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Invest in Facebook: It’s a Good Bet
On 11, Sep 2012 | 6 Comments | In Blog, News, Strategy | By Alex
Does anyone really believe Facebook won’t make it? Since when does anyone really listen to Wall Street? Let’s face it, Wall Street is still sour. They drank the Kool-Aid and it wasn’t sweet.
Facebook was forced to go public by the SEC. The revenue growth was phenomenal and they were investing in R&D as they should have been. Then the unexpected happened. A perfect storm. After years and years of waiting, the smartphone market finally started to impact the world in a significant way. You can thank Google’s Android platforms for the acceleration. Facebook wasn’t ready and they got caught with their pants down. Had Facebooks’s IPO been a year or two earlier, the public and Wall Street would have been in awe with the growth of this stock; $30 a share or better.
Don’t count Facebook out just yet…
Here is why I would bet on Facebook and the Zuckster (and you should, too).
1) DATA, DATA, DATA
Facebook is ridiculously strong. They have serious amounts of data on everyone and data is tomorrow’s currency. Each day approximately 3.2 BILLION likes and comments are recorded. Nearly a billion monthly active users worldwide rack up face time with the social network. On average, users spend 6 hours a month on the desktop version of Facebook.. Think about that! It’s almost a full workday every 30 days plus mobile usage.
The world now works for Facebook. What a concept. Our job is to create content & engagement. Facebook has almost a billion unpaid content creators.
2) Internet Domination
Facebook has cemented itself in our lives by becoming the most powerful communication distribution platform. Our Facebook profile is no longer just a social hub but also a universal key to access most of the internet. Facebook connect is a go-to authentication/registration platform for many other websites like CNN, Foursquare, Tripadvisor, and more. Almost every popular mobile app allows Facebook registration, authentication and access. Some people won’t sign up for anything unless it has Facebook Connect due to the ease of use.
3) Between the Election and the Holidays, Revenue will Soar in the 3rd and 4th Quarter.
Obama’s marketing is too strong and has way more brand equity then Romney. Obama’s word of mouth capabilities far exceed those of his nemesis. A sheer look at the numbers show the disadvantage the republicans have – Obama has 28M Facebook fans and 19M+ Twitter followers, Romney has 5.6M+ on FB and 987,000+ on Twitter. The Republicans need to outspend and innovate now. When it comes down to pushing people into the voter booths, the smart marketer is going to use Facebook and all of it’s new advertising methods to their advantage. Sponsored Stories and Promoted Statuses will lead the way for this new revenue. The first step is to drive as many likes, shares, comments, and other types of social media fodder possible. They will use our own friends/family to try and sway us in one direction or the other. They will pay to promote their status updates so more of their user bases see the message. A normal Facebook post only reaches an estimated 16% of fans; both camps are surely going to augment that low exposure with some dollars. With over $200 million being spent currently on advertising, you can be sure a healthy chunk of that is going right to Facebook.
As far as the holidays go, they will be the cherry on top of the political ice cream sundae. Holiday spending was outrageous last year and there’s no reason to think this year will be any different. In 2011, 94% of CMOs said that they employed Facebook for their social advertising needs during the holiday season. The holidays will be one last financial surge for Facebook before they close their books on 2012.
4) Brilliant people working to improve Facebook daily.
New user growth had to slow down eventually. Now, their job is to make each one of the 955M active users more valuable during that average 6 hours. For starters, they’ve got brilliantly talented people working on adding more revenue. They are testing products, user experiences, and a variety advertising executions faster than anyone can in the industry. How? We are all Facebooks test subjects. If they are releasing a product you bet your ass it tested well enough to be announced. Want early adopters? No problem. Want tech moms? Got em! Church going members of the RNC? Done! Facebook has the ability and sells the ability to create and communicate with any type of person down to finite details. If you want to target 30 year old golfers that ride or love motorcycles, it is likely you can communicate with that target audience.
