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January 15, 2013

Mobile Ad Gains will Cost Facebook Billions: Analyst

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Facebook can expect to shell out about $2 billion a year for its future mobile ad campaigns, predicts a senior analyst at Pivotal Research Group.

Despite the mobile gains the social network made in the latter half of 2012 and the resulting investor confidence that drove the firm’s stock above the $30 mark last week, Brian Wieser, in a research note, lowered his rating on the company from “buy” to “hold.”

He said the stock “had a good run to back up this value, leading to the change in recommendation.”

Facebook’s stock has enjoyed a remarkable rise from less than $18 per share in September to its current value of about $32, thanks to the company’s $150 million in mobile profits in the third quarter — a jump of about $140 million from the previous quarter.

Wieser is predicting Facebook’s mobile ad division will produce $1 billion in revenue this year, adding mobile advertising looks auspicious for the social media site in the short-term.

The problem, the note indicated, is the elevated costs connected to this type of advertising. For instance such campaigns tend to be more labor-intensive than conventional Web campaigns. If the social network’s growth in mobile is due to an increase in mobile campaigns, which would include mobile apps, that could translate into lesser profits and lower CPMs.

“Even if CPMs were higher, the absolute volume of impressions delivered will be much lower than on the desktop,” Wieser said.

BTIG analyst Richard Greenfield said in October Facebook is pushing so hard to make money, user backlash could weaken its stock value.

Greenfield said Facebook’s “aggressive” drive to increase revenue would eventually backfire.

“In the face of drastically slowing payments revenues and falling investor sentiment and employee morale, it feels like Facebook is pushing advertising monetization harder than they should be, which we believe will harm user engagement in 2013 and beyond,” Greenfield wrote on his blog.

Greenfield was correct in his prediction that Facebook would report higher third-quarter ad revenues. He added, however, that mobile ads would take up more space on screens, annoying users and raising the chances of accidental clicks.

Greenfield slashed his 2013 revenue forecast to $5.6 billion from $5.9 billion.

 

 

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