Are a Billion Faces Enough for Facebook?

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

I judge a wine by its age, a lake by its depth, and the social success of Facebook (NASDAQ: FB) by the number of faces on it. But while the site might be a winner socially, that doesn’t necessarily increase a brand's salability. The road has been rough for Facebook since the day it IPO’d, and it hasn’t improved nearly as much as many shareholders had expected.

Here’s a look at how the company has fared since it went public.


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The IPO on May 18 was soon followed by shareholders suing FB for failing to disclose "a severe and pronounced reduction" in revenue growth forecasts. Although Facebook vigorously defended itself against the allegations, this debacle cast a dark shadow over a supposed great market of opportunity for investors. Today, the company has suffered a 42% drop in share prices since it went public.

The question is how it can use a billion people to generate more revenue. About 600 million people access Facebook through mobile phones, and as of now Facebook hasn’t found a way to generate ad revenue from them. 84% of Facebook’s revenue already comes from advertisements, and the rest comes from its cut of the profit from what people buy through social-game makers like Zynga (NASDAQ: ZNGA).

Zynga and Facebook share a very symbiotic relationship, and the underperformance by latter has not helped the former at all. Zynga’s stock has been hit by weak Q3 revenues, and the stock recently fell by nearly 18% to a new low of $2.33. The company expects a net loss of around $100 million in the third quarter. Zynga's new games no longer attract the crowd of online gamers it once did, and even its existing games have taken a hit in popularity. 

Zynga's lack in delivering and maintaining interest in its products has not only hurt its own shares, but also the 16% of Facebook's earnings that come from virtual gifts bought through Zynga.

Facebook has definitely tried to diversify its sources of revenue. The company's most recent step is to allow users in the US to send real gifts around the country, and as this new venture waits to take off the company has also given users the option to "promote" their own posts. This promote feature is like advertising your own feeds. I reckon this will catch up very soon amongst users and user-groups. Almost all global and local brands have a Facebook page to help the company connect to users, and this will certainly grab attention from these brands as they try to get consumer's attention.

Facebook aims for its advertisers to view it as “their best marketing partners, the one that they cannot live without."

Even if Facebook's IPO was considered the biggest hype since Google in 2004 and the company hasn't lived up to the expectation at all, I see the organization working hard towards offering serious revenue-making options. It has been field testing ideas all along, and I think Facebook Mobile is where the ideas need to be applied to.

I "Like" Facebook. It may take time, but eventually the company will bring in the revenues it has been expecting all along; and when it does, disgruntled shareholders will be a thing of the distant past.

Know What You Own

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Shaunak88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook. 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.

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