At a time when investors have been turning positive about Facebook Inc (NASDAQ:FB), after the announcement of a mobile monetization plan and search engine, Oppenheimer & Co. has lowered its price target for Facebook to $27, from $41. Why? Because of the same mobile revolution and search engine plans.
Let me explain. It’s about the impact of mobile revolution on the company. The mobile user base is growing dramatically, and to track Facebook Inc (NASDAQ:FB)’s revenues more accurately, Oppenheimer had to change its methodology. Even if mobile users continue to grow, the monetization of mobile is about 79 percent of desktop.
According to comScore, Inc. (NASDAQ:SCOR), smartphone penetration has grown from 33 percent last year to 45 percent this year, and US desktop usage is slowing. The trend is likely to continue, as telecom operators are offering family plans for their 4G services. An example? If Facebook Inc (NASDAQ:FB) generates $1 per year from a desktop user, it will earn only 79 cents per mobile user. It’s simply because the social media giant can’t display lots of ads on a small mobile screen. In short, the growing mobile engagement will have a negative impact on advertising revenues.
Oppenheimer’s earlier model of calculation was based on monthly users, daily active users, impressions per daily active user, and revenue per impression. But, the new model considers time spent on the site and revenue per hour. That’s how Oppenheimer calculated that monetization of mobile is just 79 percent of desktop. Based on this method, Oppenheimer has reduced its revenue forecasts by 2% for 2012, 9% for 2013, and 22% for 2018.
By 2018, Oppenheimer expects Facebook Inc (NASDAQ:FB) to generate $14 billion in advertising revenues, growing annually at 24 percent, down from the previous growth estimate of 27 percent.
There are other things, as well, that can hamper Facebook’s revenues. When mobile users purchase an app, it’s a single purchase (from Apple/Google store), and that money is not shared with Facebook. Additionally, declining sales of Zynga Inc (NASDAQ:ZNGA) suggests that social gaming is also declining.
Facebook Inc (NASDAQ:FB) is currently working on the search engine, but there is no clear timeline. And competing with Google Inc (NASDAQ:GOOG), which already has won the trust of marketers around the world, will be a tough battle. Oppenheimer says that if Facebook fails to woo marketers, the search may fall flat.