If you are not able to decide about having a Dot Com Company in your portfolio, try considering Facebook Inc. Face book, Inc. (Facebook) is one of the leading community website connecting people. The business model of the website is various advertisement models through which the company gets revenue from the advertisers displaying their advertisement on the website. For advertisers it is a gateway for generating business with organic traffic of its probable customers. The popularity and the hit counts on the website is increasing exponentially, this attracts more advertiser on the website and generates higher revenue for the company which even benefits the investors.
Online advertisement market is one of the fastest growing markets that various advertisers are opting on web for various marketing and brand establishment activities. The internet advertisement market is anticipated to reach $194.5 billion by 2018 as against the market of $117.2 billion in 2013, a CAGR of 10.7%. U.S alone, recorded Internet advertisement revenue of $11.6 billion in first quarter of 2014, increased by 19% over same term last year. Website traffic is the key for advertisement revenue on any website. This is where websites like Facebook is gaining competitive advantages over its nearest competitors and advertisers are favoring Facebook over its competitors. Let us now discuss the financial growth of the company and then we can discuss the various revenue growth drivers for the company.
Strong Quarter
The company reported its first second result for the fiscal 2014, and it exemplifies the growth of the company. Revenue was up 61% year over year, to record $2.91 billion as compared $1.81 billion in the same quarter last year. Facebook generated 92% of the revenue from the advertisement, which was $2.68 billion, up 61% year over year. Looking into the growth of mobile users, Facebook has seriously worked on the deployment of the website and serving advertisements on various hand held devices (smartphones and tablets). This effort of the past is showing positive result for the company as the advertisement revenue from the mobile devices increased by 41% year over year and contributed 62% of the total advertisement revenue.
Not just the top line but the bottom line of the company also recorded growth, Mammoth growth in the non GAAP net income, that was up by 124% year over year, to record $1,09 billion as compared to $448 million in same quarter last year. Non-GAAP EPS was up by 121% year over year, to record $0.42 as compared to $0.19. Free cash flow, recorded $872 million in the second quarter of 2014.
Growth Drivers
Geo-Target Advertisement: Facebook now features with an advance version of “Geo-Targeting” advertisement. This can further provide a higher advertisement revenue prospect, mainly from the growing countries likes India, Nigeria, South Africa, Indonesia, Turkey and Latin America. The advertisers can now target advertisement that can target a state or multiple states in a country. This feature will provide wider range of advertisers, who prefer targeting specific locations (state wise). Advertiser who opt advertisement in print media with regional circulation, can now also be a probable advertiser on Facebook.
Life-Stage Targeting: Similar to Geo-Target, the Life-Stage target specific crowd of people who are in various stages in life ranging from job switch to retired persons. This feature is now launched in high growth countries. With this features the advertiser can reach a specific segment of the people by serving mobile ads for relevant crowd of mobile users.
Missed Call: Facebook has been testing missed call features for mobile users in the growth countries like India. This features targets mobile users who send call for call back purpose ”Missed Call”, mainly to save air talk time. Missed call feature will be enabled by clicking on an advertisement that will be served on the mobile device for mobile users, who prefers to dial and hang up. This further will attract new advertiser to target specific segment of the crowd. In India, 100 million people are on Facebook, 84 per cent of them are mobile access users.
Video Experience: Facebook now plans to compete with YouTube and has started providing video feature on the website. As videos go viral, it gets extra traffic to website, which can always be monetized. A new feature “Related Videos Function”, which is in testing phase, will soon be launched on Facebook mainly for the mobile users. This feature is now found on YouTube. Furthermore, it seems that Facebook is now focused to add the video content to its content empire, which was initially missing, so Facebook will now be getting traffic from video content also.
Conclusion
Overall Facebook could become a highly attractive buy, if the market continues to tank. With various new features launched in the high growth areas, traffic will further grow leveraging advertiser to opt for advertisement on Facebook. This will further provide growth in top and bottom lines for the company. Furthermore, based on the recent history of the company for bypassing the street's profit view, odds are the company will earn around $1.3 per share for 2014. If the company continues to produce bullish earnings surprises, which is certain, it can yield good return for investors.
