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Facebook Leases Office Space In Beijing

|Includes: AABA, AOL, Facebook (FB), GOOGL, MOVE, MSFT, SINA, TWTR
China Stock Market

July 07, 2014 - Facebook Leases Office Space in Beijing by Zacks Investment Research

Facebook (NASDAQ:FB) recently leased space in Beijing as the company is preparing to open an office in China. This marks the company's formal entry into the country. However, Facebook's website still remains blocked in China. No other details of the deal were revealed.

In May 2014, Facebook had entered into a three-year contract by which it had agreed to lease more than 800 square meters of office space in Beijing's Fortune Financial Center.

Earlier in 2009, Facebook's website was blocked by the Chinese Government. However, in Sep 2013, this ban was partially lifted with the government allowing Facebook , Twitter (NYSE:TWTR) and The New York Times (NYSE:NYT) to operate within the boundaries of the newly-developed Shanghai Free Trade Zone.

However, the operations of Facebook, Twitter and any other social media company, which enters the free trade zone, will be restricted to a very small area with a population of only 5 million. We believe that this restriction will act as a major headwind for companies such as Facebook, as it will not be able to attract new subscribers and advertisers.

Facebook's leasing of office space in China is an endeavor on its part to extend its foothold in the Asian market and thereby boost revenues there. In the last quarter, Facebook had generated about 14.0% of net revenue ($354.0 million) from Asia itself.

We believe that this move will enable Facebook to tap the unexplored tech-savvy population of China, which in turn will increase its user base. Facebook's move seems to be in total contrast to its rival Google's (NASDAQ:GOOGL) decision to quit China in totality after it refused to abide by the Chinese rules applicable for search engines.

We believe that the unpredictable approach of the Chinese authorities toward foreign Internet service providers and social media companies is a major concern. Although the free trade zone is a positive move, it will be preposterous to think that the Chinese government will follow a liberal policy toward social-networking activities, which have been otherwise blamed for instigating anti-government feelings among the general public.

Currently, Facebook has a Zacks Rank # 3 (Hold).

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Disclosure: The author is long FB.