What Can We Learn From Facebook’s Stock Price?
Posted 28 July 2014
Last week Facebook released their second-quarter earnings report. With revenue of $2.91 billion in the 3 month period to June 2014 – representing more than 60% growth on the same quarter in 2013 – the company have easily outperformed market expectations. Facebook’s stock price surged 6% as a result, reaching an all-time high of $76 dollars a share.
There are two reasons why these results are so significant. The first is the performance of Facebook over the last 2-3 years, and the second is the driving factor behind the impressive results.
Facebook’s Increasing Market Valuation
In 2012 Facebook had one of the most highly anticipated Initial Public Offerings (IPO) in history. The stock market launch would give us an indication as to how much the company was worth. It would also necessitate a long-term profitable strategy that would reward shareholders and safeguard the company’s future.
With the burst of the .com bubble at the start of the 2000s and the near-collapse of companies like MySpace – bought by Rupert Murdoch for $580 million and sold for just $35 million – we were all wondering if Facebook had a sustainable future. There were concerns that Facebook’s market share had already peaked and that it would be impossible to monetise the network without losing users in their droves.
Initial results suggested that the concerns were well founded. The stock price started at $38 dollars but quickly fell to around half this figure. However, last week’s results valued Facebook stock at more than $76 a share, representing 100% growth in just two years.
This leads us to a very simple first conclusion: Facebook’s stock price shows us that online businesses, including social networks, have the potential to become very profitable, sustainable businesses.
As a web design agency this is very encouraging news. Working with a wide range of online businesses – from exciting startups to more traditional businesses taking their first steps online – we know that our clients can generate significant revenues and see impressive ROI through their website and online activity.
Facebook Have Made Mobile Adverts Profitable
One of the big concerns regarding the potential profitability of Facebook back in 2012 surrounded the move towards mobile. The general feeling was that whilst advertising could be an effective revenue-stream for desktop users, mobile users would quickly abandon any social networks that tried to advertise to them. This was primarily because mobile screens are much smaller, and adverts would therefore be disproportionately prominent.
Last week’s results demonstrate very clearly that Facebook have made mobile adverts profitable, without driving away users. Mobile adverts now contribute 62% of total advertising revenue, with total advertising revenue in Q2 of $2.68 billion. With 1.5 million businesses advertising on Facebook – and 30 million using Facebook pages – the prospects for future growth are impressive.
Facebook’s successful use of mobile advertising is further evidence that the future is mobile – and that mobile is already very much dominant. As a UK web design company we’re working hard to help our clients make the transition to mobile. These results encourage us that mobile can be both highly engaging and remarkably profitable.