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The Good and the Bad of Facebook’s Mobile Business

Traffic's no problem, but monetizing it is


Yesterday, Facebook filed an amended S-1, which provided an update on its mobile business. There’s some good news, and some bad news.

On the upside, traffic is continuing to grow at healthy rate.

On the downside, Facebook can’t seem to figure out how to make money with it.

Apparently, the monetization of mobile has become a big question on the roadshow, which probably is why Facebook had to make the filing.

Here’s what it the S-1 says:

“We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored stories in users’ mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered.”

Now, this is not likely to have much of an impact on the IPO, which is expected to hit the markets next week. The deal still will be huge, and FB probably still will spike on its first day of trading.

Rather, the mobile problem is something that could rear its ugly head during the next few quarters. In a way, mobile is eating into Facebook’s lucrative desktop advertising business. It’s true that the company should be able to find ways to fix the problem, but since there’s no apparent answers now — mobile advertising still is in the nascent stages — it no doubt will take time.

And Facebook is not alone. Zynga (NASDAQ:ZNGA) and Pandora (NYSE:P) also have struggled with this transition to mobile, and that has resulted in losses for shareholders.

The same could be the case with Facebook. There are already signs that the company’s growth is slowing, as seen with the company’s disappointing first quarter. Should the trend continue, it could mean a bumpy road for shareholders who covet the stock for more than for a quick trade.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

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