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What Does Facebook's Graph Search Mean For Other Stocks

 January 16, 2013 04:52 PM

(By Mani) Social networking giant Facebook, Inc. (NASDAQ: FB) announced a new search feature, "Graph Search," which provides search results based on users' and their "friends'" historical Facebook content. The searches query Timeline posts, photos, user interests, demographic information, check-ins,"likes" and other data.

When Graph Search is unable to return a query, Microsoft Corp.'s (NASDAQ: MSFT) Bing will power search results using organic unpaid links.  As Graph Search will not be an ad product during its beta launch, there will not be any meaningful impact on revenues.

[Related -Facebook Inc (FB) Q4 Earnings Preview: What To Watch?]

Graph Search is still in beta, and slowly being deployed to US users. Eventually, Graph Search will be available in every language and on mobile. However, the company expects the refinement and complete roll-out to occur over several years.

The announcement is a near-term neutral for search giant Google, Inc. (NASDAQ: GOOG) as the Facebook's web search engine is powered by Bing, and there are no paid links.  

"Therefore, the initial launch would have minimal impact on GOOG's revenues. Our expectation is that FB will hold off on using paid links for the foreseeable future, to drive consumer adoption," Oppenheimer analyst Jason Helfstein wrote in a note to clients.

[Related -Google Inc (GOOG) Q4 Earnings Preview: What To Watch?]

However, the Facebook's announcement could hurt Yelp, Inc. (NYSE: YELP) as evident by as much as 11 percent drop in the stock. This is because, since Graph Search allows Facebook users to see local recommendations directly from friends, this could pressure Yelp usage over time. Note that restaurants and shopping make up 60 percent of Yelp reviews.

The Graph Search may not impact the prospects of Angie's List, Inc. (NASDAQ: ANGI), which offers a consumer-driven solution for its members to research, hire, rate, and review local professionals for home, health care, and automotive service needs in the United States

"Market reaction neutral for ANGI. Since ANGI provides reviews for niche services (home repair, health care and auto repair), the perception is that casual FB data will be less meaningful, and therefore not a threat," Helfstein said.

Graph Search will appear as a bigger search bar at the top of each page. When you search for something that search not only determines the set of results you get, but also serves as a title for the page. Users can edit the title – and in doing so create their own custom view of the content which they have shared on Facebook.

Meanwhile, Graph Search and web search are very different. Web search is designed to take a set of keywords and provide the best possible results that match those keywords. Graph Search combines phrases (for example "my friends in New York who like Jay-Z") to get that set of people, places, photos or other content that's been shared on Facebook. Facebook believes they have very different uses.

Another big difference from web search is that every piece of content on Facebook has its own audience, and most content isn't public. Facebook said it built Graph Search from the start with privacy in mind, and it respects the privacy and audience of each piece of content on Facebook. It makes finding new things much easier, but you can only see what you could view elsewhere on Facebook already.

"Assuming Graph Search gains traction with users, we would envision the company accepting paid search results in a future update, which would be considered a threat to GOOG," Helfstein adde



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