Mobile, Local are Key Factors in Facebook's Post-IPO Revenue Growth
Facebook reaches more than half the world's internet population outside of Asia, and the company itself expects user growth to slow thanks to the law of large numbers. So to fuel the growth expected of it as a public company, it will have to double down on advertising, including two key areas: mobile and local.
Facebook's revenue grew 88% in 2011 to $3.71 billion, according to its IPO filing, but Trip Chowdhry, a senior analyst at Global Equities research, thinks year-over-year growth should be north of 100% for the next five years to justify a $100 billion valuation.
"I would say $50 to $60 billion would be the ideal valuation, considering the future is uncertain," Mr. Chowdhry said.
In terms of new revenue streams, Facebook has an expanding "Payments" business, composing about 15% of 2011 revenue. It takes a cut of transactions made through its virtual currency of "credits," the majority of which come from Zynga. And Facebook is expected to begin delivering ads to its 425 million mobile users this spring, possibly before it goes public, though it will need to exercise restraint so as not to disrupt the user experience, said Mr. Chowdhry.
It's also recently begun to tap the local online-ad market in a much bigger way, courting small businesses and working with big brands such as Walmart Stores, Baskin-Robbins and Cinnabon to execute a Facebook presence for brick-and-mortar locations.
Spending on targeted local display ads doubled from $1.5 billion in 2011 to $3.1 billion in 2013, according to Borrell Associates. Borrell predicts Facebook, which introduced ZIP-code-level targeting in September, will be a beneficiary of that surge. Facebook has also been positioning itself to benefit as small and midsize businesses move ad dollars to the web. Last month it announced a program that will distribute $130 in free advertising credits to 50,000 Western European businesses; it introduced a similar program to dole out $50 credits to 200,000 U.S. businesses last fall.
Facebook also opened up its Ads API to all developers over the summer, which will uncork spending by small businesses. The API makes scaled Facebook ad-buying easier for marketing agencies.
"They're enabling those who ... work with a fleet of local clients to manage campaigns with greater effectiveness and efficiency," said Jed Williams, a social-media analyst at BIA/Kelsey.
Facebook is also helping big brands execute experiences locally. Walmart leads the way with its "My Local Walmart " app, launched in October. It contains pages for 3,500 unique stores and enables users who have put in their ZIP codes to have information on discounts, new products and in-store events delivered to their news feeds.
Retail brands can also target Facebook ads to sets of consumers who've "liked" a store's Facebook Places page, said Chris Tuff, senior VP-director of earned and emerging media at the retail-centric agency 22squared.
If a store location's sales are down, "why aren't we trafficking social ads to that specific location with a coupon attached, or just a 'sponsored story'?" he asked, noting local targeting will become more compelling when Facebook enables mobile ads.
For Facebook, local targeting is a way to boost ad pricing. Hyper-local targeting, across the board, tends to be eight to 10 times costlier on a cost-per-click basis than national targeting, Mr. Tuff said. He believes it's worth it.
Baskin-Robbins, a 22squared client, worked with Facebook this fall to set up "parent-child linking," a new function where Facebook connects individual "Places" pages--a simplified version of a fan page--for each of a national marketer's local affiliates to the brand's corporate page. It enables brands to administer those local pages centrally, setting up check-in deals and promotions.
Third parties have also sprung up to help national brands manage their local Facebook presences. Chevrolet, in a lead-up to the Super Bowl, worked with franchisee-marketing platform Promoboxx to get dealers on-board with its national and local Facebook strategy. In the first week of the program, about 1,200 dealerships opted into an app developed by Promoboxx, which served national content, including the automaker's Super Bowl spot, to their Facebook pages. They were also given a content schedule with suggested post dates and times, which they could choose to follow or not.
Carolin Probst-Iyer, Chevrolet's digital manager, said the campaign marked Chevy's first foray into thinking strategically about content for all of its local Facebook pages. And while it didn't involve any paid media, Ms. Probst-Iyer said it's a viable possibility for future campaigns.
"You can run paid media on Facebook.com, or very soon, hopefully, on Facebook mobile ... saying 'We know you live close by to a Walmart or a Cinnabon, go there and check in to get a deal,'" said Rob Reed, CEO of MomentFeed, a location-based marketing platform. "And you're also volunteering valuable data about yourself."