by Tom Taulli | December 9, 2013 9:00 am
According to a recent survey from Consumer Intelligence Research Partners, Facebook (FB) is the clear leader in the mobile space.
The Facebook app beat out tough rivals like Twitter (TWTR), Pandora (P), Google (GOOG) and LinkedIn (LNKD) to get 45% of responses when mobile phone users were asked what three apps they use most frequently. Plus, the company’s Instagram app also grabbed 8%.
But is a popular Facebook app good news for FB stock investors … or just a catchy headline? Let’s take a look.
While the Facebook app results were impressive, they have actually not been enough to juice FB stock lately. Since late October, shares of Facebook stock have slid over 12%.
Still, Facebook has come a long way from its disastrous IPO in May of 2011. Because of the then-lackluster Facebook app, which lacked a clear monetization strategy, FB stock plunged and shed over half its value. Since then, though, Facebook founder and CEO Mark Zuckerberg has been laser-focused on mobile … and his efforts have had a quick payoff.
In the third quarter, revenue at FB spiked by 60% to $2.02 billion, which was above the consensus estimate of $1.91 billion. The big driver was the Facebook app, which allowed the company to snag about 49% of overall advertising revenues from mobile sources, up from 41% in Q2.
So why wasn’t it enough to get investors excited about FB stock?
Well, even though the Facebook app is popular, there were a few worrisome signs. To start, the company’s CFO, David Ebersman, noted on the earnings call that FB may have reached the limit on how many ads it can place for mobile devices. After all, phones do not have much screen room, at least compared to PCs. That brief comment was enough for investors to get jittery about FB stock.
But it wasn’t the only red flag. He also said that the Facebook app could see erosion over time because the usage from teens has been tepid. Teens are flocking to apps like SnapChat and WhatsApp. In fact, it looks like Zuckerberg recently offered $3 billion to acquire SnapChat — certainly a sign of weakness, especially since FB has failed to provide a popular alternative. The Poke Facebook app failed miserably.
But the failed Poke Facebook app was not the only flub. Instead, yet another thing that’s weighed on FB stock was the failed Facebook app for Google’s Android, called Home. It was a launcher that automatically popped up when a person turned on the phone. Unfortunately, it turned out to be a dud.
Despite all this, there is still reason to be bullish on FB stock. Keep in mind that the core Facebook app has shown no signs of slowing down — which is promising considering mobile is the future. Plus, the company has yet to monetize Instagram, which should provide huge potential.
Besides, Zuck looks ready for something else: video ads for mobile. This could be a huge revenue opportunity and a nice catalyst for FB stock in 2014.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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