Ever since its IPO in May of this year, the speculation on the value of Facebook has been fodder for analysts and everyday water cooler conversations. With a market debut price of $38 per share that quickly plummeted to $21 within 5 months, Facebook was quickly dismissed as an overhyped, hot headed upstart destined to follow in the footstep of other previously glorious dot.com / Web 2.0 splashes. Why the about face? Seems the Zuckerberg crew didn’t have much of a clue on how to commercialize their nearly billion plus eyeballs and translate all those likes, posts and checkins into a viable long-term business model.
But is this the end of the story? Not quite, according to at least one analyst, Dan Niles, Senior Partner at Alpha One Capital Partners whose commentary I happened to catch on CNBC’s ‘Closing Bell’ while I was across the pond last week. Originally aired back in July 2012, Niles declared he had become bullish on Facebook saying their fundamentals are starting to turn up in the form of a robust mobile strategy centered on sponsored news feeds that are starting to yield big ad revenue. According to Niles, Facebook’s mobile ads generated around ten million back in June of this year, then began inching up to 15 million in the mid part of the third quarter and are expected to jump to 30 million by end of this year. But the big breakout ad revenue growth, Niles claims, is due to reach almost 2 billion next year. Hmm, Facebook may end up being a bit of the ‘late bloomer’ in the digital market, but why?
From Niles perspective, the Facebook IPO was mis-priced from the start considering the company’s true maturity as an emerging player. There was a lot of mis-steps and poor execution in the early days as they struggled to transition from college dorm poking machine to global social operating platform. Nile points out, it’s one thing to be a great company, but quite another to convert into a great stock. Now that Facebook has the focus on driving revenues and owns 50% of the global internet market, Niles believes the stock will come roaring back in the next two years – predicated they maintain their position as the dominant player in the social media market. Niles goes on to make some very well pointed comments on the ROI between Facebook, Google and Amazon and the rest of their brood – you can listen to the episode here.
If we look back in time a bit at the first dot.com wave, bubble and burst – a familiar pattern should emerge. The game changers launch the technology, it disrupts and causes new, unfamiliar business models that challenge conventional practices and the agency and advertiser community begin experimenting and eventually embrace and sort out the real players. This is how Amazon, eBay, Google, Netflix, Zappos and others rose up and are still standing today. I agree with Russ Fradin, who in his recent post History Proves It: You Should Be Bullish on Facebook and Twitter, said “The promise of Facebook and Twitter is long-term engagement with the audience.” He points out that early Facebook innovation was driven by entrepreneurs and their experimentation paved the way for the mainstream business community to see the potential and begin adopting the platform. Now, the challenge is to harness the data from the platform to go deeper and turn ‘likes’ into real customer advocate relationships.
Time will tell and the debate on Facebook’s value rages on – just search on “Facebook value” and you’ll see scores of entries, currently many are still uncertain on it’s outlook. What about you – are you pulling for the bull or the bear?