Invest into Advertising Experience

Facebook continues to expand by acquisitions and changing its business model for growth. Its stock value grows into a feasible investment.

By: Brandon Peng

Date: May 16^th, 2014

Looking like it will have more significant peaks.

Facebook has an up-scaling growth over the past 2 years by focusing on mobile advertising instead of desktop advertising. In Facebook’s first quarter in 2014, its revenue from advertising was $2.27 billion, 82% more than 2013’s first quarter.

Facebook counts its users by DAU: daily active users. With more DAU, the more revenue Facebook makes with viewership on advertisements. With about 59% of advertising revenue from mobile advertisement, Facebook seeks more DAU by acquisitions. For its focus on growing more viewers, Facebook is a recommended investment before it grows enormously.

In 2013, Facebook’s business model isn’t to push ads, but to increase the quality of its advertisements. Mark Zuckerberg said during the 2014’s first quarter conference call, “… I think overall what we’re trying to do is make it so that the individual load on a per-person basis isn’t increasing at a dramatic rate; but instead, we’re driving most of the wins in user experience, advertiser performance and our own revenue through increasing the quality, primarily around News Feed ads.” With more satisfaction of advertisements on Facebook, the more it can try to get viewed.

With recent acquisition of WhatsApp in February 19^th, 2014 for $19 billion, Facebook is trying to expand the mobile network between advertisements and users. Whatsapp is a popular mobile communication app in Latin America, India, and Europe with about 450 million users monthly. In the conference call of Whatsapp’s acquisition, Zuckerberg doesn’t intend on giving WhatsApp a monetizing start of ads flying around, but he does plan on it in the future. And once it does, the DAU and advertisement revenue would skyrocket.

Financially, Facebook revealed gross revenue about $2.50 billion; about 72% increase from the first quarter a year ago. Further comparison, the 2012’s first quarter’s gross revenue was $1.6 billion before. 2014’s first quarter’s net income follows the same pattern of $642 million; more than double of $219 million from 2013’s fourth quarter! DAU has been on the rise to 802 million users at 2014’s first quarter, since 526 million DAU at 2012’s first quarter.

It doesn’t have any specific competitors, but according to an updating collection list, it does have an estimate of 405 mobile advertisement network competitors in the market. According to eMarketers, Google with its Admob is one of Facebook’s biggest competitors in the mobile advertisement network, holding a large estimate of 46.8% of the mobile ad market share. Before in 2013, Google was holding about 50% of the mobile advertisement market share, and as Facebook grow Google shrinks.

Facebook’s stock has been climbing up in value for two years. Its 2014’s first quarter announced that its EPS, earnings per share, broke the ceiling with $0.25. It’s almost double the EPS of the EPS three quarters ago of $0.13, and $0.25 beats NASDAQ’s consensus forecast by about 39% more than expected. Facebook’s embarrassing IPO, initial public offering, is long ago in the past. Now its $38 per share IPO skyrocketed to around $60 per stock in 2014’s first quarter. P/E ratios, price-earnings ratio, currently 96.53 at Wall Street Marketwatch, but overall analysts at Wall Street and NASDAQ still strongly recommend investing into Facebook’s stocks.

By overall information, Facebook has shown define growth. Several investors shown to regret not investing into Facebook during its poor IPO, and didn’t see how far Facebook’s stock could have grown. Instead of regretting for not taking advantage of its network globalization, invest into it now before it explodes more DAU and advertising revenue. But also see it as investing into new social platform.

Oculus VR, an acquired virtual reality technology company at March 25th 2014, will be used to further increase Facebook’s user experience. According to Zuckerberg, he plans on connecting different people globally with its virtual technology. If Oculus pulls off a virtual reality technology that slides in advertisements, people everywhere would want to try it out.

Goldman Sachs’s analyst, Heather Bellini, who has been looking at Facebook for almost every quarter vouches for Facebook’s performance: “Consensus is currently modeling 2Q14 mobile ad revenue…. While we do not see estimates for the balance of the year changing by the same magnitude as they did off of the 4Q13 print, we see enough of a positive estimate revision to continue to drive outperformance in the shares.”

Who knows what the future Zuckerberg is thinking about with Oculus’s virtual technology as a social platform: “Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face -- just by putting on goggles in your home.”