Be Cautious With Facebook: Mobile Ad Strategy Flawed

Be Cautious With Facebook: Mobile Ad Strategy Flawed

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Investors remained faithful for Facebook (FB) shares, after CEO Mark Zuckerberg said he would not be selling shares. Facebook managed to rise 4.79% to $18.58 on September 5, breaking a downward spiral in its shares that began in early July. Investors should note that Zuckerberg already sold $1.1 billion worth of stock after the company IPO’d.

On the positive side, Facebook’s decision to use cash and lending facilities to pay for its tax bill will reduce the total shares outstanding by 101 million. On Kapitall, Facebook is one of the most actively viewed and traded stock, albeit a small allocation of total holdings for Kapitall investors.

Kapitall investors should note November 14th on their calendar: the lockup expiry for 1.09 billion shares of Facebook will end that day. Facebook will also let employees sell 234 million shares on October 29, instead of the original November 14.

Facebook is due to report earnings on October 23.

What Ad Strategy?

Pundits and analysts continue to believe Facebook will grow revenue via mobile-advertising, but this view is flawed. If advertisers were to realize that mobile ad clicks disrupt the user experience, they would infer that the majority of clicks happen accidentally. Facebook still needs to enhance its mobile facebook app. Although Facebook’s update to its app on Apple (AAPL) is improved, much work is still needed for the Facebook Android App. Functions as basic as copying and pasting text, for example, does not work.

eMarketer still thinks Facebook could generate around $73 million from mobile advertising this year, and $387 million next year. Investors should treat that forecast with skepticism.

Below are the social media companies to look at. To get a snapshot for each company, click on the company icon. To get more detailed fundamental information on any of the companies, open the snapshot and select “number cruncher.”

 

 

1. Facebook, Inc. (FB, Earnings, Analysts, Financials): Market cap at $39.81B, most recent closing price at $18.58.

 

 

2. Zynga, Inc. (ZNGA, Earnings, Analysts, Financials): Market cap at $2.22B, most recent closing price at $2.92. Zynga released Farmville2.

 

 

3. Groupon, Inc. (GRPN, Earnings, Analysts, Financials): Market cap at $2.73B, most recent closing price at $4.18. Groupon is focusing on Groupon Goods, Groupon Now!, and Groupon Getaways. A third of Groupon’s transactions came from mobile apps in Q2.

 

 

4. Yelp, Inc. (YELP, Earnings, Analysts, Financials): Market cap at $1.58B, most recent closing price at $25.77. Yelp rallied from $18 to around $26 in recent trading sessions despite the lockup period ending on August 29. Mobile advertising is strong for Yelp, with 25% of unique visitors coming from mobile devices.

 

5. LinkedIn Corporation (LNKD, Earnings, Analysts, Financials): Operates an online professional network. Market cap at $11.97B, most recent closing price at $113.28. Analysts think LinkedIn beat expectations in Q3. LinkedIn is performing well in all of its business segments.

 

Written by Chris Lau.

 

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4 Responses to “Be Cautious With Facebook: Mobile Ad Strategy Flawed”

  1. Brandon Bernal says:

    Something to keep in mind is that there are 2.14 BILLION shares outstanding. That does not include the HUNDREDS OF MILLIONS of dilutive shares such as non-vested RSUs and unexercised options. Just based on what we know is out there, $73M across 2.14B shares is $0.03/share this year and $387M across 2.6B shares is $0.18/share next year.

  2. Book value is under $7 a share. Currently people are paying about 2.7 more than the companies worth for the SPECULATION that FB will come up with some other streams of revenue to make up for the remaining $12+ in the stock price. AND the earning estimates used are EBITDA since expenses, taxes, depreciation and amortization values are in flux. And any argument that the filing disclosing that Mark isn't selling for 12 months is reason to buy fail to understand that if Mark were to sell any stock he would be giving up some control of his company. After all he went through to make sure he has 57% of the company and 70% of the voting power, why in the world would he sell anything when he doesn't live a life of luxury or exuberance while still raking in over $1.7 MILLION? If that was your worry, you were a fool already.

  3. moriss says:

    I read similar articles about these companies and about advertising in general on <a href="http://www.inspiriamedia.com” target=”_blank”>www.inspiriamedia.com. They gave the readers more details and other examples.

  4. moriss says:

    I read similar articles about these companies and about advertising in general on <a href="http://www.inspiriamedia.com” target=”_blank”>www.inspiriamedia.com . They gave the readers more details and other examples.

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