Facebook (NASDAQ:FB) has seen numerous ups and downs since its initial public offering. The stock prices have shown a highly volatile behavior in the past few months with a low of $17.73 in the month of September. Since its debut in the market, Facebook has faced significant criticism; therefore the confidence for the prospective performance of the company did not become established among the investors. However, Facebook's stock has shown a significant rise in value in the past few days reaching the highest price in around four months.
The stock value of the company has been rising for the past 20 days and it has witnessed around 15% month-to-date increase. Whether this trend is here to stay, is still unclear. Considering the past performance of Facebook's stock, it can be said that the stock price of the company has been highly volatile and forming a judgment following a positive trend at this point may be premature.
Factors Influencing FB's Stock Price
One of the major factors that have pushed Facebook's market performance is the rise in investors' confidence in the company's potential to earn higher revenues in the prospective periods. This confidence is directly linked to the increasing success of the company in generating high ad revenues. In its most recent earnings report, Facebook disclosed its plans to expand its advertising operations, which would result in significantly higher ad revenue.
The social networking website has evolved significantly since it was first introduced. The site that started as a virtual imitation of the social interaction, evolved to be a potential opportunity for businesses to connect with their customers through the social networking site. This enabled the company to generate high advertising revenue. At this point, Facebook is the world's biggest social network and this gives the company a competitive advantage over its competitors such as Google (NASDAQ:GOOG) and Zynga (NASDAQ:ZNGA). Advertising is also one of Google's major reporting segments. The company provides a wide range of services and integration of advertisement in its services gives it a high potential to earn high ad revenues. On the other hand, Zynga provides online games through social networking sites and has more than 240 million monthly users. Such a high number of users gives Zynga an edge in the competition, however the scope of its operations and the number of its users are much smaller than that of Facebook.
One factor that kept the investors at low with regard to Facebook's prospects was the company's vague governance policies. However, the company is addressing this issue by including the members in the issue. Facebook is considering the involvement of members through votes regarding the changes in its governance policy. This has also influenced the market performance of the company in a positive manner and it has helped regain the confidence of the investors.
Facebook's Mobile Ad Campaign
Facebook declared that its major objective currently is the development of the mobile version of the social networking website. The company has significantly improved the mobile version of the site and it seems to be winning the battle in mobile ad campaigns. Continuous changes and improvement have kept the social networking site alive and they have helped it in its growth over time. Due to a large number of users of the mobile version of the site, Facebook has attracted significant attention with regard to mobile advertisements. The company is inviting businesses to advertise on the mobile version of the site and it has received fairly positive response. This is also a major factor that has helped the company regain strength in its market performance.
The desktop version of the site has been witnessing a decline while the mobile platform is growing continuously. One of the reasons behind this may be the increasing number of smartphone users all around the globe. Therefore, the company is diverting its resources towards the mobile platform while it is growing; however, the desktop version seems to have reached its maturity stage.
Considering the current market performance of Facebook and the factors that influence, in my opinion investors should hold the stock of the company as the stock price is expected to follow the same trend for a short term. This may be a good opportunity for short term investors who seek to gain from short term trading.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.