Fundamental Analysis Facebook Inc, FB | Last Report Update: 15.10.2017
Facebook is the largest social network in the world, with more than 1.3 billion daily and 1.9 billion monthly active users.
Facebook’s user base is growing especially outside of the Nord America and Europe.
The main source of revenue is advertising:
Because of Advertising’s importance for generating revenue, Sheryl Sandberg, COO of Facebook, stated in a conference call: “Our goal is to build meaningful connections between businesses and people. We’re doing this by focusing on 3 key priorities: helping businesses leverage the power of mobile, developing innovative ad products, and making our ads more relevant and effective.”Mobile advertising revenue represented approximately 85% of advertising revenue for the first quarter of 2017, up from approximately 82% of advertising revenue in the first quarter of 2016.
Because of the Company’s current position as the leader in mobile, Facebook handsomely benefits from growing usage of Mobile devices which generate 85% of advertising revenue for the first quarter of 2017, up from approximately 82% of advertising revenue in the first quarter of 2016. CEO Mark Zuckerberg said that Facebook’s mobile users spend an average of more than 50 minutes every day within Facebook’s three primary apps: Facebook, Instagram, and Messenger.
The Facebook Journalism Project:
Facebook announced that the company will collaborate with news industry to provide quality journalism on the platform. The Project also attempt to curb the fake news that not only harms the user experience but also increases the legal risks in EU.
The project can increase the time spent on Facebook which will generate more ad revenues.
FB has the largest user base compared to all other social media platforms and therefore the network effect of Facebook and other products, i. g. Instagram Whatsup etc., provides the strongest competitive advantage for the company. The “failure” of Google+ was an example of how wide the economic moat of FB is.
Another important competitive advantage of the company is that the Company can afford to spend a tremendous amount of money for R&D and company acquisitions because scalability of its services leads to higher profit margins when the company’s revenue increases.
FB’s future depends on the popularity of social media.
The Company relies on buying and cloning competitors, i. g. Instagram. FB needs to make more own innovations.
For starters, the company is running out of potential new users on its main app, the “big blue” Facebook app.
(1) In the long term, Ad revenue can grow much more if FB monetizes videos like youtube does.
(2) Large user base can provide several additional income sources, i. g.: paid apps.
(3) The growth of user base can slow down but the user engagement and time spent on social media will continue to increase especially because of the users’ shift to mobile devices.
(4) The popularity of FB and its other products needs to be carefully watched by investors.
News and Comments:
Facebook’s battle against illegal content:
EU commission released a guideline to tackle the illegal online content.
From the press release:
- Detection and notification: Online platforms should cooperate more closely with competent national authorities, by appointing points of contact to ensure they can be contacted rapidly to remove illegal content. To speed up detection, online platforms are encouraged to work closely with trusted flaggers, i.e. specialised entities with expert knowledge on what constitutes illegal content. Additionally, they should establish easily accessible mechanisms to allow users to flag illegal content and to invest in automatic detection technologies.
- Effective removal: Illegal content should be removed as fast as possible, and can be subject to specific timeframes, where serious harm is at stake, for instance in cases of incitement to terrorist acts. The issue of fixed timeframes will be further analysed by the Commission. Platforms should clearly explain to their users their content policy and issue transparency reports detailing the number and types of notices received. Internet companies should also introduce safeguards to prevent the risk of over-removal.
- Prevention of re-appearance: Platforms should take measures to dissuade users from repeatedly uploading illegal content. The Commission strongly encourages the further use and development of automatic tools to prevent the re-appearance of previously removed content.
UK Government considers changing the legal status of Google, Facebook, and other social media platforms and classifying them as publishers.
“We need to get the balance right so that we have a free vibrant internet that we can harness all the benefits from while protecting the intellectual property that is ultimately the thing that differentiates the United Kingdom from other parts of the world,” Karen Bradley, the culture secretary of UK Gov.
EU and UK making pressure on Facebook and other Social Media platforms to remove the content involving hate speech, fake news, and copyright infringement.
Possible Effects on Facebook:
Facebook is not a content provider like a mainstream News Paper, therefore, detecting and removing toxic content would be far more difficult and costly for Facebook compared to a newspaper that publishes own content. This can not be, of course, an excuse for the toxic contents.
Removing hate speech and fake news would improve the user experience and increase the platform’s quality.
But removing the content with copyright infringement can dramatically reducing the spent time on Facebook and especially on Instagram because they make the majority of the viral content.
Providing an original content is costly and requires expertise. This means the already existing Facebook users would be less motivated to publish facebook pages and posts.
If people spend less time on facebook the revenue from ads will decline. Therefore, the spent time on Facebook is very important metric like the number of active users.
Some people argue that hate speech is protected by the constitution in the USA but they forgot Facebook and Google are private companies having no obligation to promote someone’s opinion. If the advisers don’t like your content they can demonetize your videos or even they can shut down or shadow ban your Facebook page just because to make the platform more ad-friendly. But People can criticize the monopoly of those platforms and they should.
Because of being expensive, copyrighted material can hardly compete with copyright infringements, fake news etc.. If Facebook changes its business mindset and begins to promote copyrighted original content and punishes the toxic content the platform can lure the quality content providers and tremendously improve its user experience. The Facebook Journalism Project is an attempt to meet this challange.
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