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Facebook (FB - Analyst Report) recently updated its Paper app. The 1.2 update adds a special Trending section, which highlights news and photos.

Facebook Paper is a standalone mobile app, which was initially developed only for Apple’s (AAPL - Analyst Report) iOS to serve as a phone-based equivalent of a newspaper or magazine. The app was released for iOS on Feb 3, 2014.

We believe that the addition of the new feature will make the app more appealing to users. However, the app is stuck somewhere in the middle of  being an ad-free, filled with images replacement for the News Feed and a replacement for newspaper with sections dedicated to different news verticals.

Online companies such as Facebook have been facing increasing scrutiny from privacy regulators over time as consumers increasingly post information about their personal lives on the web. Facebook settled charges with the U.S. Federal Trade Commission in 2012, which stated that it had deceived consumers by forcing them to share more personal information than they had desired.

Per the settlement, Facebook is required to get user consent for certain changes to its privacy settings and is also subject to 20 years of independent audits. Hence, keeping the aforesaid in mind, Facebook has added certain privacy features as well. The newly updated Paper app will enable users to limit the audience of their posts going forward.

Per Gartner, ad market spending is expected to hit $42.0 billion in 2017. We believe that Facebook’s recently adopted strategy of targeting ads based on browsing history of users will boost company’s ad revenues in the near term.

As Facebook’s ad business matures, top-line growth is expected to suffer. Facebook’s rapid pace of acquisitions is also expected to weigh down on profitability and cash balance in the near term. Intensifying competition from the likes of Google, Yahoo (YHOO - Analyst Report) and Twitter (TWTR - Analyst Report) remains a major concern.

Nevertheless, Facebook’s growing mobile user base (more than 1 billion), Instagram’s increasing popularity (200 million users) and the new initiatives such as Internet.org will continue to boost Facebook’s share price in the near term.

Currently, Facebook sports a Zacks Rank #2 (Buy).
 

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