Over the decade many social networking sites cropped up and fizzed out with time, but Facebook (FB, Financial) led by the young Mark Zuckerberg has gone from strong to stronger. From being reckoned as a social networking site, it has now become a social media sites. In the domain of social networking we would still score Facebook higher than any other based on its facts and figures and its number mix. Even after a lot of activities in its competitor area and its failure to make inroads in China yet the solid operating metrics make it the best investment bet in this segment. Let us take a deeper dig at its number mix and its prospects in 2015.
Backdrop
I expect FB's core advertising segment to extend its growth next year despite recent trends of deceleration due to tough competition. Facebook’s user reach and large advertiser base can actually unfold opportunities of advertisement typical of Google (GOOG, Financial).One area Facebook needs to focus on with immediate effect is the mobile messenger section beyond WhatsApp and FB Messenger. With the latest range of smartphones hitting the racks the trend in 2015 would be to make life convenient on the go. A versatile mobile messenger would open the doors for Facebook to a range of new realms like mobile payment, commerce, gaming, O2O (online-to-offline) and P2P opportunities. The existing business format will take Facebook through in the medium term but in the long run Facebook needs to diversify to mobile segments and the time is right to set sail in the mobile dimension.
2015 on the roll for Facebook
Keeping in mind the increasing popularity of vertical ads and the trend continuing in the upward direction this would be the major driver of the overall business. Facebook’s wide coverage gives it the leverage to diversify and expand its presence in different formats of internet based business. The two key segments that Facebook should focus on are search and video. For a matter of fact users spend considerable time in a day on Facebook and adding search options would mean the users will stay attached to their site for longer and enjoy the search facility, in turn earn revenues for Facebook through display ads. While the scale is currently focused within the FB platform, there is potential for Facebook to apply this feature to the entire web, allowing users to search directly from the FB platform, bypassing Google or Yahoo search engines. Addition of the search feature would enrich the ecosystem of Facebook business.
Another segment which is expected to gain considerable momentum in 2015 is video, which will buy out revenue from television channels and translate into revenue for Facebook. Users today spend more time on Facebook than watching TV programs and this creates an immense earning opportunity for Facebook. “TV ad dollars remain the last frontier within traditional media that has yet to see y/y decline in growth due to its existing viewer base. This will likely change as more content goes OTT (over-the-top). Platforms with scale and reach will be the key beneficiaries of this trend,” stated a market analyst in the media domain. Foraying into SVOD is a logical choice for Facebook given its large viewer base. Facebook could also prove pivotal for user broadcasted contents in the lines of YY (YY, Financial), though YY’s fate in North America looks quite bleak; however, Facebook can make good business out of media contents like online education, how-to experts and video game walk-through, and drive video ads business.
Going by the recent reports, Facebook has been testing newsfeed video ads. Though the rollout has been slow, Facebook is treading this segment with care and wants to ensure consistent user experience. This is a good strategic move from Facebook, and investors should see the brighter side of the move in medium to long term.
Internet Messenger to hit the Limelight
By acquiring WhatsApp Facebook did recognize the growing popularity of messenger apps as the next generation communication media and did offer some good response against the popular Asian messengers like Wechat, Viber, KaKao and LINE. But this should not be the end of the road for Facebook’s messenger initiative especially when the messenger technology is evolving continuously and rapidly. However, the decision to create a separate FB messenger app and disable the messaging feature in the FB mobile app seems puzzling, if not outright strange.
Facebook currently offers two messaging platform – WhatsApp and FB Messenger but both of them are technically limited to only communicating in closed groups through messaging and sending pictures/videos/voice notes to one another and are rather confusing to users. But the messaging world has gone much ahead of simple communication medium. The Asian app peer group players offer services like transfer payments, book taxis, look up hotels, purchase items online and even trade stocks through their messenger. This is an area that Facebook need to quickly look into and build up in order to sustain and earn in the messenger segment and enhance its ecosystem.
Rather than create a separate FB messenger, Facebook should incorporate the advanced messaging feature back into the main Facebook platform and focus on improving WhatsApp, given its larger mobile footprint. Enhancing WhatsApp's features should be its major focus. Services such as travel booking by partnering with Priceline (PCLN, Financial), restaurant booking via OpenTable, mobile ecommerce via Amazon (AMZN, Financial), taxi booking via Uber, O2O via Groupon (GRPN, Financial), movie ticketing with the major theater operators or event booking ecommerce companies like BookMyShow. Such feature addition to Facebook’s messenger platform is the need of the hour to excel in this segment. Given the size and reach of Facebook, it should not be a problem for Facebook to liaise with such companies since Facebook's global platform and mobile user base is undoubtedly the largest, secondly much of these merchants' services are conducted via mobile phones and more so the current lineage of versatile smartphones and last but not the least incremental traffic referral onto their site.
Our outlook
2015 has got a lot of rooms for Facebook to work on and Facebook needs to capitalize on them in order to have a long term growth prospect. Currently Facebook seems to concentrating majorly on the core business which is still growing base and video/search/ad network expansion seems to have taken top priority. But investors also can’t ignore the rising popularity of messenger app and Facebook should quickly start its foray in developing and enhancing this segment so as to sustain profitably in the long run.
