If there is a company that has grown phenomenally fast in the past decade leaving Google (GOOG, Financial)(GOOGL, Financial), then it has to be Facebook (FB, Financial). Since its inception, this social media giant has only expanded its user base and has not once run out of charm. In the last quarter itself, the company recorded a whopping 1.35 billion monthly active users and 1.2 billion mobile monthly active users. Additionally, Facebook has grown revenue at a rate of more than 50 percent in the past few quarters, which has escalated it to a dignified second position in world of digital advertising. Now, it has decided on launching “Facebook at Work” in order to enable users to use the social network at work. Let us see if Facebook is a good investment option at its current valuation.
Facebook at work: The basics
Various analysts and tech pundits have already given different opinions regarding the viability of this idea. While some have cited that the idea might work, a good number of analysts have expressed their scepticism. First off, investors need to know that this is not something completely new and out of the box that Facebook has suddenly proposed. The employees have been using the social network’s work-oriented version for managing internal communication for a reasonable time. Now, the company wants to go further and launch a full-fledged version of the same in order to expand its reach. If such a concept will work then obviously it will prove to be highly beneficial for the company from a data accumulation viewpoint. However, as an analyst, my job is to point out any risks associated with the idea and how will it impact investors.
Before I go into discussing the potential risks associated with the idea, let me state that this is an incremental initiative and therefore, if the idea does not work, it would not have a massive impact of Facebook’s overall operations. Also, it is to be understood that with this initiative, Facebook is targeting a market worth $300 billion plus, wherein LinkedIn (LNKD, Financial) has a dominant position. From the details available, it is expected that the company will keep accounts created on “Facebook at work” will be kept entirely separate from the personal accounts. Thus, it is amply clear that the social network is attempting to enter this space with the objective to expand its user base and in the process, build up its ad portfolio for advertisers.
Potential risks?
Currently, most of the organizations use their personal networks to promote communication among employees and in order to create a professional network, employees make use of LinkedIn’s services. As a matter of fact, Facebook is prohibited in certain organizations especially financial firms in order to maintain the security of confidential data and also to sustain the productivity of employees. Therefore, Facebook will have a tough time penetrating this market because of the strict workplace regulations followed by a host of organizations. To top that, Facebook as a website is known to employ algorithms that manipulate news feed with the intent to influence user behaviour.
To resolve such a predicament, Facebook will have to create a product that is robust enough that addresses the privacy and security concerns of these organizations and its employees. In the past, allegations have been leveled at the company for misusing user data and therefore, Facebook will have to push for a product that is satisfactory in these terms. As I mentioned above, the details for this new product are not available in abundance and therefore, it is not viable to comment on the strength of the product. However, these are some highly probable challenges that the company will have to meet.
For investors, it is definitely clear that the company is going after a market that has reasonable potential and as such, it is prima facie a good move. However, Facebook will have to be overly cautious while dealing with privacy and security of data as any breach could hurt the company in a couple of ways. First, it might have to pay hefty fines for its inability to ensure the security of data and second, any lawsuit from any organization will negatively impact the brand. In such a case, the share price might experience some volatility due to sharp market reaction. As such, investors will have to be cautious as well and be aware of company’s position in this market.
Takeaway
“Facebook at work” is definitely a necessary innovation and to an extent, it was anticipated that the company would unveil it soon. The impact of this initiative cannot be properly gauged at this point, but Facebook has competency in this area and therefore, if it can forge the right partnerships, we could see a new revenue channel quite soon.
