Facebook Inc (NASDAQ:FB) has a bright future ahead, according to a new report from Goldman Sachs analysts. Facebook Inc (NASDAQ:FB) is one of a few companies for which the shift to mobile brings better pricing and is margin accretive. Facebook also will benefit from Ring 1 and from Spotify. HTML 5 is far off as Goldman Sachs' survey shows.
Goldman Sachs views the rise of smartphones and tablets as a tailwind to the company’s core ad business as mobile Sponsored Stories in news feed monetize at 40X the CPM of typical right rail ads, while carrying comparable costs in absolute dollar terms. Looking out to 2013, Goldman sees Sponsored Stories as well as new offerings such as Gifts and Offers, both on mobile and the desktop, potentially contributing $2bn or more to the company’s top line, which even with some cannibalization of right rail spending will help re-accelerate ad revenue growth in their view. With more than one billion users, Facebook Inc (NASDAQ:FB) is the ultimate complement.
Although the stock is still off considerably from its IPO price, Goldman predicts the recent strong stock performance as continuing into 2013 as the market starts to fully appreciate its ability to monetize mobile and their view that they are a key local enabler.
There are other potential new sources for revenue according to Goldman. Facebook Inc (NASDAQ:FB) users can use Spotify’s paid subscription offering to stream all the music in Spotify’s library.
Finally, Ring 1, as explained below, will be a key to Facebook Inc (NASDAQ:FB)'s success. In February, Facebook Inc (NASDAQ:FB) launched its mobile website testing suite called Ringmark to allow mobile developers to test which browsers support HTML5 and other functionality their web-based mobile app would need. The suite groups specific tests into groups, or “rings”, of features of similar complexity. The following is a post from Facebook’s developer page:
You can think of the rings as straightforward software versioning. Ring 0 represents the base functionality that most mobile phones have today. Ring 1 represents what functionality is needed to unlock the most common apps that developers want to build; specifically, 2D games, music and video apps, and camera apps.
From there on, each subsequent ring represents a slice of features that will unlock the next generation of mobile web apps, based on developer necessity. For example, we expect Ring 2 to include upcoming technology like WebRTC and WebGL.
Examples of the types of apps in Ring 0, which could now be made into web apps based on browser functionality, would be Words With Friends, YouTube, Facebook and Twitter, to name a few. Apps that would need Ring 1 capabilities to become web apps would be Angry Birds, Cut the Rope, Spotify, Vimeo, and Instagram among others.
WebRTC in the text above refers to an HTML5 API (application programming interface) designed to enable voice calling, video chat, and file sharing without plug-ins. WebGL is an API for 3D graphics rendering.
The most used mobile browsers, Safari and the Android browser, fail nearly a third of the tests in the Ring 1 battery, implying the migration of native smart phone apps to the web depends on continued development by mobile browser makers. Even Chrome for Android, the newest mobile browser introduced by Google Inc (NASDAQ:GOOG) at the beginning of the year, failed a tenth of the tests in Ring 1. Looked at differently, Ringmark and IDC estimate that roughly 90-95% of native mobile apps in the entertainment, gaming, and reference categories could become web-based apps if mobile browsers were Ring 1- compliant.
HTML5 is still far off. Facebook Inc (NASDAQ:FB) has spoken recently about its view that HTML5 is several years out and as a result over the past 12 months re-focused its engineering efforts back towards iOS and Android apps. Facebook released its latest iOS app in August, while its updated Android app is currently undergoing internal testing.