Recently, Facebook (FB) announced that it would cut down on Newsfeed updates that third-party apps including the likes of Spotify and Cityville automatically share. This step has been initiated by Facebook in response to more and more users marking these automatic shares as spam.
Facebook believes that posts people create and share are circulated more compared to auto-share updates. While auto-shares will still exist on its platform, they will no longer appear as frequently in Newsfeed as they appear currently.
However, Facebook provided a handful of alternatives for making these third-party apps appear on feed including the likes of the “send to mobile” feature.
Moreover, Facebook is set to include the "Like" button on mobile apps, which in turn will enable users to share content from their apps with a single tap only. Currently, this feature is available to iOS users only with a wider rollout of the same expected soon.
Per Gartner, mobile advertising spending is forecast to reach $18.0 billion in 2014 and the market is expected to grow to $41.9 billion by 2017. This presents significant growth opportunity for Facebook due to its expanding mobile-based product portfolio.
Mobile share in Facebook ad revenues increased from a paltry 11.0% in 2012 to 45.1% in 2013. Per eMarketer, this figure is expected to rise to 63.4% of net ad revenue in 2014. We believe that by cutting down on unwanted automatic shares, Facebook will be able to enhance user engagement, which in turn will help in attracting advertisers thereby boosting revenues.
As Facebook’s ad business matures, top-line growth is expected to suffer. Facebook’s rapid pace of acquisition is also expected to weigh down on profitability and cash balance in the near term. Intensifying competition from the likes of Google (GOOGL), Yahoo (YHOO) and Twitter (TWTR) remains a major concern.
However, we believe that Facebook’s growing mobile user base, Instagram’s increasing popularity, the frequent launching of new products and international expansions will boost the company’s top line and profitability going forward.
Currently, Facebook has a Zacks Rank #2 (Buy).
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