To the chagrin of all my sane friends, I keep thinking Facebook (NASDAQ:FB) has the potential to be a great investment. I swing between feeling like the only one who doesn't get it, or the only one who does. But I stick to it because of enticements like the recent "want" test from Facebook. More than anything else, this seems like a useful step toward monetizing the Facebook masses, and generating some long-burning profit for the tech all-star.
Gotta have it
The way the "want" feature works is similar to Pinterest. As a Facebook user, I can view a collection of products put up by a retailer. The twist is that in place of the familiar "like" button, there will be a "want" button instead. Then I can buy those items directly through Facebook, or I can share a collection of items that I like so that all my friends can see the list. I know this seems silly on the outset, but hear me out.
Since its IPO, Facebook has seemed like a huge store full of people without anything to buy. Imagine dropping 900 million people in a city, and then all they did was talk and share pictures of ugly cats. This function finally puts some stock on the shelf. I'm not only happy with the test but also with the partners involved.
Facebook is currently testing the new system with seven companies, including Williams-Sonoma's (NYSE:WSM) Pottery Barn, The Limited's (NYSE:LB) Victoria Secret, and fashion powerhouse Michael Kors (NYSE:KORS). Pottery Barn has just shy of a million people following them on Facebook, while Victoria's Secret is pushing 20 million. Kors has about two million, but any items it sells will probably outstrip Victoria's Secret in price. If you're going to start selling through a new platform, that seems like a pretty good user base to start out with.
The devil in the details
All this excitement -- OK, my excitement -- should be tempered with a sense of reality. Selling a couple dozen product lines through Facebook isn't going to suddenly generate billions in revenue. But at this point, all I want is proof of the concept. While Facebook already takes 30% of all the payments that it processes, this income stream has been limited.
Last quarter, the company made $192 million through payments. That was a meaningless nudge from the $186 million it made in the first quarter this year, and an even smaller move from the $188 million it made the quarter before that . In short, transactions have been weak. They've been weak because, until now, Facebook has focused on selling things that people don't really want, or that they already get form another source.
One of the biggest challenges that Facebook has come up against is making its products and advertisements translatable to mobile platforms. When it was only selling two things -- ads and games -- then it had trouble dealing with mobile devices, which offer a different browsing experience for ads and already have a gaming platform. But with online sales, those issues aren't issues anymore. There's no reason that a user would be more likely to buy at home versus on a mobile device.
In fact, there may be more reason for them to make purchases on the device. Imagine a world where you take your device to the mall, just look at the list that your friends have created, and buy all their Christmas presents. Anything that you can't find in the store you load into a cart, and buy through Facebook.
The biggest challenge
That's a rosy picture to paint, and since I'm optimistic about Facebook, it's the one that I buy into. But the biggest hurdle is still dealing with the move to mobile. Maybe people will be less likely to purchase on their phones. Maybe no other decent retailers will join up. Maybe William Jennings Bryan should have won the 1896 U.S. presidential election. Only time will tell, but my optimism is renewed.
Luckily, the Fool has a great balance of opinions, so you're not stuck with my rose-tinted glasses. We've recently published a premium report on Facebook, just for Fool readers. We'll be updating the report throughout the year, so you'll always have access to the newest information available. If you think Facebook might be a good buy, or if you just like watching trains collide, click here to sign up for your copy today.
Fool contributor Andrew Marder owns shares of Williams-Sonoma. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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