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When Facebook (NASDAQ:FB) was first released in its initial purchase offering in May 2012, there were a lot of expectations that the stock would be the next Google (NASDAQ:GOOG) as a social media company. Unfortunately, Facebook ended up being a debacle. Not only did the stock lose value from literally the first hour it was listed, Facebook's issuance was also hung up in scandal about how the IPO was put together. Now, more than a year later, Facebook has finally reached its original issuance price level after having climbed back from the depths of $17/share. Now the question for many is whether the company has truly matured to a revenue-producing investment, and some think the answer is "yes."

Fundamentals Analysis

Currently, per the July 25 earnings report, Facebook is now posting $1.8 billion in validated revenues with an earnings per share of $0.19. This was $200 million higher than expected and a 1 percent increase to operating margins. Much of the validated revenue is coming from mobile ad subscriptions, which make up 40 percent of gross ad sales revenue. It's a fairly good performance in the mobile arena, especially when other big names like Google are struggling to do the same.

The Current Mobile Ad Format

Facebook's mobile platform essentially involves a truncated app version of the website on a smart device. This leaves little room for much else on a viewer screen, and definitely not much space for revenue-generating ads. As a result, the current version of Facebook mobile has been devoid of the sidebar space ads so common on the regular Facebook website appearance. Instead, advertisements have to be injected into the news feed section of the app, giving the appearance of being posts from friends and contacts. This approach has a good and bad side to it.

On the one hand, the news feed approach keeps a flow of information similar to what already exists. So an ad is not a disrupter per se to the user's acceptance of the mobile design. However, looking closely, the display is often crafted in such a way to make the user think a friend suggested a product or service, when in fact no such recommendation was made. That could be a turn-off to users, causing them to ignore ads even more, destroying any successful use of mobile Facebook ads.

To monetize the mobile platform, Facebook will have to rely on far more injection of news feed ads to make the effort worthwhile. This also means a user will likely see an ad every other post in some cases, which can get quite annoying. Yahoo (NASDAQ:YHOO) made this mistake with their website, bombarding users with ads and third-party banners. The result was they all shifted to Google with a clean, simple search engine page that worked faster. So Facebook ought to pay attention to too much of something being a bad thing.

Put More Emphasis in Video

The other area which Facebook could generate far more dollars is in using a combination of Instagram and its mobile platform to generate ad videos. This approach takes a traditional advertising model big clients are quite familiar with and puts them on smart devices in direct competition with Google's YouTube model. That could easily generate big dollars from companies willing to spend on video placement embedded into news feeds as well as image libraries searchable by topic. For example, let's say a user wants to see a new Ford truck on Instagram. Every third or fifth image could be a Ford video on their new cars and trucks, specifically on that model searched. The advertisement becomes embedded in the content and triggers a potential sales conversion by generating product interest. An easy way to then confirm this connection is to ask at point of sale if the customer's car information came from Facebook at all. If yes, score one for mobile marketing.

Source: Facebook Needs To Win The Mobile Platform Slot Machine