May 23, 2019 | 12:09 PM


02.05.2013Facebook Earnings: Is it Already an Old Company?

The Facebook story has taken a fundamental and decidedly mundane turn since the company's IPO last May.

Mark Rogowsky, Forbes.com

The Facebook FB -1.22% story has taken a fundamental and decidedly mundane turn since the company’s IPO last May. CEO Mark Zuckerberg  wrote in the prospectus: “Our mission is to make the world more open and connected,” and the sky seemed like the limit for Facebook in fulfilling that mission. Since then, though, the company he runs has been grounded in reality. The stock has yet to reach its IPO price and the company has become laser-focused on growing advertising revenues, which were hurt by a slow adaptation to mobile. That effort is paying off as ad sales perked up an impressive 43% in the quarter just ended.

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While lots of companies would kill for that kind of growth (Yahoo YHOO -1.78%, for one), Facebook isn’t getting there easily. It’s spending heavily on R&D and courting advertisers. It has greatly expanded the number of ads on the site (by 39% according to CEO David Ebersman) but has only gotten advertisers to pay about 3% more apiece for those ads. That’s despite a lot of significant changes to the ad products in the past year:

  • Mobile ads didn’t exist until last spring, where they generated approximately $25 million. This quarter that total reached $375 million. It’s impressive growth, but it’s also slowing quickly as the total had ballooned to $306 million by last quarter.
  • Facebook now allows marketers to “re-target” people who are engaged in activities elsewhere online when they are on Facebook. One example the company provided was of people who were considering staying at an MGM Grand resort, but never booked a room, then later saw a Facebook ad. MGM got a great return on investment from those ads.
  • Mobile app developers can promote their latest and greatest on Facebook’s own app. This is apparently quite popular and cost effective as those developers find ways to break through the clutter of choices for customers. Facebook wouldn’t say how much they are raking in from this, but Apple AAPL -0.77% and Google ought to take heed. There’s an opportunity there on both the App Store and Google Play that isn’t being exploited.

But all this is fundamentally tactical. Facebook talks a lot about how it can keep improving its ads to make them each a “better experience,” as Zuckerberg puts it. The reality is, though, there’s only so much marketing we can each put up with and Facebook is trying to find the limit. I’ve experienced as many as 6 ads in my mobile News Feed, which is noteworthy when Facebook considers you’ll only look at the first 30 items there most of the time, whatever they are.
It’s certainly true that the company is also working to make the Facebook product itself better. The News Feed and Timeline both have seen significant redesigns and the fancy new Graph Search continues to undergo testing and a slow rollout. Again, Facebook says the right things: that more people keep using Facebook more and more often. Independent data, though, suggest “Facebook fatigue” is real and people are tuning it out, at least for a while.

The company that went public last spring was going to be the “next big thing” and was briefly valued over $100 billion on the prospect of tremendous growth ahead. But Facebook already has 1.1 billion users and has been selling advertising for several years. You can look at stats like revenue per user ($3.50 in the U.S. and Canada vs. $1.35 overall) and say that a lot of potential still remains. Or you can look at all the effort Facebook is expending refining and proliferating its ad products to argue that perhaps the best of its growth has already happened. Yes, this quarter had a nice bump on the topline. If you assume, though, much of that is a one-time effect from having no mobile ads to having plenty of them, the opportunity looks more modest.

Altogether, that makes Facebook look a lot like a mature technology company, refining its product, generating some nice growth. There’s not a bit of shame in that, but there’s also not a lot of likelihood the company will be doing much more business in all of 2015 than Google will do next quarter.  The stock market thus far seems not to care either way. Facebook is priced as if there’s a bright future ahead — and that still seems to be the case — and yet isn’t as outrageously expensive as it was when the first trade went through last May. The average Wall Street analyst considers the stock something you probably ought not sell, but might not want to buy. It’s also very ordinary. And a lot like a whole bunch of other Silicon Valley companies, many of which have been in that boat for a long while.

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