Facebook Ready To Break $35 This Summer
About one month after an exceptionally messy IPO and following decline in stock price, Facebook (FB) looks to have the worst behind it. After a string of acquisitions and changes to its mobile platform, allowed only by the riches it earned from its IPO, Facebook has stopped the hemorrhaging and is slowly building itself back up to the price it was offered at. Make no mistake, it still has a little ways to go before it reaches $35, but it is currently about $6 higher than its low of about $25. Also, making some very powerful friends does not hurt.
Facebook has had quite a few major announcements since its IPO, but perhaps the most important developments are those that are less news worthy. By this I mean the new developments that help advertisements better target customers, Facebook’s number one source of revenue.
The first major announcement is the addition of real-time bidding for advertising. With real-time bidding, Facebook allows advertisers to target more time sensitive advertisements to users. With real-time bidding expected to account for about $5 billion in display ads by 2015, the introduction of this technology will be a significant driver of revenue for Facebook.
Also in development is a mobile, location-based advertising product. This will use the technology employed in real-time bidding to allow advertisers to target users with time-sensitive location-based advertising. This new product will also allow advertisers to be more precise, as they were only able to serve ads based on a user’s ZIP code previously. With mobile advertising expected to increase greatly in the coming years, this product will help Facebook on its way to monetizing mobile.
Adding to these new products is a Facebook for WordPress plugin that is set to be introduced this November. This product will increase the amount of user data at Facebook’s disposure since it will integrate existing WordPress accounts with the Facebook News Feed. In addition, Facebook users will be able to comment and tag friends from their WordPress page.
Perhaps the best news for Facebook is the deep integration it will now have in Apple’s (AAPL) iOS6 mobile operating system. Similar to the integration of Twitter in the previous version of iOS, users will now be able to share almost anything, as Facebook will now be a menu option in iOS. This is expected to boost the levels of engagement with Facebook since users will no longer need to be in the platform to post. This, like most announcements regarding Facebook, will cause an increase in user data, allowing Facebook to better serve advertisements.
One more major announcement is the acquisition of facial recognition software Face.com. This acquisition was expected to happen by many about one month ago so this acquisition probably won’t surprise anybody. This deal is seen as an attempt to boost user photo-sharing by offering more capabilities. What this deal will also do is, not surprisingly, generate more data. Instead of relying on users to tag friends in photos, this software could make the tagging automatic, forcing those who do not want to be tagged to opt out. Either way, the company will be able to know more about its users, even if they are passive participants. Expect this product, like many of Facebook’s, to generate privacy concerns.
As it currently stands there is not a lot of competition that poses a challenge to Facebook. In fact, you could argue (perhaps convincingly) that Facebook’s main threat is itself. Regardless, many companies are attempting to unseat the social media giant.
The most direct competition is from similar service Google+. It’s not clear whether Google+ poses much of a threat, as it is still noted that users don’t often use the platform. However, Google (GOOG) is beginning to roll out more services that could lead keep some users on the platform. The main aspect of the Google+ platform is its hangout feature. Slowly the company is becoming a more visual social network, with it rolling out new photography feature last month. This time it is attempting to draw many new developers to its hangout feature with the hope to expand it into something bigger than it currently is.
Interestingly, privately held Samsung Electronics will be introducing its on social network in an effort to compete with Facebook. This is seen as critical given Facebook’s recent integration with iOS6. I believe this effort will be unsuccessful for two major reasons. First, Samsung is so far behind in social media that any hasty introduction of a social network will likely fail. Second, Samsung will be competing directly with Google+ which will not sit well with Google. It has a tight partnership with Samsung due to the Android operating system.
There are two other social networks that huge but do not seem to pose much of a direct threat to Facebook. These two, Twitter and Linkedin (LNKD), are specialized social networks and only pose a threat to Facebook but drawing users away from its platform. As Twitter rolls out more features it will increasingly butt up against potential Facebook services. One potential area of competition is search. Twitter is slowly expanding into information services and search looks to be an area of interest. It is widely believed that Facebook also wants in this area. Both companies are looking to leverage the plethora of information its users generate in other ways.
Of course, the industry is fairly new and unforeseen challenges await. Still, investors are excited about the possibility of social media, with Facebook leading at the helm. Warren Buffett has recently declared that he’s interested in several social media outlets that rely on advertising for money. These include the struggling Groupon (GRPN) and gaming-based Zynga (ZNGA), which will strive to keep their focused area profitable with Facebook possibly working on both areas.
With a month separating itself and its IPO, Facebook appears to have turned a corner. It is beginning to roll out many new services that will be huge in helping it monetize its user base. Expect the company to continue to roll out new services, especially ones that attempt to increase and monetize its mobile user base. I don’t expect a ton of competition to hold it back any time soon but look for its competition to innovate, potentially to the detriment of future Facebook services. Overall, the positives far outweigh any threats. Facebook is currently trading around $31, and I expect the stock to climb back up to $35 and higher this summer, based on the above reasons.