What Can Make Facebook Tick?
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Once again it’s been proved that Mark Zuckerberg and Facebook (NASDAQ: FB) can inspire people, but only together – as an inseparable force. And this should be good news for potential investors, considering the fact that this time it’s all focused on mobile and revenue generation - Facebook’s perennial pain points. After all, with a 955 million-strong audience and no concrete monetization plan, people have a right to feel jittery about putting their hard-earned money into this stock, which was evidenced by the 42% fall in share prices since the May IPO. That concern is just starting to get addressed, as company shares received a boost with the return of investor optimism, courtesy Zuckerberg’s recent interview.
So, let’s come straight to the monetization part. How effective is Facebook Exchange really as a tool to attract advertisers? Probably quite good, if initial test reports are to be believed. In fact, Facebook Exchange or FBX is helping the company do better than rivals Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO), as it’s getting more and more people to click on online ads that are cleverly positioned based on their recent browsing history. In fact, according to Triggit, an ad retargeting company that helps Facebook to distribute these ads, the return on money spent on advertising from FBX is almost four times that of all other real time bidding systems. The very idea where Facebook’s FBX delivers ads by tracking the way users have browsed recently is better than Google’s real time bidding system, giving it an advantage. And that’s a good thing, as real time bidding, which is what FBX is all about, is already being projected as the next big thing to happen to display advertising. Real time bidding is poised to garner roughly 16% share of the overall U.S. display ad market this year, as per research agency International Data Corporation (IDC). But that’s not all. Facebook is also following in rival Yahoo’s footsteps by acting as an ad-network, gaining a part of the revenue from mobile advertising. However, what’s important is the fact that it’s sure going to do better that way, given its huge mobile user base as compared to Yahoo!
Everyone knows how important advertisers are to the entire monetization effort of Facebook. Over the past few months, investors have increasingly viewed it as a company that’s simply being unable to or at the most, slow to figure out a way of generating revenue from users who are logging in from their smartphones and tablets. And such users are fast outnumbering the lot that log in from their PC’s and laptops. FBX may just be the trigger point for more advertisers to spend on the social networking site. And boost up share value as a natural outcome.
Facebook’s certainly making an effort to bolster confidence and things seem to be finally rolling the right way. The company’s boosting up its search capabilities and claims that Instagram is already a success story. Having said that, I personally always felt that the IPO debacle primarily happened because the whole thing got delayed, and the initial euphoria about Facebook was somewhat muted by that time.
But then, the mobile platform is totally different altogether. While this is a far more profitable way to bring in the cash for companies like Facebook, there’s always the risk that the mobile-based audience will not like being constantly interrupted by advertising, even if it’s about stuff they like. This is because they log in far more frequently and are far more interactive than conventional PC users, who don’t mind ads being displayed while they surf the site. It’s certainly a waiting game as far as the Facebook stock is concerned as of now. But the situation certainly looks brighter, going ahead. And then there’s always Zuckerberg to cheer you up. Fool on!
Interested in Additional Analysis?
After the world's most-hyped IPO turned out to be a dud, most investors probably don't want to think about shares of Facebook. But The Motley Fool has outlined some things every investor needs to know about the company in a new premium research analysis. Access your report by clicking here.
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. 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.