After a disappointing debut, Facebook's stock has rallied more than 20 percent
in the past two weeks as the company has waged an aggressive campaign to show
that the world's biggest social networking service will continue to expand its
business and make more money.
The stock closed Thursday at $31.84, a significant improvement after
bottoming out at $25.52 on June 6, but still far below last month's initial
public offering price of $38.
While the widely anticipated IPO set a U.S. record for valuing the
company at $104 billion, the stock's subsequent plunge was accompanied by
concerns about whether Facebook could maintain the rapid growth of its startup
years. In recent days, however, the company has announced several moves aimed
at increasing revenue from mobile advertising and online payments, while
touting some favorable market research and endorsements by two big
advertisers, Ford and Coca-Cola.
"Everything you've heard about the stock in the last week or so has been
about revenue. It's clear they're trying to send that message," said Wedbush
Securities analyst Michael Pachter, who faulted Facebook CEO Mark Zuckerberg
for not showing enough concern about revenue and shareholders during the
run-up to the IPO.
Despite the recent advertising initiatives, Argus Research analyst Joseph
Bonner warned this week
that Facebook's business model still "warrants caution." He added that
it's unclear how the company will make money from the increasing number of
users who are accessing the service on smartphones and tablets, while growth
in visitors using personal computers may be slowing.
But Wedge Partners analyst Martin Pyykkonen said Facebook's recent moves
should help deliver more ads to users of mobile gadgets. He added in a
research note: "We think Facebook is making notable headway" in developing its
mobile business.
Menlo Park-based Facebook earned $1 billion in profit on $3.7 billion in
revenue last year, most of it from advertising. In documents filed before its
May 18 IPO, the company acknowledged that it made little money from mobile
ads. Since then, however, the company has said it's starting to let
advertisers design ads specifically to appear in the "news feed" of updates
seen by mobile users.
Bloomberg News reported this week that Facebook is working to develop
"location-based" mobile advertising, which potentially could let businesses
target ads based on real-time information about where users are when they post
updates to Facebook.
The company is also adding more features for mobile users, including the
ability to use Facebook's "Like" button to share information from various
Facebook apps created by independent developers, which could eventually help
deliver more targeted advertising.
More broadly, Facebook last week disclosed plans for an advertising
exchange that will let companies bid to deliver Facebook ads to users who have
previously visited the companies' websites. Google (GOOG) has a somewhat
similar program.
And this week, Facebook announced changes to its online payments system,
which allows Facebook to collect 30 percent of every transaction it processes
for developers who build Facebook games and other apps.
While the company will still collect that percentage, Facebook is
eliminating a virtual currency called "Facebook Credits" and instead will let
users pay with credit cards or PayPal accounts. Facebook also said it will let
developers sell paid subscriptions to games or services. Analysts said both
moves should help developers attract more users and potentially increase
revenue for developers and Facebook.
Facebook has also been talking up the benefits of its advertising
business. Last week, it ended a legally required "quiet period" after the IPO
by trumpeting research that showed businesses saw their sales increase as a
result of both paid ads and "unpaid" marketing campaigns on Facebook. The
reports were produced by Facebook and comScore, which Facebook had
commissioned to conduct a study.
The company got a further vote of confidence this week when The Wall
Street Journal reported that executives with Ford and Coca-Cola said at
separate conferences that they believe Facebook ads helped drive customers to
buy their products. That helped ease the sting of General Motors' announcement
last month that it was ending a $10 million ad campaign on Facebook because it
seemed ineffective.
While Facebook touts its ability to deliver targeted advertising
messages, the company has been criticized by privacy advocates for targeting
that gets too personal. Facebook is in the process of settling a lawsuit over
its "sponsored stories" program, which lets advertisers pay Facebook to
deliver messages to users' friends that show when a user has "liked" a company
or product.
As part of the settlement, attorneys for users who filed suit say that
Facebook has agreed to offer users more control over when and how those
messages are delivered. In a court document filed this week, the plaintiffs
estimated Facebook could forgo up to $103 million in revenue if users opt to
block the messages.