Facebook just released a new app for iOS. It’s faster in many ways, very well constructed. They are starting to understand other ways to monetize and Sponsored Stories is leading the way: already pulling in $1M a day in revenue for Facebook. They are already making part of the money back they were getting by serving the old crappy ads on the right side of the site. The funny part is they have been rolling out Sponsored Stories slowly and paying close attention to peoples’ reaction. It’s proving to be an interesting ad unit in mobile, garnishing clicks and valuable interesting impressions.
Sponsored Stories are connecting brands and people by showing how many of your friends like a brand page, offering up exposure. Facebook is banking off the fact that people trust other people, specifically friends and family. It is believed that a Facebook user has an average direct connection to 200 friends/family . Each of those users have opinions/interests and are spreading word of mouth messages with more speed and effectiveness than TV,radio or newspaper ads.
Some Closing Thoughts
I’ve seen this sort of thing before with the search engine market.
I believe a similar misunderstanding of the industry is leading to Facebook being discredited much like search engine marketing a few years before.
SEMPO predicted back in 2006 that the Search Engine Marketing Industry would grow to $10M in 2010. In actuality it did $16B in 2010.
Also in 2006, AT& T and the Yellow Pages were pitching businesses by saying that Google was used for research and the Yellow Pages were used for purchasing.
Let’s face it: the media, the government, and Wall Street don’t understand innovation or disruption; especially in technology, media, marketing, advertising, and communication products.
We will look back at the naysaying around Facebook’s stock with the same sense of ironic geek humor that we feel towards the statement above. The notion of Facebook failing will be as humorous as the thought of people using the Yellow Pages to buy things.
This blog post was written by David Salinas, CEO of Digital Surgeons. David is an enthusiast and thought-leader in the digital marketing space. He is also a Facebook shareholder. You can follow him on Twitter at @iGrowBrands
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True… I believe Facebook is too big – too much data and consumer momentum to fail or to be ignored. Wall Street looks at companies like this different than the market.
I wonder if the loss of GM’s advertising budget prior to the IPO caused some of the stock price hurt. In my view, the company is still an adolescent… adding a mature voice (ala Eric Scmidt/google) may be the jolt it needs to satisfy the street. or a high level high exposure hire to oversee their overall advertising strategy…
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Thanks for the comment Stephen. I think they already have a mature voice in Sheryl Sandberg. She is older than Mark Zuckerberg and well established in the industry of online advertising. At Google she was Vice President of Global Online Sales & Operations, from November 2001 to March 2008. I’d say that is pretty mature given the industry.
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Good blog, great points and perspective. I would argue though that regardless of CMO feedback, the question that begs to differ centers around tangible measurements of revenue growth as a result of social advertising.
Is FB or Twitter just a novel concept for advertising budgets that will not allow true measurement of consumer spending for bigger commerce vehicles? GM pulled because they could not measure this. Everyone is holding their breath and waiting to see if the GM move was an anomaly or an upcoming trend. If the latter, FB will continue to falter and never regain investor confidence.
If I touch on your 3rd point, our presidential election is a once in every 4 year occurrence. So any “chunk” of the pity spent is not a consistent one that will be there quarter over quarter annually and cannot be relied on from an investor perspective as a steady stream of revenue. Regarding holidays, see my above comments on CMOs and ultimate advertising decisions.
I agree, the SEC pressed, the Zuckster bit and all has been downhill ever since. Unfortunately, I don’t think you will see a bounce back for this stock.
Just my humble opinion. again, great topic and well written blog.
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@DSfreeworld I’m glad you liked the blog. My only goal is get my ideas somewhere and engage people like you.
If I were you I wouldn’t base my argument on what an advertiser did in the past. Especially a company that is headed toward bankruptcy again http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again/
There are many speculations as to why GM left Facebook. One of which is the fact that Facebook reps had criticized GM for having multiple firms handling there ad spending in the social network. I would also venture to guess that GM left Facebook due to the fact that at that time FB’s mobile strategy wasn’t employed completely and the value on the older ad units weren’t as effective as other forms of media. Sponsored Stories and promoted statuses were being rolled out very slowly and with caution.
