Facebook Inc (NASDAQ:FB) is rapidly innovating and constantly trying to launch newer products for a better user experience. The company went from barely any mobile revenues to generating almost a quarter of its ad revenues from mobile devices, as well as the unveiling of Graph Search and Gifts. A good look at Facebook’s Strengths, Weaknesses, Opportunities, and Threats can help us paint a better picture of the company going forward.
Network Effects: Due to Facebook’s global scale and more than 1.06 billion users, the size alone creates enormous network effects. The presence of friends and family in a social media setting harnesses the amount of time people spend on Facebook, and represents a huge and growing moat for the company.
Time Spent: Consumers on Facebook Inc (NASDAQ:FB) are very engaged in communicating with each other, uploading photos, sharing videos etc. As a result, the time spent on Facebook is much higher than competing high-traffic platforms like Google Inc (NASDAQ: GOOG) and YouTube.
Mobile Traffic and Run Rate: The number of users accessing Facebook Inc (NASDAQ:FB) on mobile has a surged substantially, growing 57% year over year, and now stands at 680 million users. In terms of time spent on mobile devices, Facebook represented 23% of all time spent on mobile apps as of Jan 2013, according to a comScore report. Facebook’s monetization on mobile has taken off, and represented more than 23% of ad revenue in the last quarter of 2012. The mobile run rate of Facebook stands at an impressive $1.22 billion, and will likely increase in the near future.
Category Leader and Brand Name: Facebook Inc (NASDAQ:FB) is a clear-cut leader in social media. The Facebook name has evolved into a truly global brand and now boasts of more than 1.06 billion users, which is more than five times the base of its nearest social media rivals. Compare that figure to LinkedIn‘s 202 million users and an estimated 135 million users on Google+.
Data Bank: Facebook Inc (NASDAQ:FB) has collected huge amounts of data from its billion users. This provides a solid backbone for Facebook’s advertising revenues, as the data is used to target and display ads to the consumer. This highly customized targeting capability of Facebook’s custom audiences and other advertising products is a major unique value proposition of the company.
Instagram Adoption: Wildly popular photo-sharing app, Instagram now has more than 100 million active users, uploading in excess of 40 million photos on a daily basis. The time spent on Instagram’s app has surged, and now represents more than 3% of all time spent on mobile apps, as of Jan 2013, according to comScore. The addition of Instagram to Facebook has led to a more vibrant and enhanced user experience on mobile.
Weaknesses
Payments and Fees Revenue hasn’t lived up to expectations, and revenues haven’t portrayed much growth in recent quarters. Facebook’s contract changes with Zynga Inc (NASDAQ: ZNGA) werepartially liable for the decline. As a result, the 30% of gaming revenue from Zynga that Facebook received in prior years will likely diminish in the future.
Privacy Issues: Due to the extensive volume of user data that Facebook holds, the company constantly runs the risk of privacy issues and lawsuits. Facebook carries data from users that users have revealed themselves, and utilizes that data to portray ads, as a result, it risks alienating users.
Dependence on Display Ads: In 2012, Facebook’s revenues from advertising made up 84% of its total revenues, a majority which consists of display advertising. However, Facebook has made substantial efforts to diversify its revenue base in recent times.
Opportunities
Graph Search: Facebook’s graph search tool has substantial amounts of growth potential in the future. Facebook’s early partner Microsoft will power external searches that Facebook’s internal platform doesn’t have queries for. Search advertising is one of the most lucrative for companies and for advertisers, due to their extremely high targeting. Facebook’s graph search is in early stages, and if executed properly, has the ability to translate into hundreds of millions of dollars in incremental revenue for Facebook.
Gifts and eCommerce: The Company’s Gift product line is still in the early stages, and has substantial growth potential in the long-run. The Gifts lays the foundation for a major e-Commerce launch in the long run, as Facebook is signing up numerous merchants for the gifts offering, and it already has the users in place.
Secular Shifts in Advertising: Advertisers of all sizes are increasingly shifting their advertising budgets online from traditional media outlets like TV and print media. Leading internet names like Google and Facebook are extremely well position to take advantage of this secular shift.
Mobile Revenues: Facebook Inc (NASDAQ:FB) is building out newer mobile products and rolling out newer versions of its app to enhance user experience and more advertising dollars. However, Facebook’s Mobile revenue per user is still well behind its total revenues per user and has a lot of room for growth.
Monetizing Instagram: Facebook Inc (NASDAQ:FB) hasn’t started monetizing Instagram yet, and this represents a big opportunity for the company in the near term.
Threats
Low Switching Costs: Like most other companies that operate in the consumer internet space, the switching costs for consumers are very low and might materialize in the future.
Highly Competitive Ad Market: The competition for online ads is very intense, with numerous high-traffic platforms all vying for advertising revenues. If online advertisers don’t get a sizable return on their investment, they will jump ship quickly. However, Facebook has very high targeting capabilities.
Competing Social Networks like Twitter, Tumblr, LinkedIn, Pinterest and even Google+ can gain more traction amongst consumers. These companies compete with Facebook for not only user eyeballs but also for advertising dollars.
Internet Usage: Users are increasingly accessing the internet from mobile devices, which can negatively impact the company. Facebook’s revenues from gaming are almost exclusively from desktop, which can be negatively impacted in the future.
The Takeaway
The recent proliferation of mobile based devices and increased Internet connectivity aided substantially in Facebook’s user growth. The company’s new monetization initiatives like Gifts and Graph Search have huge long run potential and will drive the company’s fortunes down the road.
The article Facebook: A SWOT Analysis originally appeared on Fool.com and is written by Ishfaque Faruk.
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