Facebook Gift Makes Investors Happy
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Facebook (NASDAQ: FB) surprised the market last week, managing to end it on new highs when it announced another tool it had put in its arsenal to monetize the increasing number of users who are accessing it through mobile devices.
As of the closing bell on Friday, Facebook was up 6.59% to $21.66. The rally followed the company’s announcement of its first foray into eCommerce, allowing subscribers to buy real gifts instead of virtual ones. Called Facebook Gifts, the service will be tested on one percent of the company’s users. If all goes well, I hope it will be available to all subscribers, and boost revenues to the point that the company's stock is worth a buy above $20.
Facebook made this happen by acquiring mobile commerce start-up Karma in May. The acquisition is a prime example of how tech companies are capitalizing on the talents of upstarts by folding their technologies into their businesses. In the case of Karma, Facebook acquired the talents of two execs who made their name in the tech space by building and making money from mobile apps. The amount of the acquisition has not been disclosed.
As users have signed up for Facebook in droves and willingly shared everything -- birthdays, engagements, childbirths, and just about anything else personal -- Facebook built a coffer of valuable information that has the potential to be very lucrative if harnessed correctly. Facebook is in a unique position to be able to use this information to increase its market share when it comes to mobile and display advertising.
Consider this. When it comes to sites that thrive on advertising, how many have you shared as much information as you have with Facebook – that is if you’ve signed up for a Facebook account like the estimated 900 million other people in the world. Facebook COO Sheryl Sandberg touched on this Monday during her first interview since the company's IPO. She noted that Facebook's ability to link businesses to targetted customers puts it in a unique position help advertisers target potential customers.
So, the social networking site is already well-positioned to enter eCommerce. Consider also how easy many users will find it to be able to send a gift online after getting that alert from Facebook that a loved one’s birthday is coming up. Because it knows your friends’ “likes,” Facebook Gifts can suggest what to buy them. The icing on the cake for Facebook is the ability to accept payments and take a cut of what is purchased.
This is a dang near genius tactic for Facebook, but as always, the devil is in the details, with the main being privacy.
If Facebook strikes a balance between privacy issues and making money, Facebook Gifts could be very successful. Furthermore, it could help it to gain more revenues and market share in mobile and display advertising.
Its efforts to gain market share in advertising from its site and mobile devices have paid off, with the most gains coming from those tiny ads users see along the side of their Facebook pages. While many users report rarely clicking on them, Facebook’s revenues from them were enough last year to give it the largest market share in the area, knocking Google (NASDAQ: GOOG) to second place.
However, Facebook will lose this top spot as having the largest market share in the display advertising arena this year, according to data compiled by eMarketer. Google will regain the spot, capturing 15.4% of the market with $2.3 billion in revenue. Facebook’s share will be 14.4%, with revenues of about $2.2 billion. Third, fourth and fifth place belong to Yahoo, Microsoft and AOL, respectively.
While Friday's rally was partly due to the Facebook Gifts announcement, more rallying is likely this week. One reason stems from Sandberg's interview today that is being aired throughout the day on CNBC. As I expected, the stock was rallying (at the time of writing on Monday) as the segments aired and she relayed some initiatives the company is making to continue to monetize mobile users.
Check out a companion article about Sandberg's interview, as well as a feature on Zuckerberg to be aired on the “Today” show this week, that could shed more light on other projects Facebook is working on to improve its revenues.
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