3 Facebook Developments You May Have Missed
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since its IPO in May, Facebook (NASDAQ: FB) has been a downright disastrous investment, losing nearly half of its overall value in a time when the technology sector has provided double-digit gains. While talk of NASDAQ computer glitches and CEO compensation has dominated the social media giant’s news feed, Facebook’s real issue is monetization. As we discussed in this report, the company is searching for ways to diversify its revenue streams.
Consider these statistics: roughly 85% of Facebook’s top line comes from advertising, while ad sales only make up 30% of LinkedIn’s (NYSE: LNKD) total revenues. Now, we’ve already speculated on the value of Facebook Connect (read more here), a service that the company offers third-party websites for free at the moment, but it’s also worth expanding this analysis to the moves that have already been made by Zuckerberg and Co. Below are three such developments that ardent investors should keep tabs on.
1) Bingo, slot machines, and more; Facebook has entered the online gambling arena. Earlier this month, it was announced that the social media platform would allow British users to gamble through a partnership with Gamesys, a UK-based online gaming company. Officially called “Bingo Friendzy,” the game offers Facebookers who are 18 and older the opportunity to play up to 90 different bingo and slot games. This deal is interesting, due to the fact that it allows users to bypass the Facebook Credits system, which Zynga (NASDAQ: ZNGA) relies so heavily on. As expected, Facebook will take an estimated 30% cut from all Bingo Friendzy revenues. While this partnership will not entirely solve Facebook’s monetization woes, it does represent a stepping-stone towards further prosperity. Quite simply, the legalization of online gambling in the U.S. would be the ultimate gamechanger, and at least one insider appears to agree.
2) Move over Klout, Facebook purchased Threadsy, the developer of Swaylo. For those not in-tune with the vast dictionary of startup names, Klout is a social media analytics service that allows users to measure their influence across sites like Facebook, LinkedIn, and Twitter. Last week, Facebook purchased Threadsy, the developer of a pay-to-play analytics service called Swaylo. The primary difference between Swaylo and Klout is that the former is more FB-centric. Now, it has been speculated by many pundits that this acquisition is solely to obtain Threadsy’s development team, but it is possible that Facebook could use Swaylo to monetize its existing analytics services.
3) Karma gives FB a way to profit from the social gifting craze. Around the same time as the company’s IPO in May, Facebook bought Karma, a mobile-based social gifting app. The purchase, worth more than $80 million, gives the social network a hand in the e-commerce business. See, Karma syncs with the gift-worthy dates of a user’s Facebook friends, such as weddings and birthdays, and allows the giver to choose a gift from its preselected catalogue. The spread between a gift’s actual cost and its price is estimated to fall between 20% and 40%, meaning that this service can provide a healthy source of revenue going forward.
Now, we’re not here to tell you that the aforementioned acquisitions justify taking a bullish position in shares of FB; it remains to be seen exactly how many dollars each service will generate. After all, these developments don’t do anything to shore up mobile advertising, which is ubiquitously seen as the company’s biggest hurdle. At a Price-to-Sales ratio of 11.1X, Facebook is still trading at a premium to tech peers like Google (NASDAQ: GOOG) at 5.2X, and Zynga at 1.3X, though LinkedIn (16.0X) is a bit more expensive. Nonetheless, until the company can prove that either: (1) it has a better handle on mobile, or (2) its forays into areas like social gifting and gambling are material, we don’t see any significant appreciation on the horizon. Likewise, WealthLift’s Sentiment Index rates Facebook as a hold, with the community’s users split on what the future will bring.
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Fool blogger Jake Mann doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Motley Fool newsletter services recommend Facebook, Google, and LinkedIn. 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.