Facebook’s (NASDAQ:FB) stock has fallen significantly from its IPO price. So where do we go from here? Our price estimate for the company stands at around $28, implying a premium of roughly 40% to the market price. As such, we believe that there are several trends such as the growth of social commerce that can lift Facebook’s outlook. At the same time, we are conscious of the threat from companies such as Google (NASDAQ:GOOG) though we expect Facebook’s huge user base will help it promote advertising sales and e-commerce.
Mobile Advertising to Drive Future Growth
Through the end of 2011, Facebook did not generate meaningful revenues from its mobile products despite the 425 million monthly active users (MAUs) who were using Facebook’s mobile products. However, given that the mobile advertising market is expected to grow to around $24 billion in 2015, Facebook will certainly reach out to mobile advertising networks in the future to ensure that it also monetizes its mobile subscriber base. We estimate that text and display advertising constitutes 2/3rds of Facebook’s value and that Facebook’s efforts in this direction will be critical to its growth.
This also poses the greatest risk to the company’s value if its monetization efforts concerning its mobile platform turn out to be insufficient, thus reducing revenue per page view forecasts.
Social Commerce Expected to Grow
According to eMarketer, the global social commerce market is expected to grow from around $5 billion in 2011 to around $30 billion in 2015. Facebook is expected to tap in this lucrative market by acting as a platform for the sale of physical goods. This can be made possible owing to the presence of numerous brands and retailers who already have a large presence on Facebook. Social commerce is the next logical step in this value chain as these brands try and sell their products through Facebook itself given that they would already have a dedicated following of fans who have “liked” their page.
The company launched its “Gifts” feature late last month, leveraging its acquisition of mobile commerce startup Karma. This feature allows users to easily buy and send gifts to each other based on suggestions while Facebook keeps a share of the purchases made. In addition, the company recently started testing a feature called “collections” aimed at promoting e-commerce on Facebook. With this feature, Facebook users can add items they like from certain retailers to their wishlist for purchase.
Zynga Direct Might be a Threat to Facebook
In 2011, Facebook generated around $557 million through the sale of virtual goods on its website. While the market for virtual goods is expected to expand further, Facebook’s largest gaming partner, Zynga (NASDAQ:ZNGA), has already launched its own gaming platform Zynga Direct. Consequently, if Zynga reduces its reliance on Facebook as a platform, the latter could lose market in the global virtual goods market.
For now, Google+ remains the underdog in the social networking market. However, Google has been aggressively pursuing growth for Google+, expanding its user base to more than 400 million, with 100+ million active users. In addition to this, Facebook also needs to watch out for further integration of Google features like YouTube on Google+, which could increasingly make it a more engaging website with attractive digital content.