Since Facebook (FB) announced its Home software for Android, which goes on sale today, the stock has been on a ride upward. Investors have to try and figure out how many copies of Home might be downloaded, and how many might be used, in order to evaluate the potential of the product and its potential for the company.
Walt Mossberg says that the software "takes over your phone" and that's about right. The software puts your Facebook wall in front of all other phone functions, including the "home" page (hence the name). And, as the AP reports, it shields you from other non-Facebook tasks.
How attracted you are to the product depends on how well you use Facebook. The intent is that you use it very well, that you have a collection of fewer than 100 friends who you are close to and whose activities you want to follow. But that's not how everyone uses the service, even people who use it often. If you're using the service to publicize yourself, or what you're doing, then the "friends" on your phone are mostly strangers. Watching what they do provides no value to you. Hearing what they think, unless it's about you, provides no value to you.
The conventional way to look at this, then, would be through the prism of the 80-20 rule. That is, 80% of your use comes from 20% of your users. So even if you roll out something that only interests that 20%, you're going to bring a lot of your traffic into it.
But I question whether that's what is going to happen. I'm seeing stories like this one, based on a Piper Jaffray survey, that teens' affection for Facebook is on the wane. Just as musicians have to "grow up" with their original audience, so Facebook may be finding that its original target is no longer into them. Is this obsession with close friends something that will last with people through college and beyond? I don't know.
I have a sneaking suspicion that the next Facebook earnings are going to surprise on the high side, owing less to its audience loyalty or its mobile strategy compared to its monetization process, its ad network, and game usage. Analysts are expecting earnings of 13 cents a share, which would be about $300 million, when the company reports at the end of the month.
But products like Home are more important to me than the short-term earnings outlook. If the company could maintain a pace of 13 cents over the course of a year, that would still give it a forward P/E of 54. I think Facebook is too far past the hype cycle to sustain that kind of multiple.
Unless the company can indeed blow out earnings and show substantial revenue growth, closer to the September quarter's $3.5 billion, I won't be interested.