Reach is fine, but where are the revenues going to come from?
Facebook co-founder Mark Zuckerberg has always favoured reach over revenues. The strategy was successful as Facebook overran rivals Friendster and MySpace to become king of the social networking space. But Zuckerberg’s company faces an acid test this Thursday, when it announces their earnings for the first time after they turned public in May. Following a botched IPO and a subsequent drop in share price, Facebook has been under the gun, and questions been asked whether its worth the stratospheric $100 billion valuation, it commanded on debut.
Wall Street will watch developments very closely. A Thomson Reuters poll projected that Facebook will clock $1.1 billion in second quarter revenues on earnings of 12 cents a share. According to a new forecast from Brian Wieser, senior research analyst at Pivot Research Group, the company will grow 32 per cent this year to $4.2 billion and $12.6 billion by 2017.
But will this assuage investor fears on current growth prospects?
Facebook earns most of its money from personalized ads displayed to its users, contributing to 85 per cent, the rest comes from subscription revenues from games and other apps. Revenue growth is closely linked to user growth, which has been dipping, especially in U.S., its biggest and most lucrative market. According to a Wall Street Journal story that cited ComScore numbers, U.S. user growth has dropped to 5 per cent, down from 89 per cent a little over two years ago, growth last year was at 24 per cent. This was to be expected, Facebook already reaches out to 71 per cent of the 221 million U.S. users. Emerging markets like Brazil and India are expected to offset the dip from the developed world, but while they may contribute sheer numbers, they are low in advertising dollars. Compared to $9.51 in advertising revenue per user in the U.S. and Canada, Asia and the rest of the world contributes only $1.79 and $1.42 per user.
But will this assuage investor fears on current growth prospects?
Facebook earns most of its money from personalized ads displayed to its users, contributing to 85 per cent, the rest comes from subscription revenues from games and other apps. Revenue growth is closely linked to user growth, which has been dipping, especially in U.S., its biggest and most lucrative market. According to a Wall Street Journal story that cited ComScore numbers, U.S. user growth has dropped to 5 per cent, down from 89 per cent a little over two years ago, growth last year was at 24 per cent. This was to be expected, Facebook already reaches out to 71 per cent of the 221 million U.S. users. Emerging markets like Brazil and India are expected to offset the dip from the developed world, but while they may contribute sheer numbers, they are low in advertising dollars. Compared to $9.51 in advertising revenue per user in the U.S. and Canada, Asia and the rest of the world contributes only $1.79 and $1.42 per user.
Meanwhile advertisers are questioning the efficacy of advertising on the site. A few days before the IPO, GM pulled out all its $10 million from Facebook, claiming that the social networking giant’s advertising credentials were largely unproven. Facebook faces an uphill task of convincing current advertisers to stay, and figuring out how to make more money from less lucrative markets, and especially mobile. Search engine Google was in a similar spot when it favored proving its search technology first and then thinking of monetization. Google started spouting wads of cash after it unlocked the holy grail of search advertising when it launched AdWords (sponsored ad links) and AdSense (external web publisher ad program).
Zuckerberg and his team are fully aware of that they face similar challenges in the social networking universe. In 2010, they snagged Gokul Rajaram, the engineer behind Google's lucrative AdSense engine, to head its advertising products division. Rajaram’s efforts were unveiled last month, when they launched Facebook Exchange, a technology that tracks user behavior on third party sites and then serves targeted ads. So for instance, a user who was on an auto site looking for an SUV, will see offers from Hyundai or Ford the next time he logs onto Facebook. The second thing debuted, is the more interesting and perhaps more profitable, in the future. It also takes rival Google’s AdSense initiative head-on. Facebook ads have started appearing on Zynga, analysts say that this will soon extend to third party sites. This is still an experiment, no telling evidence has emerged on how users and external sites are going to respond, but it’s a step in the right direction.
Read More: Yahoo News..
No comments:
Post a Comment