How low will they go? Facebook shares have lost more than half their value since the IPO in May. The main reason is investors’ fear that the company is failing to profit from the increasing number of people accessing its services on mobile devices rather than desktop computers. The concern is legitimate, but there is good reason to believe that Mark Zuckerberg and his creation will prove detractors wrong over the coming months as they ramp up two important initiatives.
Only a tiny portion of the company’s revenue is derived from mobile advertising today—but that’s because Facebook is just getting started. It was only this year that the company rolled out Sponsored Stories—customized ads that appear in a user’s timeline—for smartphones and tablets, and the early results are promising. Facebook rakes in half a million dollars a day from these ads on mobile devices, a figure that should increase as more advertisers take note and Facebook fine-tunes the delivery. People may get frustrated if the ads appear too often, but Tom Forte, an analyst with Telsey Advisory Group, doesn’t expect much user pushback. “There is a large enough number of consumers out there who understand that a lot of the content on the Internet has to be supported by advertising,” he says.
Facebook is also in the process of launching a real-time bidding network for advertising. If a user is browsing for trip packages on a travel website, for example, that user will later be shown vacation ads on Facebook from that same travel company. The new system, called Facebook Exchange, will allow companies to more narrowly target consumers based on their demonstrated interests and deliver more timely ads. Brian Wieser, an analyst with Pivotal Research Group, estimates Facebook can generate at least US$400 million per year in the United States alone from Facebook Exchange.
Facebook is a young company, and it has many new routes for growth before it. “Zuckerberg should be given a chance to prove himself,” says Michael Pachtner, an analyst with Wedbush Securities. Don’t unfriend him just yet.
