Facebook Inc (NASDAQ:FB) has what it takes to give investors value for their money, but it has to utilize fully its wealth of advantage over its competitors, and focus on maximizing shareholder wealth. It is no longer a Mark Zuckerberg and a few investors, like company; it is a public company, that should shutter focusing on creating a global network, and forge another goal of becoming one of the most valuable companies. Or, better still, use its massive global reach toward this dream.
Cantor Fitzgerald Equity Research has identified the key investment risks that undermine Facebook Inc (NASDAQ:FB) performance, some of which, are deeply buried in its strategic plan. In order for Facebook Inc (NASDAQ:FB) to deliver what it promised investors as implicit in its IPO price of $38, the company must turn these risks into returns, and only returns.
Failing to Focus on Maximizing Shareholder Wealth
To begin with, the company’s potential is dependent on its massive monthly active users, which as we speak, could have already surpassed the 1 billion milestone. However, the company’s ability to utilize this competitive edge is hampered by its management strategy, which according to the company’s S-1 filing, is focused on improving the services to its massive audience, and not using the audience to make money. If Zuckerberg really meant what he said, then investors be ware; hopefully, he was speaking ironically trying to show users the kind of good guy he is.
Facebook, must come out of this delusion, and embrace the virtue of being a public company fully, you can get everyone connected on the social network, but if they are not bringing you any business, then maintaining that service could become a problem.
Paradigm Shift Between PCs and Mobile Usage
Facebook Inc (NASDAQ:FB) collects a majority of its revenue from web based advertising, which is only accessible via PCs, and laptops. The company has tried to improve monetization on its mobile platform without much success. Sadly, Facebook’s time is running out. While it did indicate that the development of its mobile platform is of the essence at the moment, users have complained of the HTML5 made app, which seems to load ads slowly, inconveniencing them.
Statistics indicate that there is a paradigm ,shift taking place between mobile phone usage and PCs usage; more people are beginning to use mobile phones (smartphones), as compared to the declining usage in PCs. People are adopting mobile technology; even in the offices, and at home. App based browsing is replacing web based PC platforms, and Facebook faces a risk of losing out on this market. Interestingly, even Facebook users are replicating the shift, with the mobile platform attracting more monthly visits, as compared to its web-based counterpart.
Good news though is, Facebook Inc (NASDAQ:FB) has already started making inroads to the new age advertising that will allow users to see adverts customized to their Facebook profiles, as recently covered in our articles. This is likely to eliminate some of the nuisance caused by floating ads that mean nothing to you.
Reliance on the Success of the Adverts
Facebook Inc (NASDAQ:FB), just like any other company, faces the risk of an adverse verdict from the companies advertising via its platforms. While the web-based platform may be well tested and proven, the Mobile advertising is yet to pass this test. The company will no doubt invest well in the area, if it is to finally translate a good chunk of its monthly visits into ad revenue. If advertisers feel that Facebook adverts are not as impressive as initially perceived, then this could hit a dead end, forcing the company back to the drawing board.
Too Many Eggs in one Basket for the Payment Revenue
Apart from advertising revenue, which we have already identified as a cloud of risks, Facebook Inc (NASDAQ:FB)’s other revenue coming from its fees and payments stream is hugely harvested from one company, Zynga Inc (NASDAQ:ZNGA). According to the 2011 results, Zynga contributed 80% of this stream of income, and the latest statistics show that this figure is down to 60%, which is still too high. The repercussion of this over reliance was also witnessed in Facebook’s first ever public results, when it posted a loss, as Zynga did, for the same period.
The founder and CEO holds a massive controlling stake of 55% of class A shares, and 95% of Class B shares in the company. He can literally make several decisions without needing any support from other shareholders. In general, he has full control of every aspect of the company as you know it; from the board, to the management, and even operations.
Finally, the company can no longer pursue a secondary offering, as this has already been wiped out by the massive lock-up releases. The decision to use lock-up releases was arrived at, following the poor performance of the stock at the NASDAQ stock exchange. This means capital sources are limited to other options, as it is unlikely within the first 180 days of listing.