Since its initial public offering last month, Facebook (FB) has endured a steady decline in its stock price, causing concern for many investors. There is obvious room for growth, as Facebook competes in many of the same markets as Google (GOOG) and Apple (AAPL). Facebook, therefore, could benefit from similar growth. The huge decline in stock price, however, shows public uncertainty about the company. I believe this is justified by the undetermined amount of success that Facebook stock will have in the future.
Other than Facebook's struggling presence in the stock market, Facebook has recently received mostly good news and has seen increased opportunities throughout the technology sector. Many of these opportunities are a distance down the road, however, and you may not want to invest in Facebook based on this news quite yet. Over time, Facebook stock may become a much better investment though.
One piece of good news comes from the research firm ComScore. ComScore announced that the results of a study suggested marketers might be able to use Facebook effectively to increase sales. This news partially relieved Facebook stock from an entire week of negative trading. ComScore's blog post said that companies would benefit from marketing to users who have "liked" a company or commented on it in a post. ComScore claimed that this would lead to a "statistically significant positive lift" in purchasing levels.
The post suggests that advertising campaigns on Facebook's site are effective. One case study given in the data was that of Starbucks (SBUX). After seeing a Starbucks advertisement on Facebook, fans of Starbucks and their friends would increase purchases around 38 percent within three weeks. With Target (TGT), there was roughly a 21 percent increase.
This is an extremely important outcome for Facebook because online advertising is its key supply of revenue. There had been serious questions on whether Facebook advertisements were profitable for the companies using them, culminating with General Motors (GM) ending its advertising campaign with Facebook. Facebook should now see an increase in revenue from advertising, however, as this study should incentivize companies to invest in Facebook ads. If this happens, it will increase the value of Facebook, bringing in more investments and increasing the value of the company for shareholders.
While this study should result in an eventual rise in revenue for Facebook, the importance of the study may be short-lived. As Internet and social networking become more popular with mobile devices than computers, Facebook will continue to struggle. It has not found a way to generate revenue through mobile devices without diminishing the user experience, so it is not as well-prepared for this industry as it would like to be.
That being said, Facebook is taking steps to improve its mobile experience and increase revenues coming from mobile usage. The company recently launched a centralized online directory for downloadable applications, known as the "App Center." The directory, which includes over 600 applications, will recommend apps based on the users' and their friends' preferences.
The main goal of the App Center is to create simplicity for users to download applications via their mobile devices. In doing so, the company hopes users will spend more time on Facebook's mobile version by using applications. Whether they are listening to music or playing games, spending more time on the site will allow greater opportunities for marketers to target the users. In theory, one result of the App Center should be for other companies to increase their advertising on the site. This should also increase Facebook's revenue that stems from mobile use.
If Facebook keeps increasing its revenue, investors should be attracted to this company, which would lead to a higher stock price. I am not convinced the App Center will have the desired results, however, so I am not thrilled with the idea of investing in Facebook quite yet. It is certainly a step in the right direction, but I do not think this is enough.
Apple recently announced that it will be building Facebook into its newest software for both the iPhone and iPad. Facebook will be benefiting from the support from this giant technology company and huge smart phone producer. This could prove very profitable for both companies, as in a way, they are teaming up against their biggest competitor, Google. The new software will make Facebook use on Apple's mobile devices much more convenient, hopefully leading to increased use of the Facebook mobile application.
Furthermore, Apple is also immersing parts of Facebook into its App Store and iTunes. Facebook's well-known "Like" button will be added to these online stores, being used as a kind of user review for Apple's music and video media offerings. With the iPhone being the most popular phone in the United States, I believe this announcement may be the most significant for Facebook. It should lead to a better mobile experience and eventually result in higher revenues and profits. It should also lead to a better return on investments for Facebook shareholders.
Facebook also announced that it will be hiring the mobile application expert firm Pieceable Software. Pieceable Software consists of a small staff that focuses on software application services, and it should increase Facebook's mobile know-how. Aside from this small software firm, Facebook hired three engineers as well. It is certainly making a push into this market, and the future is beginning to look a little brighter for the company.
While there are definitely some opportunities for Facebook to improve its stream of revenue, I cannot be certain if the previously-mentioned measures will be enough to do so. It seems that Facebook's revenue from advertising will definitely take a step in the right direction after ComScore's report. I believe Facebook may also continue to struggle with finding revenue streams that stem from mobile use. I recommend keeping an eye on Facebook stock as a few of these situations continue to play out. As time moves forward, there may be a great opportunity to invest in this company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
