New App, Payments Service to Boost Facebook - Analyst Blog

Facebook Inc. FB is looking to improve user engagement by launching new products and updating existing services. The company recently launched a location tracking mobile app Nearby Friends for Apple's AAPL iPhone and Google's Android based smartphone devices.

The Nearby Friends mobile app, when turned on, tracks users' location and tries to match it with friends who have also activated the app. On successful matching, the app sends notices to the user about friends in the surroundings.

Facebook is offering nothing new, as a host of other companies like Tinder, Radar, Foursquare and Twitter TWTR already provide similar services. However, Facebook has the ability to use this location data to offer targeted ads to its users, which will boost ad revenues in the near future.

Although rising privacy concerns may prevent some users from using the app, it will not have a significant effect on Facebook's growth prospects, in our view. The new mobile app is expected to boost offline interactions, by making it easier to find friends without logging into Facebook. This will drive user engagement, going forward.

Facebook also recently updated its Paper app adding a number of new features, which is expected to further improve user experience.

Facebook is looking to enter into the payments business much like eBay's EBAY PayPal. Per Reuters, the company is set to receive a regulatory approval from Ireland's Central bank and is also in discussion with at least three London-based start-ups — TransferWise, Moni Technologies and Azimo — for a possible partnership.

The approval will help Facebook to offer mobile wallet and remittance services in the near future.

According to Gartner, global mobile payment transactions are expected to grow at an average rate of 35% annually from 2012 to 2017. Approximately 450 million users are expected to use smartphones for payment transactions and the market will be worth $721.0 billion by the end of 2017.

We believe this presents a significant growth opportunity for Facebook. Moreover, per Gartner Asia/Pacific will overtake Africa in terms of transaction volume by 2016. WhatsApp's strong presence in the Asia-Pacific markets is a major positive for Facebook in this regard.

However, privacy concerns and inherent security risks of mobile payment transaction remain a major concern. Moreover, competing services from well established player like PayPal as well as the presence of Amazon, Google and Apple is a significant headwind. Nevertheless, Facebook's growing user base remains a major growth factor.
 
Currently, Facebook has a Zacks Rank #2 (Buy).