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Will Facebook Be Unfriended in Its Search for Revenue?

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There's been a lot going on over at Facebook (NASDAQ: FB  ) since mid-October, and that's been reflected in its stock price. The 35% jump in share price the past two months has been fun to watch, and not just for long-suffering shareholders. What's most impressive about Facebook's recent run is there are legitimate, tangible reasons behind its results.

The issues surrounding Facebook investors' discontent since its IPO have centered on one overriding concern: How is it going to take its billion users and translate all that activity into revenue? To its credit, Facebook has shared multiple new revenue-enhancing tools designed to answer investor's concerns. Which brings us to Facebook's latest idea; charging users to send messages to non-friends. Good idea? Or is Facebook stepping on the toes of its most treasured asset?

What to like at Facebook
If concerns remained about Facebook's ability to maintain its improving share price, the market's response to the release of its nearly 800 million insider shares quelled those fears. It's not often that kind of share dilution results in a stock price jump, but that's exactly what happened in Facebook's case.

The jump in Facebook revenue in and of itself was great to see. What was even better was Q3 reinforced Facebook's efforts to go mobile, both in the number of users utilizing mobile technologies to access its services, and the revenue generated from this critical market.

The introduction of Facebook's new Android Messenger tool for smartphones running Google's (NASDAQ: GOOGL  ) Android OS, together with its new Poke app for Apple (NASDAQ: AAPL  ) iPhones, are also mobile steps in the right direction. It will be interesting to see the impact of Facebook's new apps, combined with a couple of the largest OS providers on the planet. With 600 million of its users already mobile, Facebook is well on the way to setting its mobile revenue concerns aside.

And for good measure, Nokia (NYSE: NOK  ) recently announced its new line-up of entry-level phones, the Asha 205 in particular, which comes complete with a dedicated Facebook button. Great for Nokia, but the new phone with its instant access to Facebook is yet another sign it's going all in with this mobile thing.

Not as critical as Nokia's mobile revenue generating efforts, but indicative of a company exploring multiple revenue streams, is Facebook's social jobs app. The new app doesn't need to unseat professional social network king LinkedIn (NYSE: LNKD  ) to be a success; it just make a dent in its 200 million or so users. The jobs app provides yet another avenue for Facebook business customers to target users, and proves to investors Facebook is willing and able to go after new ground.

Facebook Gifts, an advertising ROI and tracking tool, and the latest discussions with Microsoft (NASDAQ: MSFT  ) to buy its Atlas Solutions service -- giving Facebook a better means of competing with Google's DoubleClick advertising service -- are all positive steps. Facebook's laundry list of new revenue-generating alternatives continues to impress.

A step too far?
For all the reasons above, Facebook's share price has been on a roll. And, news that Facebook is close to unveiling its video ad service, targeting TV advertising agencies, is potentially huge. Word has it, the video ads could hit Facebook by mid-2013.

The other announcement is the one that has many a Facebook user, and a few investors, concerned that a very important line is about to be crossed. According to Facebook, it's playing around with the notion of charging for its new messenger service, specifically when notes are sent to "non-friends." At a $1 a pop, the fee won't break users' banks, but that much for a message? The real cost may go beyond the fee.

Long noted for protecting its users, even to the detriment of its share price, Facebook CEO Mark Zuckerberg's lack of interest in generating sales was a problem even before its IPO. But the experiment to charge for messaging, any messaging; particularly coming on the heels of the Instagram photo-sharing PR fiasco, is going to raise a lot of questions. Questions that are likely to be answered, loud and clear, by Facebook users.

The effort to generate additional revenue, particularly non-advertising revenue, is exactly what has Facebook flying high, and continuing to explore these opportunities is a necessity. But this is a fine line Facebook is walking, charging for something its billion users have come to expect; always a tricky proposition. What'll happen? No one knows for sure, of course, but if the Instagram mess is any indication, don't be surprised to see Facebook backtrack, and backtrack fast, from this latest experiment.

Facebook is quickly expanding beyond its formerly one-dimensional business model. With the changes Facebook's either already instituted, or has on the way, there are things every investor needs to know. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.

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  • Report this Comment On December 26, 2012, at 1:24 PM, StopPrintinMoney wrote:

    FB leads the trend, Google leads the industry. When you grasp what these 8 words mean, you will be much better off.

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