Yelp. At present, Yelp has 84 million visitors monthly and 33 million reviews. For sure, a majority if not all of Yelp’s visitors on its site have a Facebook account. Given that fact, the social network giant could easily take away a significant number of visitors from the review site.

The management team at Facebook is clearly committed to creating socially relevant and revenue generating products and services such as Facebook Gift and Ad Exchange. Both services serve as catalysts for the company’s growth. Back in October, analysts at Nomura Equity Research estimated that Facebook Ad Exchange would generate an additional 9 percent, or $450 million, in advertising revenue for the company.

Zuckerberg also demonstrated that he is capable of leading the company towards growth, and Facebook regained the confidence of analyst and investors. In fact, 19 analysts covering Facebook recommended a strong buy, 2 a suggested buy, and 7 proposed a hold rating. Analysts at Deutsche Bank recently raised their price target for the stock to $40 per share, as they observed “more revenue momentum” from the company.

Facebook has more than 1 billion active users every month and 584 million active users daily, which provide the company with opportunities to boost its revenue from its existing and future products and services. During the previous quarter, the company posted a 14 percent increase from its mobile advertising revenue. Its total revenue climbed by 32 percent from $954 million to $1.26 billion in the third quarter.

The social network giant is expected to launch its video advertising service during the second quarter this year. Undoubtedly, video ads would boost Facebook’s revenue. Users generally post different videos on their news feed, such as movie trailers, music videos, and video ads from different businesses. I believe Facebook is on the right track towards achieving its growth prospects this year and in the years ahead.

MarieCabural has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook, Google, 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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