Today, just a few months later, they are proving to be effective. GM will be back, if they make it.
The industry as a whole has been caught up on the idea of the click or click-through as a measurement of media. That measurement is being challenged by many folks because there is no evidence that a display ad impression is any different than a TV, Radio, or Print advertising impression. Facebook provides brand impressions at the end of the day, holding similar value to the exposure of many other ad units.
However Facebook’s new ad units add a very interesting value to the equation and that is our friends and family. Interrupting my media experiences with an advertisement saying GM, GM, GM is pollution or noise. Interrupting my media experience to show me that my best friend or uncle “like’s” GM is a whole new ball game. That is sponsored or paid word of mouth with scaling capabilities https://www.facebook.com/business/power-of-advertising
On your point about the election being once per 4 years, I didn’t say to hold on to your Facebook stock for the rest of your life. I just said it’s a good bet. They will definitely have a great 3rd and 4th quarter. I think they will get to $10B in revenue in 2013. At a 10x valuation that puts them back in the $30-$40 range.
At the end of the day we are all entitled to our opinions. I am willing to put my money where my mouth is. Are you going to SHORT the stock?
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Yes, i am going to short the stock
The reason I respond to blogs like yours is to challenge the thought and engage in healthy debate. that having been said, I will close my end with the following, very intriguing opinion article I happened across whose sentiments just might hold true. As for me, I invest in precious metals. In the past 90 days that FB has plummeted over 50% of its IPO, Silver has gained 24% and is still moving upward. From the desk of a Washington Times Analyst:
“Those who follow know that a comfortable P/E ratio is 14 or 15 times earnings. While the internet stocks of the 1990s often had no earnings at all, Facebook actually is in the black. However, with earnings of 30 cents per share, Facebook should not be a $38 stock. It should be less than $5 per share….the reason why Facebook became the largest social networking site in the world is the very reason it could face severe obstacles to success. There is one reason why Facebook could fail, and this failure already exists in other industries.
Facebook treats young people as the most important people in our society. From a business standpoint, they are not. They are the least important.
This insane practice continues today. Older people have all of the money, yet marketing executives insist on targeting the youth.
The same conundrum holds true with Facebook. Facebook began as a way of connecting the world, and catered to the youth of the world. It would be free forever. Advertisements were the source of revenue for the company.
Yet Facebook could not change societal habits. Young people do not have money. They don’t buy stuff in quality and quantity to satisfy most advertisers. General Motors figured out that young kids playing “Farmville” are not going to be purchasing $50,000 automobiles. Most of the youth only click on the advertisements either by accident or to make them go away.
Facebook has insisted they will never charge people to use their site. Yet relying on advertisements can be shaky. They need new revenue streams.
Zuckerberg insists that Facebook was created to be a social network, and not a business. Well, now Facebook is a business. Wall Street is not Farmville or Mafia Wars. Wall Street is the big time. Children need not apply. So either Facebook finds a way to get adults to part with their money, or it will enjoy life as a penny stock.
It is time to stop obsessing over the youth. Adults built this country, and adults maintain it. Young people eventually grow up, but Facebook does not have the luxury of time. Shareholders are impatient, and Facebook needs to mature in a hurry to avoid being just another youthful ideal to get crushed in the real world”
’nuff said
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@dsfreeworld The analysis is old news. I wrote my article when FB was at $18 not at $38. No one is disputing that a few months ago FB Was over valued.
This is a real-time market, Facebook is innovating in real-time. Things can change very quickly. I wish you the best with your investing decision. Thank you for the debate. I will pray that you are not betting your children’s college savings on the fact that Facebook will go down to $5 a share.
I’ll leave you with the ending of my article.
“Let’s face it: the media, the government, and Wall Street don’t understand innovation or disruption; especially in technology, media, marketing, advertising, and communication products.”
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