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.
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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