Here’s Why Facebook Is Wooing Small Businesses

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FB
Facebook

Facebook (NASDAQ:FB), with more than 50 million active business pages on its platform, is ensuring that its services lure these businesses to advertise heavily on its network. The company recently launched a “Lookalike” tool to allow businesses to reach people in new countries who are similar to their existing customers. According to the company, more than 1 billion people on Facebook are connected to at least one business in a foreign country. This tool will allow small businesses on Facebook to go truly “global” by identifying best value customers for their products across the world. We believe Facebook is looking to make small businesses completely reliant on its platform to conduct their business and eventually turn them into advertisers. Through Facebook, the company hopes,  small businesses will communication with, and sell to, their customers.  The ability to target international customers at a small price through Facebook will be tempting solution for small businesses. As such, this feature can increase advertising revenues for the company in the long term.

.See our complete analysis for Facebook

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Converting Active Businesses Into Advertisers

While Facebook has more than 50 million active business pages on its platform, it has only 3 million active advertisers. The company is constantly looking at ways in which businesses can drive more value from their Facebook page, thus converting them into advertisers.   Advertising revenue is a key driver for Facebook’s valuation, given the company’s ability to monetize the news feed. Accordingly, we expect its international advertising revenue to increase rapidly and reach nearly $40 billion by the end of our forecast period, from the $12 billion level we forecast for 2016.

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However, in the domestic market, we believe Facebook will reach a saturation point and advertising revenues will increase gradually to reach around $22 billion by the end of our forecast period.

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Emerging markets are likely to become the engine of Facebook’s revenue growth over  the long term and thus hold strong potential. Small and medium business enterprises can drive this growth, since many of these enterprises use Facebook’s platform exclusively to conduct their business. Facebook is providing a number of  features to business pages,  such as communication tools, action buttons, page insights and analytics. Small businesses which do not have the resources to operate their own professionally developed e-commerce website will find these tools extremely useful, providing the basis for a long term presence on Facebook. These tools can continue to attract more such small businesses to Facebook’s platform.

We believe that, as advertising continues to be the primary revenue driver for Facebook, small and medium business enterprises who rely heavily on Facebook for marketing and customer connections will be key drivers of its advertising revenues. The company provides better targeting tools to these companies, allowing them to become truly “global”within Facebook’s virtual domain.  Given these attractive features, Facebook should be able to draw increasing numbers of these small business to its platform and over time convert them into advertisers. This strategy is likely to prove to be a winner over the longer term.

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