3 Reasons I'm Considering Facebook for My Portfoliohttp://www.fool.com/investing/general/2012/08/14/3-reasons-im-considering-facebook-for-my-portfolio.aspx Robert Eberhard
August 14, 2012
Recently, I wrote about five stocks that I think have plenty of room to grow in the near future. I'll add one of these companies to my portfolio at the end of the month. With that in mind, I have decided to take a deeper look at each of the companies and identify three things about each one that I think make them worth additions to my portfolio. Last week, I discussed Amazon.com, and now I turn my attention to social-media juggernaut Facebook (Nasdaq: FB ) .
It's all about the MAUs
How does Facebook plan on raising its revenue per user? Facebook lives and dies through advertising -- 85% of its $3.7 billion in revenue last year came from ads. It uses the demographics of each user to use targeted advertising, hoping for clicks to generate this revenue from the advertisers. The rest of its revenue is generated through its payment system, which is typically just money spent to pay for the various games available on Facebook.
To reduce the reliance on advertising revenue, Facebook could go the route of eBay's (Nasdaq: EBAY ) PayPal service, presenting its payment option at checkout at various sites across the Internet. Not only would Facebook be able to charge a fee on the transaction, but it would also start gathering more information regarding its users' purchasing habits, which in turn could help improve the quality of its targeted advertising.
One company often mentioned as a potential buy for Facebook is Zynga (Nasdaq: ZNGA ) . The mobile-game developer contributes 12% of Facebook's revenue, primarily through Facebook's payment system. With Zynga trading near an all-time low, it seems like the perfect time to wed the two companies. However, I think Facebook is content with the current symbiotic relationship they share, especially in light of a recent copyright suit Electronic Arts filed accusing Zynga of copying The Sims Social, which brings to question Zynga's ability to develop truly original games.
Another company mentioned as a potential acquisition target is Netflix (