Last February, I wrote a detailed report on the Facebook IPO and how excited I was not only to see the social media company go public, but how users and investors would have reacted. We all know what happened: reality became apparent. Investors ran away from the all of the sudden deceptive and expensive company, unloading shares at record numbers at the end of the trading day.
Since that tumultuous summer, Facebook has improved prospects for many would be investors. Although some elements of my proposed business plan are missing, many analysts and investors would like to see, progress is being made. Here are some points to consider when considering investing in Facebook for 2013.
Improvements in Facebook since the IPO
The main catalyst behind investors detest for the company was made publicly clear when General Motors (GM) decided to withdraw advertising with Facebook after it alleged the campaigns were hardly effective. Going into the summer, many investors worried if Facebook would ever rebound to the criticism.
Facebook answered by not only improving their advertising platform but by expanding into the mobile ad landscape, which many tech savvy circles have argued has been done quite effectively. Facebook is notorious for having awesome information about their users but really low click through rates in ads. However, formatted on the growing tablet and smart phone market, Facebook is in great position moving forward.
Another improvement on Facebook’s income has come in the form of promoted posts. These are similar to Twitter’s promoted Tweets. A user or business can pay a designated or bid price to have their post placed at the top of users walls when they log into their accounts. This gives a lot of variety to Facebook’s advertising revenue.
Even more incredible has been Facebook’s realization that it can get involved in affiliate marketing. Although they do not offer affiliate programs to their users they have now implemented a beta version of what is being called Facebook Gifts. Facebook Gifts enables users to buy from a selection of gifts to give to other users. They just pay for the product and don’t have to worry about anything else. Facebook collects an affiliate commission for the sale, likely between 6-12%. They won’t have to touch the product, hold it, ship it, or anything like that. It is my opinion that this is a brilliant move forward to a more diverse income stream.
Possible Problems for Facebook’s Stock in 2013
1 Billion and More FB users? Really?
One criticism I have is that Facebook claims it has reached over the peak of 1 billion users. However, everyone knows someone who has a fake account, or at least a personal account with fake information. How many of these exist and how will Facebook evaluate these accounts in comparison to the real active ones? This would concern me as a shareholder because they are likely judging metrics, the success of an advertisement and new programs on the weight of a certain number of users. They must come up with a way to get a rough estimate of how many accounts are real, with real information.
Privacy and Security are still a Concern for Users
Although the wall posts this week claiming personal copyright were in response to a fake scare, Facebook will have to continue to address concerns of privacy as they get more adept at monetizing users personal information. We already see targeted ads, similar to Google’s Adsense, but far more advanced and personalized. Taking Facebook Gifts and targeting these during our birthdays may cause some outrage, but likely not enough.
It is my guess the users will not begin to complain in any large or concentrated base until it is too late for Facebook. By this I mean, it will take Facebook by storm and the damage caused would like be universal, a trust barrier will be broken. In response to the fake security scare, Facebook did remind users on the news that they do not own the rights to any of their users content (although we still think they do in a paranoid way). However they were quick to remind us that they do own the rights to use anything we place on Facebook, including photos, video, writing or personal information like dates, locations, schooling, employment, etc.
Mark Zuckerberg’s Lack of Professionalism
The Social Network wasn’t the only thing to portray Zuckerberg in a negative light. Many on Wall Street have demanded the Harvard dropout to lose the hoodie, suit up and become a little more professional towards investors. COO Sheryl Sanberg will carry most of the weight because with the majority of shares ownership, Zuckerberg is not likely to be able to be forced out.
What’s the big deal you might be asking though, besides his attitude and the way he dresses himself? Zuckerberg has largely been responsible and personally accepted responsibility for Facebook’s slow move into the mobile markets. Remember, they are finally involved in mobile advertising, but they are not a player in the mobile market like Google or Apple. In fact, Zuckerberg has often discussed how he cares not to. Now you have one of the most revolutionary entrepreneurs slowing down on the newest most lucrative technology?
Conclusion: Facebook is Not There Yet
But it is working on getting there, no matter how slow that means. For now investors will have to pay more than 200 times earnings for a stock that is losing growth in North America as well as time spent on the site by users. A pivotal reversal will need to be made to make this worthwhile for investors. Yes, Facebook is profitable, but how long can it continue to be profitable from advertising and affiliate marketing when the rest of the internet is already well on its way to moving towards different forms of monetizing web properties?