CBR takes a look at the reaction to Facebook’s IPO and the importance of the company embracing mobile in order to successfully justify its $104.2bn valuation.
As Facebook share prices fluctuated throughout the day on Friday, prices levelled out at $38.23. The IPO share price did not see a significant increase as some would have thought, opening the day on Friday at $42.05 only to fall closer to its original $38 share price.
Although the company saw its price reach as high as $45 at one point, its lacklustre debut saw the company only see 23 cents higher than its float price.
Many analysts have expressed scepticism towards Facebook’s share price, deeming it presumptuous and on the expensive side. The valuation price is based on the assumption that the company will see high revenue growth over the next five years.
"Facebook will need to generate annual revenue of $30-$40bn in order to justify the likely IPO valuation of the business," says Victor Basta, managing director for Magister Advisors. "This is a ten-fold increase over the revenues that it currently generates. The question is "where from?"
A significant area for Facebook to make potentially lucrative gains is mobile. More than half of the social network’s 900 million users access the site through mobile. The preferred use of mobile devices to use Facebook has shed light on the fact that mobile advertising is an important aspect for the company’s future.
CBR looks at expert reaction on whether the growth in Facebook mobile impressions available to marketers equates to an opportunity to monetise the channel.
Marco Veremis, President of Upstream
Facebook has acknowledged something about mobile that no other major player has been prepared to recognise to date: that the growth in impressions available to marketers as mobile penetration grows does not equate to an opportunity to monetise the channel by bombarding people with advertising. Mobiles are very personal devices and people are very resistant to any form of mobile advertising.
Research we carried out earlier this year showed why we have been contrarian to this for such a long time, with 79 per cent of consumers in the UK and 72 per cent in the US stating that they find advertisements on their mobiles or smartphones irritating. What’s more, only one in six (11 per cent) Brits and 15 per cent of Americans who have surfed the internet on their mobile phone have ever even clicked on a mobile advert.
This move to denounce current practices by as big a name as Facebook at last bursts the bubble around the inevitable growth of mobile marketing driven by growing impressions and calls for greater emphasis to be placed on consumer response and conversion rates. To get consumers to respond over mobile a brand needs to speak less and employ the right technologies and formats that achieve true relevance and impact. Very few companies truly possess these tools and as such monetization so far has been disappointing despite the smartphone boom.
Alex Mifsud, CEO of Ixaris
With growth decelerating, many commentators have judged Facebook’s $100bn+ valuation to be far too aggressive. However, Facebook has developed a number of innovations for monetising the platform which have the potential to increase its profits exponentially.
Justin Kistner, Director of social products at Webtrends
Facebook has taken a cautious approach when it comes to mobile investments and is just now getting into the game. And the timing is perfect – its approach has set it up nicely because Facebook is the best positioned to offer the first browser-level mobile development platform. In fact, Facebook just announced it. It’s called the App Center.
The App Center lets you install apps on Facebook’s mobile site. From the user’s perspective, this is important because it means apps are always up to date and from a developers perspective, it saves time and money. Instead of needing to specialize in the native language of each mobile OS, the same developers that build web-based games can build apps for mobile.
Facebook’s investment in Instagram and Glancee further demonstrates its dedication to winning in mobile. As does its newly released news feed ads that will flow into mobile. If Facebook can achieve similar monetization value for mobile users, then that will add massively to its revenue.
Phil Harpur, Senior Research Manager for ICT, Frost & Sullivan Australia
Facebook has so far been successful in making their online platform highly interactive through applications that enable the sharing of media such as photos, content, and videos. Facebook’s recent Instagram acquisition is one example of how it is transforming its platform into a one stop shop for social media communication and collaboration.
It is critical that Facebook continues with this strategy in the coming years and develop richer communications platform where users can not only IM and make phone calls, but have access to functionality such as video conferencing sessions. Current market indications are that Facebook is fairly well placed to succeed with this strategy over the longer term.
Victor Basta, managing director for Magister Advisors
Facebook is a classic example of an over-the-top technology – a business that exists on top of a pre-existing infrastructure. Microsoft went over the top of IBM and Skype went over the top of traditional telcos. Facebook is exerting similar authority and much of the downward pressure that it will inflict will be on mobile networks. Nokia’s announcement of low-cost smartphones aimed at the developing world will increase the impact that Facebook’s traffic will have on network capacity. Network operators are rapidly becoming the digital drug mules of our age.