Facebook (
FB
) business and stock price have shown some momentum in the last few
months. Driven by an improvement in mobile revenues as well as
growth in the number of users and user engagement, the social
networking giant has infused fresh confidence in investors. Some of
the recent developments indicate Facebook's continued commitment
towards improving user experience and monetization. However, it is
going to take some time before sustainable levels of mobile
monetization can be established due to the fact that mobile RPM
(revenue per 1,000 views) is going to be lower than that for
desktop due to the obvious scarcity of screen space. Therefore,
Facebook will need to become creative with its advertisements to
avoid spoiling the user experience in its plans for growing mobile
revenues.
One such way is to blend advertisements within the news feed so
that users can embrace them as part of their usual Facebook
experience. The company recently launched a huge mobile advertising
campaign for Wal-Mart (
WMT
) in this manner. About 50 million ads focusing on deals and
discounts were rolled out to millions of Facebook users. Although
the results have been mixed, this marks an important step towards
strengthening the monetization of Facebook's mobile platform. While
there was a high level of user engagement, the users also
complained about unwanted ads.
See our complete analysis for Facebook
Besides the mobile ad campaigns, Facebook has also been focusing
on improving its features and functionality. The company is
reportedly building a new app that will directly compete with
Snapchat, in which users can send photo messages to one
another.
In addition to this, Facebook has also introduced a feature
called
"Nearby"
that is essentially a location service based on friends'
recommendations, likes and check-ins. This is similar to the
service provided by Foursqure and Yelp. Through these features, the
company wants to ensure that its users spend as much time as
possible on Facebook, which is essential for growth in its number
of page views. This directly ties with ad related revenues which
essentially depends on both ad pricing and the number of views or
impressions.
Our price estimate for Facebook stands at $25
, implying a discount of less than 10% to the market price.
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