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Reportedly, Facebook Inc (FB - Analyst Report) has unveiled Graph Search, a tool that will enable Facebook users to search for information within the website. Currently, the service is in beta testing mode and is only available to a limited number of Facebook users.

Facebook said that Graph Search will search for a specific query among contents that are shared by users and are publicly available within the social network platform.

Moreover, the search results can be customized according to specific time frames, locations or other information that are available on users’ profiles. This feature is also expected to be available for mobile users.

Facebook has plans to launch Graph Search as a full fledged service. To make it more effective, the company will also be using Microsoft’s (MSFT - Analyst Report) Bing search engine to deliver additional search results when Graph Search is unable to find relevant answers.

Facebook’s move to develop its own search tool makes sense as it has in excess of 1 billion users. Thus, the company has the opportunity to use this user base to increase its advertising revenue.

Moreover, this is expected to increase user engagement; thereby increasing traffic on its site. The new search tool is also expected to bring in more advertisers to the social network platform and boost Facebook’s advertisement revenue.

We believe that Facebook has significant growth opportunities from increasing online advertising spending as compared to traditional formats. Facebook’s massive user base and its ability to track personal details over time make it a formidable force in the online ad market. Facebook can use this massive database to help advertisers target relevant ads going forward.

However, increasing competition from Google in the online ad market and lack of visibility around mobile monetization are the concerns.

Although Facebook has made a number of acquisitions to enhance its mobile offerings, we believe that lack of adequate ad coverage for the mobile platform will continue to hurt its revenue going forward. Moreover, continued investments to expand mobile offerings are expected to hurt margins in the near term.

Currently Facebook has a Zacks Rank #2 (Buy).

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