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Facebook Fails to Answer Key Issues, Drops 12%

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Investors are quickly losing interest in the world's most popular social network, which went public last Friday.

While many expected Facebook (NASDAQ: FB) shares to fly high -- maybe not on the level of LinkedIn (NASDAQ: LNKD), but certainly on par with other major IPOs -- the company ended its launch with minimal gains.

Now the stock is tanking, trading down as much as 12% today.

"Facebook has not answered many key issues facing Facebook business," Trip Chowdhry, the Managing Director of Equity Research at Global Equities Research, wrote in an e-mail update on the stock. "We think [that] until and unless Facebook management answers [our] questions, investors may not be comfortable with the Facebook valuations."

Some of Chowdhry's many questions include:

  • How is FB going to monetize Mobile? What matrices do you track from Mobile and how are they different from Desktop? How is monetization different between Mobile and Desktop?
  • 488 Million Mobile FB monthly users are increasingly engaging with FB using Mobile Devices. However, FB does not show Ads on mobile devices, so monetization of Mobile engagement is almost zero. If this shift to mobile from desktop continues to occur, it may cannibalize FB revenues, since Facebook currently lacks the technology to monetize Mobile engagement?
  • What role is Microsoft adCenter currently playing in Facebook? A few years back Microsoft adCenter generated more than 70% of revenues for FB. How are the revenue generation trends from Microsoft adCenter on Facebook now and how do you see that over the next 2 to 3 years.
  • From monetization perspective, which of the following activities directly or in-directly lead to better ARPU and it will be helpful if you could rank order them – Likes, Comments, Uploads, Sharing, Chatting, Poking, Tagging, Messaging, Reading, Installing an application, Games, Gifting etc.
  • Of your 900 million plus user base, what % of users have installed FB applications? What is the attach rate of applications per user and what is the engagement levels with the installed applications?
  • It seems like FB has recently increased the number of email notifications they are sending to the FB users to increase the User engagement with FB. What process does FB have to prevent being an annoyance?

"We think FB is a good company but not at these valuations," Chowdhry added. "Management cannot sing and dance around the issues facing Facebook."

New Ad Formats

"At the Mobile Conference we attended last week, we learned that Facebook may be working on two new ad formats," Chowdhry wrote. "In mobile platform, FB is piloting interlaced ads during notifications. These ads are non-intrusive, but we don't know the pricing of the CPM's. Converged view is that CPM's may be in pennies, i.e., low.

"FB is also piloting ads that may be shown to the users, only when the user is launching a FB application and when the user is shutting down the FB Application. These ads will probably show up for the entertainment and gaming category of the Facebook Applications. Converged view is that CPM's in these categories could be $5. However, these CPM's are still much less than what Yahoo (NASDAQ: YHOO) gets on [its] home page, which is more than $15."

"Our conversations with e-marketers continue to tell us that they are moving display ad spend away from Yahoo and into Google's (NASDAQ: GOOG) YouTube and Facebook," Chowdhry concluded.

Follow me @LouisBedigianBZ

Latest Ratings for FB

DateFirmActionFromTo
Aug 2014Janney CapitalDowngradesBuyNeutral
Jul 2014UBSMaintainsBuy
Jul 2014CRT CapitalMaintainsBuy

View More Analyst Ratings for FB
View the Latest Analyst Ratings

Posted-In: Facebook Global Equities Research Trip ChowdhryAnalyst Color News Analyst Ratings Tech

 

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