Seeking Alpha
Profile| Send Message|
( followers)  

Facebook (FB) has hit new lows after missing guidance last week. Zynga (ZNGA) is in a similar position.

Some authors on this site seem to think that Facebook can monetize mobile interactions:

Mobile monetization is a challenge that Facebook will probably overcome, in time

Many people, including self-proclaimed bearish analyst Charles Biderman of TrimTabs, lauded Facebook:

For disclosure reasons I plan to buy Facebook either the day of or the day after the IPO and keep it for the long term. In my opinion, Facebook has greater long-term growth potential than Google(GOOG), LinkedIn(LNKD), or any other social media play. Yes, Facebook has yet to figure out how to monetize iPhone(AAPL) usage, but they will.

It's clear that the idea of mobile monetization underpins many people's investment theses. But can they monetize?

There are a few ways in which mobile ads can be rendered:

1) as a small banner ad akin to iAd: Apple can reject them as per their guidelines

2) using location information to show messages: Apple added terms in 2010 to prevent that

3) sponsored stories: Thanks to a settlement, sponsored stories are opt-out.

The Facebook model monetizes eyeballs and time spent on the site. However, mobile usage is much different from PC usage. Notifications and other mechanisms make the mobile experience task based (you receive a Facebook message, see it, and reply) moreso than perambulation (iPhone screen is pretty small and you can't really read too many comments or posts at once).

A mobile ad strategy has to figure out how to present ads at the right time, which is a much different strategy from plastering ads on a website. Facebook is not positioned, as of yet, to take advantage of that. You don't turn to Facebook when you want to find a restaurant; you turn to Yelp or Urban Spoon or Google Maps to find a restaurant. The aforementioned apps are much better positioned to integrate advertisements compared to Facebook.

Facebook is not well-positioned to win this space, mainly because they are not positioned to monetize short interactions with the service.

But let's take a peek at certain comments in the recent conference call:

For experience -- for example, if I like a restaurant, then my friends might see that I like that place, and that's likely a more convincing ad than anything the restaurant would produce on its own. That's an example of aligning social activity in ads.

This argument makes sense if people see the ad for the restaurant at a relevant time, namely when they are hungry. That's not the case here.

Real-time bidding is a standard industry practice to help advertisers reach the right customer at the right time

The "right time" to reach a customer is when he or she is about to make a critical decision. In my personal experience, people don't go to Facebook and ask their friends about what to eat for lunch. These stats are relatively easy to generate (not a particularly difficult NLP problem).

better demonstrate the effectiveness of ad spend on Facebook.

Recent case studies (original link was removed) have raised questions about Facebook's numbers and flow: "The 80% of clicks we were paying for were from bots" The glut of inaction (this is not an isolated incident) suggests their platform is still too immature to invest large sums of ad money.

Electronic Arts ... Barclaycard ... Wooga

They give three examples, two for online games and one for a credit card. In Barclaycard case they look at effectiveness relative to other online platforms, without giving hard revenue numbers. Even the EA example is suspect: reading through the EA conference call, the reference to the 440% ROI number is "Yes, Facebook is making navigation and discovery of new games a little bit easier. " It certainly didn't seem significant enough for EA to expound on the point during the conference call. The claims are suspect at best

Over 11 million businesses already have pages on Facebook. Over 7 million of these pages are actively used each and every month. In addition, hundreds of thousands of small businesses advertise with us.

The uptake seems very anemic, especially considering that they recently gave $50 in advertising credits to each of about 200K small businesses. There isn't enough information to discern how many of those businesses actually committed real money into the ad campaigns, so claims about local business ads are suspect.

There will be a new set of apps that do figure out how to facilitate real-life social interaction, and those are well positioned to present ads (the app you use to schedule a movie with friends, for example, will be the app that movie theatres and production studios will want to advertise with), but to take advantage of that Facebook has to step away from the current ad paradigm. And there's no evidence to suggest that Facebook management appreciate that point or plan on making progress.

Recommendation: short FB. Or at least don't try to knife catch FB. And please take every number with a pinch of salt and compare the stories to your personal experience. I've yet to see a single ad on FB.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in FB over the next 72 hours.

Additional disclosure: I shorted at 31 and covered at $21 today. I may re-short if there is a significant pop

Source: Facebook Cannot Survive On Mobile, Despite Others' Best Wishes