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Facebook’s Failure To Monetize Mobile Will Be Disastrous: Barclays

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The Social networking giant, Facebook Inc (NASDAQ:FB)’s shares have been sliding since the earnings report came out fueled by ad revenue deceleration and headwinds from lock-up expirations. What is making it worse, is the lack of information from Facebook Inc (NASDAQ:FB) on its mobile monetization strategy, according to a report out today from Barclays Research.

 Facebook's Failure To Monetize Mobile Will Be Disastrous: Barclays

The social networker’s ad revenue has been sharply deteriorating, which could be a function of the mobile shift. For the second quarter, Facebook Inc (NASDAQ:FB) announced that its ad impressions grew 18 percent, against 35 percent growth in first quarter. The company admitted that the steep fall in ad revenue, despite the increase in number of users, was mainly due to increased usage on mobile devices. Despite an increase in pricing, Facebook should significantly grow pricing on mobile to maintain a robust growth trajectory for ad revenue.

Another area of concern for FB, is the shift in online gaming from PC’s to mobile, which the company is not yet comfortable with, and therefore fails to monetize the same. Social gaming is quickly moving towards mobile, where companies like Apple Inc. (NASDAQ:AAPL) lead the arena. Desktop gaming has always been a major revenue source for Facebook Inc (NASDAQ:FB), but that could change as Social gaming will continue to grow at the expense of desktop gaming. Zynga Inc (NASDAQ:ZNGA) which generates the majority of Facebook’s Payments, is also experiencing the same plight of declining revenue, the online gaming company recently launched FarmVille 2 , a sequel to its most popular game, in a hope revive the fortune.

 Facebook's Failure To Monetize Mobile Will Be Disastrous: Barclays

The much talked about lock-up expiration is again, an area of concern regarding the loss in the value of shares. Though the company has already announced that it will meet its $1.98 billion tax liability without selling its 101 million shares ,and also Mark Zuckerberg will not be selling his shares any time in the next 12 months, still something around 1.2 billion shares are expected to hit the market over the next nine months, when lock-ups expire. Even if half of these locked up shares find their way into the market, it will be a huge setback given that Facebook Inc (NASDAQ:FB)’s share price declined by over 10 percent a day before the expiration of the first lock-up on the 16th of August.

Facebook’s Long term outlook remains significant if it could devise a plan to monetize its user base.

Finally, Barclays downgraded Facebook based on the data mention above. Barclay’s notes:

At its current price, FB trades at ~12x our 2013E EV/EBITDA, in line with large cap internet names eBay Inc (NASDAQ:EBAY) and Priceline.com Inc (NASDAQ:PCLN)  but well below Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX). Accordingly, we believe a ~15x multiple is reasonable as we believe the company’s long-term potential remains significant if it can find new ways to monetize its user base.

The question remains, wasn’t most of this information known at the time of the IPO?

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