Will Facebook be a Profit Party?
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In younger years, Facebook was an online after-party without a cover charge. It was exclusive and cutting-edge cool. Then parents showed up.
Now, however cool or uncool, Facebook (NASDAQ: FB) is evolving into a profit party. Here are four reasons why I'm excited about Facebook's competitive prospects and earnings potential going forward.
First, I see Facebook as a personalized pocket billboard. As privacy laws and social norms adjust to a culture of increased social sharing, Facebook will be in a position to use its dominant mobile presence to deliver an advertising experience that is fully customized to your specific location and social preferences. Personalized advertisements delivered to your pocket! This evolution in ad targeting could be tremendously lucrative, especially compared to traditional desktop advertising.
Disruptor of Technologies
Second, in its infancy, Facebook successfully captured market share from dominant and well-funded players, particularly MySpace and Friendster. This indicates a lesser reliance on technological innovation or first-mover advantage (compared to, for example, LinkedIn) and a heavier footing in competitive strategy. This shares marked similarities with Apple’s (NASDAQ: AAPL) ability to compete against free downloading (with iTunes), proliferating mp3 players and netbooks (with iPod, iPad), and an army of ubiquitous mobile phones (with iPhone). Much like Apple, Facebook has the markings of an inherent disruptor, and appears less likely to be disrupted by competitors with trendier technologies.
Third, as the hub of all social media, Facebook’s critical mass of one billion users is a deep economic moat. Recent projects such as Graph Search and Social Jobs may add width to this moat, as Facebook builds an ecosystem of services with multiple points of relevance in users’ lives.
Fourth, adult users are less susceptible to fads. Facebook’s initial users lived in dorm rooms. Nine years later, these people have matured. Older users are less prone to attrition, and are relatively insulated from newer, perhaps cooler technologies. It took years to add all the content, photos, and life events to our timelines! As adults, we’re too busy to do it all over again. Instead... I’m writing this article and you’re reading it! With mortgages, cars, groceries, and children, busy adults pay the biggest bills. Click ‘like’ on more lucrative advertising revenues in the long-term.
Is Facebook still cool? Can it grow earnings like it did subscribers? With the IPO smoke show clearing and management's spotlight searching for revenue, I'm invested in Facebook turning into a profit party. Will you be joining?
Disclosure: The author holds a long position in shares of Facebook and Apple.