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Facebook: It Is High Time To Move Sideways

 February 01, 2013 09:52 AM


(By Mani) It is high time for Facebook. Inc. (NASDAQ: FB) investors to move into sidelines as the slower-than-expected ramp of Gifts and in-line mobile advertising results put a big question mark on the social networking giant's future.

Meanwhile, the company guided to 50 percent expense growth in 2013, with revenue growing at a slower pace.

So, the writing is on the wall. For the stock to go higher, new catalysts must emerge.

Wall Street had been looking to Gifts scheme for help, but the company has tapped-down expectations. In the fourth-quarter of 2012, Facebook introduced Gifts, which allows users to purchase gifts for their friends directly on Facebook's website through retail partners.

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In addition, the Street is too focused on mobile data points as Facebook becomes a much more dynamic platform for marketers. One of the biggest risks to the Facebook story is right-rail revenue decelerating faster than expected from newsfeed cannibalization. If this is the case, there could be downside to ad revenue estimates.

"Contrary to consensus, we do not think 2013 stock performance will be dictated by "mobile monetization"; rather, we think that has driven the stock's move over the past two to three months and in-line mobile results this quarter suggest that catalyst is complete (for now)," BMO Capital Markets analyst Daniel Salmon said in a note to clients.

The key for 2013's stock performance is not going to be mobile usage or ad load, but rather how well Facebook can continue to adapt and execute for marketers across their customer relationship management, earned/owned, online video, native advertising, and search efforts, as well as mobile.

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For example, Super Bowl efforts this month will be about engagement with contests/promotions across all screens leading up to the game, while second screen engagement on the day off will happen on both tablets and laptops.

"Beyond a pullback in the stock, we would look to get more proactive again if (1) we get more details about video ad products that were hinted at on the conference call; (2) expectations for Gifts improve due to faster country rollout or product improvement, like wedding registries, or (3) Instagram monetization begins ramping up," Salmon added.

Menlo Park, California-based Facebook is the largest social media property in the world with $1 billion users. Marketers can access Facebook's more than 1 billion members and host unpaid brand pages and buy targeted social advertising.

Advertisers pay for ads displayed on Facebook based on a per-impression (CPM) and per-click (CPC) basis. Ad formats include Sponsored Stories, Promoted Posts and Sponsored (search) Listings while tools like Custom Audiences help targeting.

Facebook became public on May 18, 2012 at $38. Now, the shares are trading at $30 levels, and has been trading between $28.74 and $31.44 during the past 52-weeks.

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