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SWOT Analysis of Facebook Inc
SWOT Analysis of Facebook Inc
SWOT Analysis of Facebook Inc
Facebook (NASDAQ:FB) stock has climbed 30% over the past year, handily
outperforming the NASDAQ's 22% gain. But after that big rally, does the stock still
have room to run? To answer that question, let's do a simple SWOT (strengths,
weakness, opportunities, and threats) analysis of Facebook's business
Strengths
Facebook, the world's largest social network, has 1.44 billion monthly active users
(MAUs) worldwide. Unlike rivals Twitter (NYSE:TWTR) or LinkedIn (NYSE:LNKD),
Facebook is consistently profitable on a GAAP basis. Last quarter, mobile
advertising revenue accounted for 73% of Facebook's advertising revenues, up
from 59% in the prior year quarter. Total ad revenues rose 46% annually as its
average revenue per user (ARPU) climbed 25% to $2.50. Unlike Google, Facebook
limits the number of ads it displays every quarter. This strategy -- which
emphasizes quality over quantity -- caused Facebook's average price per ad to
soar 285% annually last quarter as ad views fell 62%.
Last year, Facebook beefed up its video delivery platform for video ads, and
launched its own embedded video system to challenge Google's YouTube.
Facebook uses single-sign ons (SSOs) in third-party apps and sites to tether users
to its News Feed, which gathers data for marketers. Thanks to its strength in
social, users are often more inclined to use Facebook's SSOs instead of Google's.
Weaknesses
Another key question is whether or not Facebook can keep growing. Last quarter,
MAUs rose 13% annually, but that figure has ticked lower every quarter. If MAU
growth hits single digits, Facebook will need to rely more heavily on ARPU growth
instead. Facebook's heavy investments into expanding its ecosystem have also
eaten into its bottom line. Last quarter, costs and expenses soared 83% year-over-
year to $2.6 billion, causing its net income to slip 20% to $512 million.
Opportunities
Citigroup analysts estimate that Instagram, which Facebook bought for $1 billion
in 2012, could generate $2 billion in "high-margin" revenue annually after it is
fully monetized with ads. That would equal nearly 12% of Facebook's projected
2015 revenues.
Facebook is also evolving its stand-alone Messenger app, which can already be
used for peer-to-peer payments, into a mobile platform of its own. This could
eventually generate additional revenue from sponsored accounts, sticker sales,
and e-commerce integration with third-party sites.
Those are all lucrative long-term opportunities, but Facebook also faces four near-
term threats. First, a strong dollar could weigh down Facebook's top and bottom
line over the next few quarters. Second, Facebook faces ongoing questions about
privacy in the EU, which could lead to a damaging probe of its business strategies.
Third, data breaches could eventually turn hacked Facebook accounts into
"skeleton keys" for SSO connected apps and websites. Lastly, the rise of ad-
blocking extensions like Facebook AdBlock could reduce the profitability of
Facebook ads. According to research firm PageFair, a similar extension, AdBlock
Plus, cost Google $887 million in potential ad revenues in 2012.