Salto Partners

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Video Platform on Facebook

Facebook on Tuesday revealed it’s experimenting with making video clips easier for users to find in its mobile and desktop applications. In coming days, a limited number of users will see the additions, which include a video button at the bottom of its iPhone app and in the Favorites menu of its website.

Here is what I told E-Commerce Times, “Video has become a battleground between Google and Facebook. With YouTube, Google is certainly the incumbent leader with a billion global users that spend hours on the site simply watching videos. As of today, Facebook has about 1.5 billion monthly active users. It wants to get in on the action by providing a powerful video platform, Facebook has the opportunity to very quickly create a target-rich marketing platform that has the ability to create substantial revenues quickly.”

You can read the entire article here.

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Facebook’s Q2

Facebook produced US$2.68 billion in ad revenue in Q2, up 67 percent year over year, and mobile ads accounted for about 62 percent of that haul, totaling $1.66 billion. I was quoted in E-Commerce times about this. Here is what I said, “The ability of Facebook to move into the mobile ad space and to monetize it successfully was heavily questioned last year. The company answered in the best possible way — by simply beating market expectations.” You can read the full article here.

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800 Million Facebook Shares Came Online

I gave an interview to E-Commerce Times on Facebook. Here is the back story.

Yesterday, 800 million Facebook shares came online. Shares opened at $20.08, and by afternoon were up by more than 11 percent, to $22.17. The increase was unexpected because a stock’s price generally falls when a glut of shares becomes available. For Facebook, the increase was particularly fortuitous, because the stock is worth just over half of its initial public offering price in May. So what happened.

Market dynamics can be complex. So, there is a lot going on behind the scene. To start with, Facebook had a better than expected Q3. It was able to beat revenue expectation. What is even more important, the company was able to jumpstart its mobile business. So, employees and investors have reasons to believe that the company is able take its business to the next level. This is probably the main reason, why we didn’t see people running to exits today.

Secondly, the fact that today 800 million shares were coming online was well known. For those market participants who speculated on a lower stock price it was time to cover any short sales. So, in that regard, todays increase could have been easily just a technical reaction to a market that was simply oversold.

The bottom line for Facebook hasn’t changed. It has to show that it is able to grow its topline. Investors will particularly take a closer look at its mobile revenue numbers.

You can read more here.

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Facebook – Aftermath of the Earnings Call

Facebook’s first earnings call last week was a big deal. Investors had a lot of questions after the initial IPO and the subsequent decline of the stock. I did an interview with E-Commerce Times on the results. Here is the long version of my analysis.

Numbers: Facebook was able to produce a non-GAAP profit of $0.12 per share and $ 1,184M in revenue. According to GAAP they are reporting a loss of $743M or a loss of $0.08 per share primarily driven by share based compensation expenses that they didn’t recognize pre-IPO. This is all good, though. Facebook made its numbers.

Mobile Strategy: I did like that Mark Zuckerberg discussed the mobile strategy of his company right at the beginning of the call. He acknowledged the importance of mobile for the future of his company. The company is heavily investing in this space. He mentioned that they are working on a deeper integration between Facebook and Apple’s IOS. This is very much needed, because the current Facebook experience on the iPhone is less than stellar.

Making sense of the acquisition puzzle: Two surprising statements. The Instagram-Acquistion hasn’t closed yet. The deal had been announced before Facebook’s IPO in early April 9 2012. The other surprising statement was that Facebook will continue to buy company to acquire talent. This can be truly a very expensive way to hire and even for a company with a 10B war chest it his hardly sustainable.

What to expect going forward: Here is the crux. Facebook’s user base joined the site to connect with their buddies. They want to talk about what’s on their mind, share pictures, stories and goof around. They want to continue to do this for free. That expectation was set the moment they signed up. So, Facebook won’t make money from their audience directly. They need to find ways to make the site appealing for advertising companies.

In the online advertisement space they don’t have the commanding market share we would expect from a site commanding nearly 1B strong audience. Why? It’s very easy to ignore those ads. Hence, the idea to sell “sponsored stories” which are essentially ads in disguise. They appear in the news feed of a user. It makes sense to place these “ads” in the news feed because there they are harder to ignore. However, it’s a thin line. We expect to read news from our friends. Companies are not our friends. If the news feed becomes too “spammy” users won’t go there anymore. They might leave the site altogether. Facebook has to sell to its audience that sponsored stories are cool. A fine balance act.

 Then there is the business side of this. Sponsored stories are a new concept at least in the online advertising world. Facebook started just recently to test them out more aggressively. Advertisers don’t understand the value, yet. It’s unchartered territory. Facebook’s has to explain to advertisers why they are different. They have to explain why their ads and sponsored stories are more targeted and consequently more valuable. We are talking B2B selling. The true growth of Facebook sits on the shoulders of his business development organization that has to do educate a skeptical market. This can be tedious and slow. Once again, Facebook has to sell it.

We are past the times when concepts and visions convinced investors to write checks. The stock market is much more demanding. Facebook has a lot of potential. No doubt. Its success depends heavily on the ability of its leadership to pull it all together: The shift to mobile, the user experience that keeps the audience on the site and sustainable monetization strategies. It’s future growth depends on succeeding in unchartered territory while everybody is watching.

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Facebook – Before the Earnings Call

This week I had a few conversations with Forbes on Facebook. It started out with the question: “Is the stock at $29 a clear buy?” The answer is like always highly dependend on the investment objectives and horizon of an investor. But here were some of my thoughts. Please also read the Forbes article on this topic .

Facebook’s IPO was a success – for Facebook. Not so much for the individual investor. The stock closed at a little over $38 dollars on its first day. Now, it’s trading in the $29 range trending lower. Has it dropped enough? Is it a good time to buy now? After all, this company has 900 million users worldwide. The upside seems enormous.

There are three major issues with the stock that investors have to take into account. While Facebook has a huge global audience its appeal to advertisers is limited so far. People use the site but are not clicking on the ads. Then, its mobile monetization is unclear. That’s a big gap because we increasingly access the web via mobile platforms. Last but not least there is the lock-up expiration issue. There a lot of folks on the sell side with strike prices well below the current $29 mark. If they decide to buy that house, that boat or that car right away instead of holding on to stock, then this could create additional price pressure.

Another question was, what to look for at the earnings call. Please read the article on Forbes. Here are my thoughts.

Numbers: Are they able to hit the analyst earnings expectations of  $0.12 per share and $1.15 B in revenue. In order to afford the multiples they are commanding right now, the company should achieve or exceed their numbers. Why is this important? It shows the ability to tactically execute. Hitting their numbers helps to build trust into deal making machinery that needs to take the business to unprecedented levels quarter after quarter.

Mobile Strategy: The world is going mobile. Traffic from mobile devices is growing at an astounding rate — by some estimates, mobile visits now account for fully 20 percent of Web traffic. Cisco estimates that global mobile data traffic will increase 18 times over between 2011 and 2016. Compared with all that growth, mobile ad spending is still small, and even though it’s projected to more than double in 2012 to $11.6 billion, according to Strategy Analytics, advertisers will still spend nearly four times as much on online advertising. Yet, someone will figure out how make money on mobile. The question is, is Facebook one of them? Looking at their next earning calls it would be refreshing to understand how they plan to become a major player in the mobile world. Besides selling mobile ads what other plausible monetization strategies do exist?

Making sense of the acquisition puzzle: Facebook has been very active during the past months acquiring different companies in different areas. Among those were Instagram, a photo sharing app, and Face.com, a face recognition company. What is the grand plan behind those transactions. Most importantly: how do they help to grow the top-line?