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Less "Original Sharing": Time For Facebook Investors to Panic?

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Citing sources familiar to the matter, The Information reported that Facebook (FB - Free Report) witnessed a 21% year over year decline as of mid- 2015 in “original sharing” on news feed, its primary cash cow, exposing a major weakness for the company. The social media service is already working on fixing the issue by appointing a dedicated team to find ways to arrest the steep decline.

However, in an email Facebook has counter claimed that “the overall level of sharing has remained not only strong, but similar to levels in prior years.”

Not many are willing to buy Facebook’s claims. As per Fortune, “Facebook’s decline in personal updates reflects a common growing pain for online communities. What starts out as special and intimate place to share things grows into a big, impersonal, and professional platform.”

Analysts observe that Facebook has been around for longer than any other currently active social service platform. Users are bound to have lots of connections and it is normal to feel uncomfortable sharing personal photos and thoughts knowing that it might not be for all the people out there. Reportedly, Facebook employees have labeled the trouble as “context collapse”. As Facebook keeps expanding, personal sharing has shifted to smaller communities like Snapchat.

So is it all downhill for Facebook from here?

We don’t think so. Facebook continues to be the number 1 preferred social platform. The company with its gargantuan user base of 1.6 million continues to find newer ways to keep users hooked on to site.

In fact, last year, Facebook used a ploy "On This Day" to let users refresh memories from the past year and share their thoughts on the same.

Last day, Facebook added several features to Facebook Live to make it more personalized and of course encourage people to post more original content. As per Facebook, an initial survey has found that people reacted 10 times more to a live video than regular videos.

Though an ever expanding user base remains Facebook’s primary growth catalyst, its subsidiaries (Instagram, Oculus, Messenger and WhatsApp) have now emerged as powerful growth engines. These have long been referred to as multibillion dollar opportunities. The last reported quarter wasInstagram’s first full quarter after opening its ad platform to advertisers worldwide. Though management has not provided exact numbers, it seems the ad platform was well received as reflected in increases in both overall ad impressions and average ad prices.

Average price per ad increased 21% from the year-ago quarter, which is phenomenal given the fact that price per ad has been declining or growing at a single-digit rate on other leading platforms. Moreover, ad impressions grew 29%, the first increase in last eight quarters mainly due to increases in mobile impressions.

Another factor that is likely to drive growth is the company’s strength in mobile, which will continue to outpace growth in desktops in the foreseeable future. Moreover, Facebook is popular in many emerging markets where most new users start with mobile.  

Facebook’s move into the emerging AI & AR/VR market, a bold step in our view, is expected to bear fruit over the long term. While the much anticipated VR headset gear Oculus Rift didn’t have a smooth launch, an analyst has said that Rift has the potential to “handsomely” pay off the $2 billion investment that Facebook made for acquiring Oculus two years back. He expects Facebook to sell 600,000 units this year and another 2 million plus units equaling to over $1.6 billion in revenues in 2017.

The analyst was upbeat about overall VR potential and added that VR might contribute $1–2 billion in additional revenues for the social service giant by 2017. By 2020, it could be as high as $7 billion worth of incremental revenues or 10% of the total revenues for Facebook.

However, significant rise in expenses and stiff competition from the likes of Twitter, Inc. (TWTR - Free Report) and Alphabet Inc. (GOOGL - Free Report) for ad dollars remain causes for concern.

Despite challenges, there are plenty of opportunities for Facebook to continue / increase it growth momentum and as result remain upbeat on the stock.

At present, Facebook carries a Zacks Rank # 1 (Strong Buy). Another stock worth consideration in the same space is Etsy Inc (ETSY - Free Report) which also sports Zacks Rank #1.

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