During our last update, we mentioned the long-term prospects of Facebook (FB) and the short-term affect that lockup expiration could have on its share price. The social media giant has not been able to effectively monetize its huge user base. This inability to monetize is driven by limited capability of handheld devices to display advertisements, which are the largest source of revenue for Facebook.
Therefore, investors should be really pleased to hear about an alternate plan to drive revenues until mobile monetization comes through. The company launched its newest initiative, 'Gifts', on Thursday. As the name suggests, this will allow users to send gifts to one another through Facebook. The social media giant has lined up a long list of retail partners, including well known names like Starbucks (SBUX).
While these are all good initiatives, the lockup expiration date is approaching fast and can hurt the stock price. We are bullish on the long-term prospects of Facebook, but due to the lock up expiration, we recommend investors to buy the stock after the lockup expiration.
The social media giant announced the launch of its new social gift giving feature on Thursday. Considering the lack of monetization of the huge Facebook user base, any new initiative is welcome, but 'Gifts' seems to have a lot of promise. Using this feature, users can choose, mail and pay for real world physical gifts. Facebook already has a gift option available, but those gifts are online or virtual gifts. Users can send these gifts to other users inside the Facebook space. We all know about Facebook reminders about birthdays and other important occasions. Even more significant is the fact that most users update their Facebook statuses on each and every important event of their life. Another benefit of 'Gifts' is that its monetization will not be limited to mobile. Users can just as easily send a gift through desktop computers as they can on their mobile devices.
This news has been expected for quite some time. On the same day of its IPO, Facebook had acquired Karma (for $80 million), an application for online gifts transfer, foretelling its Thursday launch. The most integral aspect of this feature is the number of gift options available and supply chain management. We believe Facebook has covered these bases well. Bringing a hundred companies on board is an impressive start and gives 'Gift' an impressive launching pad. The companies include food and beverage companies, jewelry sellers, and so on.
Another interesting feature of the 'Gift' application is the customization of the gift by the receiver. For example, if your relative sends you a green pair of bed sheets and you want blue, changing them is as easy as the click of a button. Starbucks is the biggest brand to sign up with this program so far. We believe the coffee giant can play a major role in the success of 'Gift'. Starbucks' voucher system (coffee vouchers) can easily make people more comfortable with the 'Gift' feature.
The company has started the 'Gift' feature on a small scale, introducing it to a few cities in the U.S. for the time being. We believe it is a good move, as the social media has a history of creating hype through limited availability (launch of Facebook, Google+). Moreover, it will also make it easier for Facebook to build upon 'Gift', because each gift will have to be tracked as it moves to the end consumer.
Facebook has announced that it has integrated its service with Dropbox. Dropbox is a file sharing service, based out of San Francisco, which allows users to save and share content online. After this integration, Dropbox users can share their data through Facebook. If a user edits a file online on Facebook, the change will automatically be updated in their Dropbox. Moreover, if users share a file, it will not mean that people will have access to the sharers' Dropbox; only the file shared will be visible.
The valuations table shows that Facebook is still cheaper than LinkedIn and Amazon. We believe Facebook has a very high chance of improving monetization through its new mobile strategies and initiatives, such as 'Gifts'.
According to comScore, Facebook's domestic mobile unique visitors from browsers and applications have increased by 4% MoM (90 million). Average daily visitors have also increased by 6% MoM (52 million). The social media giant also received good news from GlobalWebIndex, which reports that despite a ban, Facebook users had grown in China to more than 60 million, from a mere 7.9 million in 2009. We are bullish on the new 'Gift' initiative, but meaningful numbers can only be shared once more details come in.
As mentioned above, the real problem for investors remains the lock up expirations, coming up by the end of this month. FB will take a serious beating when employees start to sell. We are bullish on the long-term prospects of Facebook, but believe that the lockup expiration will hurt the share price. Therefore, we recommend investors buy the stock on lockup expiration dips.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.