In a move to woo mobile users,
) recently released its centralized "App Center" that consists of
more than 600 applications including Nike+ GPS, Ubisoft Ghost Recon
Commander, Stitcher Radio, Draw Something and Pinterest.
The App Center is available on the Internet as well as on
) iOS and
) Android-based mobile devices. Mobile revenue growth had been a
bit of concern for Facebook lately and its initial public offering
(IPO) also suffered due to the lack of visibility around
monetization of mobile platforms.
Although Facebook reported 488 million monthly average users
(MAU) for its mobile products as of March 31, the company expressed
doubts in its S1 filing prior to the IPO, regarding the success of
its monetization efforts in the mobile segment.
This is primarily due to the fact that historically Facebook has
been totally focused on the desktop segment. Hence its applications
were cumbersome for mobile users and the small windows of mobile
Mobile is a different ballgame altogether. Unlike personal
computers, mobile users navigate much faster over their devices and
applications as they are mainly done on the move. Hence, mobile
applications need to be smart, simple and fast.
Due to this reason, Facebook never really had any ad coverage on
mobile platforms, as Ads along with mobile applications need to be
much catchier and less time-consuming than the ads aimed at
desktops. In March this year, Facebook included sponsored stories
in users' mobile for the first time in its history.
We believe that the roll-out of the centralized application
database will attract more mobile users to Facebook. As the App
Center recommends applications based on users' personal choice and
their friends choice, mobile users will find it easy to navigate
and search through the database to access their apps within a short
span of time.
Moreover, the new App Center connects users with Apple's and
Google's respective application stores, from which users can simply
download apps on their mobiles. The App Center also carries a new
"send to mobile" feature; through which desktop users can download
Although we expect that the new App Center will boost Facebook's
mobile customer base, it is likely to lose some non-advertising
revenues (transaction fees charged by third party providers) by
forwarding users to stores of Apple and Google, Therefore, the
effectiveness of the App Center in terms of generating significant
advertising revenue from mobile platforms is something to be
proved, in our view.
Nevertheless, we believe that Facebook is well positioned to
grow over the long term based on its large customer base and proven
business model. The company enjoys a first mover advantage in the
social networking market. Although advertising revenue has somewhat
slowed down in recent months, we note that non-advertising revenues
increased five fold in 2011.
This is the revenue Facebook earns from third party developers
and through the sale of Facebook Credits (a form of virtual
currency). As more and more third party developers flock to
Facebook, we believe that non-advertising revenue will increase
However, increasing competition from established players such as
Google as well as new entrants and uncertainty in the mobile
segment can limit upside going forward. Currently, Facebook has a
Zacks #3 Rank, which implies a Neutral rating over the short term
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