Judging by the way the markets are behaving in anticipation of Facebook’s annual earnings report, which will be released tomorrow, it seems that reports of the social media network’s impending demise may have been greatly exaggerated. Just two weeks ago Princeton students John Cannarella and Joshua A Spechler used an infectious disease model to predict that Facebook would soon enter a period of rapid decline; however, all the indicators are that its 2013 figures will be impressive.
Social media stocks have been falling across the board over the past few days as investors hold off making big decisions before they know what the Facebook report will say. Facebook’s own shares were down 3% yesterday, to $52.75, but they are still up 90% on last June and well ahead of the competition. The key factor in this is clearly Facebook’s expanded presence on mobile. Revenues have grown directly in line with its development in this area.
Most analysts are now expecting that Facebook will announce an overall 50% year-on-year rise tomorrow, reaching $7.6bn. It might be still higher, but Facebook is suffering from a concern among investors that its growth might be slowing down. Its click-through revenues showed no significant growth in the fourth quarter and it may now be reaching the point where it has basically saturated the available markets. In order to avoid difficulties if and when this point comes, Facebook will need to find alternative ways to increase its revenue. Its experiments with video at the end of last year made a positive impression on investors and may represent one approach, whereby it improves the range and quality of services it can offer to marketers.
Facebook will be ten years old in just a week from now. It has battled through some difficult challenges in the past year, most notably when it was reported that it was unattractive to young people; this hit its share price hard. It also faced privacy lawsuits and chose to adjust its approach to advertising as a result. Bouncing back from such difficulties, however, can actually strengthen a company’s long-term share price, as it demonstrates resilience; furthermore, over the whole of the year, Facebook won more battles than it lost.
Whatever tomorrow’s report says, it will have its own impact on market share. Smart advertisers will watch closely to see how the market responds and what opportunities this might produce.
