Several issues are depressing Facebook’s stock price, but there seems an upside that the market is not tuned in to.
Facebook’s plummeting market value has been a major talking point of late. Its share price recently fell to below half of its IPO level and the doomsday forecasts are arriving thick and fast. Most analysts suggest that this is due to a combination of factors – expiry of a moratorium means that insiders are flooding the market with stock; Facebook is barely meeting its revenue and profit guidance numbers; and, the market is adjusting to the ‘real value’ due to reduced future expectations .
This article, on TechCrunch, presents three reasons why the future is bleak for Facebook –
Decelerating growth in users, unfavorable change in user mix, and a question mark in ARPU. In the short term, Facebook is certain to grow, but the question of Inferno vs. Paradiso will take quite some time to sort out.
This infographic by statista illustrates the market saturation and user mix problems faced by Facebook:
Image via Statista
Facebook’s major user growth in the coming years will occur in developing markets – where average revenues per user are traditionally much lower as compared to developed markets. Another major trend is the the movement of users to mobile platforms.
This second infographic by statista makes this more clear:
Image via Statista
It seems clear that Facebook’s future (or at least future stock price) is dependent upon its ability to monetize its mobile and developing world users. Or is it?
A bigger upside depends upon Facebook’s ability to make itself a platform for commerce and creativity. If Facebook can set rules that protect the privacy and security of its billion plus engaged users, while providing an environment within which application developers and entrepreneurs can offer Social network driven, Mobile based, Location triggered services, it can potentially earn billions in revenues through commissions alone. A scene illustrating this viable future is:
You are deciding where to get lunch. You launch the FB app, and use the smartphone camera to view a restaurant. The image is augmented by a bubble which states that 78 of your FB friends have recently been to the place, 80% of whom rate it 4+ out of 5. The app also says that if you eat there today, you will get 10% off your bill in the form of FB credits.
How does Facebook make real money in the scenario? By taking a cut on the sales of FB credits (for example, $1 = 1 FB Credit, but you can buy 10 credits from Facebook for $11 and sell 10 credits back for just $9).
However, these are big IFs and THENs.