For about a year after the initial public offering (IPO) in 2012, investors in Facebook didn’t look too clever. It was the biggest IPO in internet history, valuing the company at $104bn. There were two problems though.
1. Facebook hardly made any money.
2. People mostly accessed Facebook on their computers.
But the world was starting to move away from desktop computers and towards mobile devices. And nobody knew whether people would use Facebook’s mobile offering.
The stock launched at $38 per share, then slumped to about the $25 level for the next year. But towards the end of last summer, something started to change…
Facebook has cracked mobile
The short version of the story is that early investors Facebook have been richly rewarded. It turns out that people are happy to use Facebook on their mobile, it turns out that Facebook has figured out a way to make money by selling ads, and, crucially, it turns out that people are happy to click on those ads from their mobile phones.
Take a look at their impressive first quarter results released last night. Revenue was up 74%, which was ahead of consensus. Mobile generated 59% of ad revenue last quarter, up from 30% a year ago. Facebook is becoming a mobile company.
Facebook is catching onto something big here. Global adoption of mobiles has grown at a staggering rate. Here are some numbers from eMarketer. Just over 61% of the world’s population owns a mobile, that’s around 4.5 billion people. Significantly 1.75 billion of these have smartphones, which is up from one billion a couple of years ago.
As costs continue to fall and networks get built out, smartphones will carry on increasing their share of the total. The projection for 2017 is for them to account for about half of all phones and be used by a third of the world’s population. That’s 2.5 billion people accessing the mobile internet.
To say that businesses can’t ignore this is a huge understatement. These numbers are more than a ‘trend’, they’re a change in the way things are.
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WhatsApp for $19bn – cheap at the price?
It helps explain Facebook’s $19bn acquisition of the instant messaging company WhatsApp in February. This raised eyebrows with its price tag, especially since WhatsApp famously doesn’t carry ads. But it does bring 450 million active mobile users.
In fact, almost three quarters of those users log in every day which is a far higher level of engagement than most apps muster. Grabbing this share of our mobile lives is a large part of what that deal was about. Because more and more of us have gone mobile, and are doing more things when we’re there.
Mobile is going to transform the retail and payments businesses. Online retailing has been a phenomenon – it’s given birth to companies like Amazon and ASOS. Bricks and mortar businesses have either risen to the challenge like Next and William Hill, or been left behind, like Marks & Spencer and Ladbrokes.
But the challenge doesn’t end there – the move to mobile is the next step. Already around a third of e-commerce sales have become m-commerce – mobile commerce. Looking at those smartphone growth numbers, this proportion will continue to increase.
But it’s payments and financial services where a lot of the scope lies for mobiles to transform the way things are done. In the West, it’s a way of doing things more cheaply, conveniently and effectively. But in the developing world, mobiles provide an infrastructure where none existed before.
There are one billion mobile phone users who don’t have bank accounts. It’s become a way of connecting the unbanked to the financial system. Don’t believe me? Well, Facebook has just won approval from the Central Bank of Ireland, where Facebook’s European headquarters is based, to allow its users to store and exchange money.
Strangely enough, the most advanced mobile money economy is to be found in East Africa. M-Pesa, which is Swahili for ‘money’, is a system of transferring money by text message from phone to phone. In Kenya, it is so widely used that a staggering 31% of the country’s GDP passes through the service.
Our everyday use of mobiles means they’re easily taken for granted. But they will exert a growing challenge and opportunity for businesses going forward.
Information in The Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do[xyz_lbx_custom_shortcode id=4]