Is Facebook a Social Google
Moustafa 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 seen even more of its market cap dwindle in the past few weeks as share lock ups ended and investors liquidated there shares turning early investments into millions of dollars. This sell off should not be confused with a lack of confidence in the company but many of those early investors wanted to cash in on their wealth. You can’t buy houses, cars and vacations payable in share certificates, at least no where I have been. Whenever a company goes through difficulty, the talking heads get on T.V., and depending on what way the general sentiment is, either praise or trash the company. Unfortunately for Facebook there has been a lot of trashing of their future prospects and many comparisons to Myspace, which if anyone remembers Myspace was never good.
Comparisons to a Giant
These talking heads lament Facebook's dwindling ad growth, comparing it to Google’s (NASDAQ: GOOG). Often quoting that Facebook's ad revenue is roughly eight times lower than Google’s. Maybe I am wrong but if I recall Facebook had only recently began monetizing its ad space and has been developing different ways to market and track ads for its advertisers. These experts are the same ones during Google’s IPO who said that a company can’t succeed generating its income solely from online advertising. Google has proven that sentiment was very wrong. Though Google had an IPO that many at the time felt was richly valued it has earned early investors fantastic returns, a true multi bagger.
The always present argument is that Facebook is a fad, and when something else comes out it will supplant the social media giant and render it worthless. This makes sense on the surface, but when you look a little closer that idea is a lot less likely to become a reality. A simple question, what has happened to all the previous search engines that came before Google? Was Google’s concept proprietary? The answer is no absolutely not, like Facebook they weren’t the first company to release a search engine. What they did is monetize it, market it and make it the best most user friendly interface in its market. Why is Facebook the most popular social media platform? It could be argued many of the same reasons that made Google so successful in search.
Facebook has updated their mobile application to make it more user friendly and faster. They have released their own analytics for their ad’s with a PPC system which expands on the standard search engine ad traffic because it integrates your social circle and the Facebook created 'like' function. Though their shares are down sharply since the IPO, Facebook is still flush with cash. This means that when disrupters enter the market Facebook can be there to scoop them up. Look at their purchase of Instagram which was created by a Stanford grad who had been initially recruited by Facebook to do exactly what he did on his own. Instagram has been integrated fully into the Facebook platform and adds another level of robustness to their social experience. Facebook is one of the go to companies to work at for the top talent in silicon valley, so not only are they able to recruit young talent they are attractive to successful start ups that would jump at the chance to sell their company to Facebook.
The New Age
Facebook was hyped more than any other IPO in recent corporate history, and with anything that is hyped their is usually either a giant leap or a fall. With Facebook their was a fall, but that has distracted many from the fundamentals of the company. The internet is quickly changing and the old desktop internet model is quickly becoming outdated as smart phones and the mobile net continue to expand at a blistering pace. I was in the airport this morning and I must have seen 5 people playing with their Apple iPhones checking Facebook. The explosions of Apple iPads and iPhones has allowed more people access to FB for longer periods during the day. This increased interaction yields even more potential for advertisers to monetize this increased traffic. Meanwhile, RIM’s (NASDAQ: BBRY) network compresses data and can offer customers in lower income countries direct access to Facebook and Twitter at a much lower rate then a full data package would cost. RIM is increasing their presence in the developing world and this also benefits FB.
The key for Facebook is their ability to capitalize on this next gen mobile net. This is a definite risk because realistically if they can’t it will be difficult for them to justify their present valuations even after the share pull back. They have 900 million users who are active and with the talent and cash they have in place combined with their corporate hacker culture I see Facebook as having a very good chance of innovating their way into monetizing the mobile net. If they can do this the company is poised to be a major player in the tech industry for years to come.
mooseelz owns shares of Google, Apple, and RIM. The Motley Fool owns shares of Facebook and Google. 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.