On your recent earnings call you indicated Facebook (NASDAQ:FB) has about 955 million monthly active users [MAU]. They generated $1.28 each in average revenues during the quarter or $5.12 per user annualized. Operating income was listed at $515 million (excluding stock-based compensation and payroll-tax related to share-based compensation and income tax adjustments).
Adjusted Net income was $295 million. That's pretty shabby for a company that still commands a market cap of approximately $65 billion.
Shareholders are fuming after a botched IPO priced at $38 followed by an immediate, painful and seemingly never-ending (-37.6% so far) decline to $23.70. You got rich beyond imagination as traders got hosed.
Apparently mobile device usage is cutting into historical levels of ad revenues. Instead of trying to tweak this fickle profit source, why not emulate one of the world's most successful business models?
Costco (NASDAQ:COST) pockets more than 100% of its net income from membership fees. Those fees have great profit margins as they only incur SG&A expenses. Costco had an 89% renewal rate in FY 2011 in the US and Canada. They jacked up membership pricing by 10% last November and continue to thrive.
Satisfied customers are willing to pay a fair price, in advance, for the perceived value of being Costco members.
Despite all Facebook's public relations problems you'll soon have one billion MAUs. Facebook is a part of the daily lives of quite a few of those account holders. Suppose you instituted a $20 annual fee while perhaps allowing for limited free usage (like the New York Times' (NYSE:NYT) subscription model).
If 80% refused to pay or closed their accounts... you'd have about 200 MM subscribers @ $20 = $4 billion in annual revenues. This dwarfs anything your advertising sales model is likely to generate and would monetize your enormous installed base with recurring revenue (at almost no incremental cost).
Would users be mad initially? Absolutely. Will they really give up their FB accounts? What's the alternative?
Hell, people pay $20 a year for .
A higher than 20% conversion success rate to an annual, subscription-based model might even make your shares look like the bargain they were touted as originally.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.