I have avoided writing about Facebook primarily because nearly everyone else is. For full disclosure, I do not have a Facebook page. However, I do manage such a page (http://www.facebook.com/Broadvox, after all I am a big social media proponent. And therein lies the rub. I have watched Facebook shares struggle post IPO like many other interested parties. I was a bit skeptical of the share value pre-launch but I did expect the hype and interest to drive those shares higher. Yet, as the IPO initial price rose and the value of the company hit $100 billion, I wondered how will they monetize Facebook? Apparently, I was, and obviously now, am not alone in wanting to query Facebook management on how they intend to increase revenues.
Facebook touts nearly a billion monthly active users but with 1Q2012 revenues of $1.058 billion, one has to express skepticism. Doing the math, Facebook generated only 33¢ per user and I thought selling songs for a buck was going to be difficult. As I look at a Facebook page and see what I consider barely relevant to completely disinteresting advertising, I do not see Facebook as the Google killer for ad placement. GM is more correct than Ford as to the value of advertising on Facebook. People are not going there to buy stuff. They go to connect with other people.
Most of the postings on company sponsored pages tend to be complaints and I for one think that is a good thing. It provides information on how customer support and care processes are working and also reflects how responsive the company can be when a problem is identified. However, do companies want to pay to have a page on Facebook, such as when products are sold on eBay or Amazon?
Facebook needs a breakout strategy to address the large number of users that access them through mobile devices. If the studies conducted by Cisco, Infonetics, Symantec and others are even half right, success in future requires a mobile strategy.
After an up day yesterday, Facebook will open down this morning and that should not be a major concern of a serious investor who believes that Facebook has a strategy to monetize nearly a billion monthly active users. It should only concern those who wanted to get a quick return and profit from the IPO. By that measure, get ready for an avalanche of shares due to be released by Facebook insiders over the next six months. Within 181 days of the IPO an additional 1.7 billion shares will become available for sale. If the stock does not look like a good long term investment, expect those insider shares to be sold.
Investors learned a lot during the first dotcom bubble. Those lessons are now being employed when analyzing Facebook, Groupon, Zynga and others. Get a real business plan, strong management team, execute, differentiate, maintain strong barriers to entry and generate revenue with sustainable growth. With that formula, success and investment will follow and that is music to anyone’s ears.
See you on Monday with another original recipe.