) is working on a new mobile service known as Reader, which is
designed to display news collected from users and publishers.
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According to the Wall Street Journal, the service is primarily
) iOS mobile operating system and can run on both smartphones and
tablets. However, it's not clear when Facebook will launch this
digital newspaper service or if it ever will.
The project reflects Facebook's continuing search for ways to
enhance customer engagement for its mobile apps. Growth in mobile
customer engagement is critical for Facebook in order to generate
higher revenues from mobile advertising, which accounted for
30.0% of revenues in the first quarter of 2013.
According to eMarketer, the U.S. digital video advertising market
is expected to grow 41% in 2013 to $4.1 billion from $2.9 billion
in 2012. Moreover, eMarketer predicts that the mobile video
market is expected to double this year, touching $518 million.
At the end of the first quarter of 2013, Facebook's monthly
active users (MAUs) were 1.11 billion, while its mobile MAUs were
751 million, up 54.0% from the year-ago quarter. We believe that
this massive user base presents a tremendous growth prospect for
Facebook over the long term.
Facebook has launched several new advertising products (Lookalike
Audiences, Managed Custom Audiences and Partner Categories) to
boost its presence in the mobile advertising market. To boost
customer engagement, it launched Twitter like hashtags (#),
Facebook Home and most recently unveiled Instagram's video
In such a scenario, the addition of a newspaper app will further
boost Facebook's penetration rate in the mobile advertising
market going forward. Additionally, we believe that Facebook will
gradually expand the service to
) Android operating system in the near future.
However, Facebook is expected to face significant competition
from newspaper app providers such as Flipboard and
), which acquired mobile news reader Pulse early this year.
Additionally, increasing investments related to infrastructure
development may hurt Facebook's near term profitability.
Nonetheless, the continued investments should improve the
quality, engagement and value of its ads, which will further
boost advertiser demand in 2013. Moreover, Facebook's massive
user base and its ability to track personal details over time
make it a formidable force in the online ad market. Further, the
company's expansion in the mobile segment is noteworthy.
Currently, Facebook has a Zacks Rank #2 (Buy).