Facebook’s Transition To Mobile May Not Save Them: Stifel Nicolaus


Shares of Facebook Inc (NASDAQ:FB) have climbed 30 percent from the record lows, with investors reacting positively to the comments from CEO Zuckerberg. Despite such optimistic expectations from investors, Stifel Nicolaus believes that investors may be incorrect about their assumptions on the mobile segment to be a savior for the company, and maintains a ‘hold’ rating for the Facebook’s stock.

Facebook's Transition To Mobile May Not Save Them: Stifel Nicolaus

The 28 year old CEO said in an interview, that many people have underestimated “how fundamentally good mobile is” for Facebook, and backed it up with three points, those are:

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1. Mobile enables Facebook Inc (NASDAQ:FB) to reach more users than desktop.

2. Mobile drives more engagement per person than desktop.

3. Mobile will “make more money per amount of time” than desktop.

The first point is are very clear, as around 5 billion of the population have smart phones, against 2 billion desktop Internet users. The second point is also clear, as accessing the internet on the mobile devices is much easier, increasing the frequency of consumer interaction with Facebook Inc (NASDAQ:FB).

However, as per the report from Stiffel Nicolaus, the third point is something which arouses some doubts. As per the report, “Today, mobile usage chips away at Facebook’s core desktop advertising business, responsible for over 95% of total revenues. But, if the core desktop platform usage is flat or shrinking, in terms of minutes per person or ad impressions, in economies with robust digital ad sales, there will be a soft transitional period.” The report points out that Zuckerberg was not clear on what unit of time he was referencing to in the third point, whether total minutes of usage per person per day/month/year. The report explains that if the third point is valid, then “revenue generated from clicks on sponsored stories and offers in the mobile news feed” will clearly overtake the falling “couple billion dollar” business revenue from ads on the desktop platform.

As per the numbers from the social networker, it pocketed about $500k per day in mobile ad revenue in June. Basing the research on such numbers, the report says, “If we assume the company jammed more ads into the mobile news feed and will exit 3Q with $1 million per day in mobile revenue and will average $1.5 million per day in 2013, then that could build to $550 million in mobile revenue in 2013. If that revenue comes in incrementally, then estimates that call for 30%+ revenue growth in 2013 would be reachable, with the remaining growth coming from increasing yield by 20% or so on the desktop platform.”

The report believes there are two obstacles to such growth numbers. First, the majority of new users for the company come from countries where core online advertising is still in its early stages, like the Asia Pacific area.

Facebook's Transition To Mobile May Not Save Them: Stifel Nicolaus

Secondly, the transition to mobile will cannibalize the growth of Facebook’s revenues generated from desktop page views. Meaning a focus on a mobile platform will certainly affect the growth rate of the desktop platform, or could possibly shift the users from desktop to mobile. The report concludes, “We do not believe success in mobile for Facebook Inc (NASDAQ:FB) can come without some collateral damage, in the near-term, to the larger, more profitable desktop.”