Don’t Worry About Facebook’s Mobile Business, It Will Come

Facebook filed yet another amendment to its S-1 filing last week in the run-up to its expected IPO on May 17. ^[1] We currently have an $82 billion Trefis price estimate for Facebook, most of which is derived from its advertising and virtual transactions businesses. Advertising accounts for nearly 75% of Facebook’s total value. It competes primarily with Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Yahoo (NYSE:YHOO) in the online advertising space.

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Increasing mobile usage may hurt Facebook’s advertising biz if it fails to effectively monetize its mobile audience

In the new S-1, Facebook admits that the increase in Facebook usage on mobile devices has impacted the average number of ads delivered per daily active user, primarily because it cannot deliver as many ads as it does in the web interface on its mobile interface. It is still trying to figure out an effective monetization strategy for mobile, but no one, not even Google, has been able to completely crack the mobile advertising puzzle yet.

Facebook has highlighted the risk itself, stating that “if users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.”

We expect Facebook will figure how to effectively monetize its mobile users and strike the right balance with regard to pushing mobile ads to users based on the users’ preferences and social data which are much more relevant than the ads being used now in our view. This can result in higher conversion rates and more value delivered to advertisers. Given the burgeoning growth for mobile users and as Facebook starts to demonstrate its ability to monetize the mobile base, we expect Facebook’s value will climb as this uncertainty is removed.

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1. Facebook Amends IPO S-1 To Admit Advertising Biz Hurt By Increasing Shift To Mobile, Techcrunch [↩]