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iPhone 5 Midas touch for Facebook?

Sunday - 9/16/2012, 8:27pm  ET

Facebook CEO Mark Zuckerberg spoke candidly this week about the strides the company has made, as well as the challenges that it faces, especially when it comes to the much talked about monetizing of its mobile users. While that was needed to help soothe investor concerns about the company’s slowing revenue growth, Apple’s unveiling of the new iPhone did even more.

This can best be seen through the uplift Facebook’s stock got on Tuesday during after hours trading, which is when Zuckerberg sat down for his first interview since his company went public in May. Then, on Wednesday, as Apple execs referred to one feature after the next on the iPhone 5 that could benefit Facebook, the stock soared even higher by a record 7%, closing at $20.93.

In fact, it seemed that what Zuckerberg said Tuesday about the importance of system integration to its mobile strategy was answered on Wednesday with the unveiling of the iPhone. Zuckerberg was interviewed during Tech Crunch's Disrupt convention.

The new iPhone allows tighter integration with Facebook services. Simply put, the integration makes it easier for users to access Facebook on the new iPhones.

Zuckerberg’s excitement over operating system integration was clear during his interview. Most expected Facebook to be integrated into Apple’s new operating system, or iOS 6. As Apple executives took the stage to highlight the new smartphone’s features, it became clear that the new iPhone had the potential to significantly affect Facebook’s bottom line.

I think Tech Crunch summed up the integration perfectly, noting that it’s all about user engagement.  iOS 6 allows for system-level sharing of apps, which is important for Facebook’s social graph-building efforts, notes Tech Crunch. Users will have access to apps that will allow them to easily share photos and post status updates to Facebook through Siri or the notification center on the phone.

Another benefit for Facebook is the larger size of the iPhone 5 compared to older versions of the smartphone. The additional real estate is an excellent opportunity for Facebook because its future revenues hinge on it being able monetize its mobile subscribers.

Zuckerberg made that crystal clear during his interview on Tuesday, acknowledging the company’s biggest mistake stemmed from its mobile platform. Now that we have a clear picture of the company’s approach to mobile and the potential benefits that lie ahead, we must wait to see if this will be enough to help Facebook’s slowing revenue problems.

I stop short of saying that this means investors should rush out and buy Facebook stock. It still has many challenges, so I consider it to be a long-term play. For example, more than one billion of its shares will become available to be sold as lock-up expirations continue to expire in the coming months. Zuckerberg said he won't sell any of his shares for at least a year, but we don't know how many Facebook employees won't take such a high road. Also, the company must contend with employees, especially developers, who may leave the company once they cash in their shares.

Signs that Facebook’s blistering revenue growth was slowing began to show in the spring prior to the company’s IPO. Suspicions were confirmed when the company released its first earnings report as a public company in July. It showed that second quarter revenues were roughly $1.2 billion, which was lower than they were for the same period in 2011. In an interesting tidbit I thought to point out, this was still a 32% increase for Facebook. Furthermore, the increase was higher than the growth at Apple and Google. Their growth for the second quarter was 23% and 21%, respectively.

Facebook skeptics abound who say the social networking site is a fad that won’t last another five years. They say the social networking site has hit its prime, and that’s the main reason that its revenue growth is slowing. Challenges will continue to dog it in mobilizing its subscribers because who wants to click on ads on their mobile devices?

Despite such criticisms, it is very interesting that the world’s most valuable company – Apple – would devote so much attention to Facebook. This becomes even more noteworthy when you factor in the importance of Apple’s iPhone sales, which account for about 70% of the company’s revenues.

When Apple execs unveiled iPhone 5, they didn’t play up apps for other social networking sites like Twitter or LinkedIn , and of course nothing related to Google , whose Google+ is its version of a social networking site. Instead, Apple execs touted, “Facebook this, and Facebook that.” The fact that this highly reputable company places this kind of value in Facebook is telling. Now, we’ll see if Facebook will capitalize on its unique system integration with Apple.

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