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Facebook Is Riding High on Mobile Growth

June 12, 2014 | About:
Riddhi Kharkia

Riddhi Kharkia

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This era of on-the-go technology or as we fondly call it, wearable technology, has come into being in a big way, and the reason for its unfathomable growth has been the need for people to stay connected and be in possession of technology at all times. Hence, for a greater part of this decade, mobile devices will be of central importance to tech giants like Facebook (FB) and Google (GOOG), who have already started executing on the solid strategies with respect to mobile technology. For Facebook, there are already 1 billion monthly active users on mobile, and mobile has a dominant influence on each of the company’s strategies.

In the fourth quarter, 2013 earnings call of the company, this is what the CEO Mark Zuckerberg had to say regarding the business of Facebook:

“Overall, 2013 was an important year for us. If 2012 was the year we turned our core product into a mobile product, then 2013 was the year when we turned our business into a mobile business. I expect 2014 will be the year when we begin to deliver new and engaging types of mobile experiences.”

Mobile Is the Pivot

Thus, it is significantly clear that the company is hard focused on expanding its business in the lines of mobile technology. In fact, the acquisition of Whatsapp, an Internet messaging service, for a whopping $19 billion was done with the motive of expanding its mobile reach. While a score of analysts criticized the deal as overvalued, it was but a small step in building a colossal business. Let me give a few significant numbers related to growth and share of mobile in Facebook’s overall business.

Of Facebook’s overall daily active users, only 55% access it from their mobiles: That’s around 441 million people. Meanwhile, the separate Instagram and Facebook Messenger apps each have more than 200 million monthly active users, with WhatsApp – bought by Facebook for $19 billion earlier this year – already used by 500 million people.

This is translating into more money for Facebook through advertising: 59% of its $2.3 billion of ad revenues in the first quarter of this year came from mobile, a proportion that stood at 30% in the first quarter of 2013, and just 14% in the third quarter of 2012.

E-Commerce Is the Way to Go

Even though the movement of high-profile executives in the Silicon Valley is not anything new, it still gives reasonable cues to shareholders about the prospects of the company and the shift of PayPal’s president David Marcus to Facebook is definitely a positive development. David will help Facebook develop its e-money transfer efforts. Marcus is PayPal's president and he will resign his position on June 27 to join Facebook as head of the Messenger product.

This is also a cue to the big plans of Facebook regarding e-commerce because it is now transitioning into a holistic platform that provides the sellers with a two-fold advantage, provides an easy portal to effect sales and provides a bounty of information to the business owners/advertisers that helps the companies to leverage their sales by building encompassing sales strategies. Now, the induction of PayPal’s president will be the icing on the cake as Facebook will prove to be a huge challenge to the likes of Amazon (AMZN) and eBay (EBAY).

Final Words

Coming back to Facebook, it is amply clear that the company has massive scope of growth in a high-growth area. As reported above, only 55% of Facebook’s user base uses the social networking site through their mobile phones, indicating enough scope of expansion. Though the stock is slightly overvalued at this point in time with a forward P/E of 36, still the massive growth opportunities warrant the presence of Facebook in your tech portfolio.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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