Since way before it was public, there has been much ado about Facebook’s business model (or supposed lack thereof). Most recently, Forbes put out this mess about Facebook’s lack of a mobile business model. They’ve got (at least) one. It’s called sponsored stories. And its working. The proof is in this report; here are the summary metrics:
Let’s also have a quick look back at very recent history…. The Facebook IPO was, to be polite, less than ‘ideal’ (despite the company raising a ton of cash to compete more effectively with Google et al). In my opinion (and I doubt I’m alone), the real reason the IPO’s ‘imperfection’ was that Facebook had decelerating revenue growth (see this chart from BI). Revenue growth declined every quarter from 1Q11 (>100% y/y growth) to 1Q12 (45%). Incredibly impressive numbers (especially with 2011 revenue near $4b), but growth investors are simply unwilling to pay up for decelerating growth. (By contrast, growth acceleration=back up the truck.) In the very same S-1 the company discussed the shift to mobile (broadly and in its own user base) as a risk factor because they had not been able to monetize mobile as effectively.
Is it conceivable that Facebook knew/knows that the ~$4b desktop ad business+ was not the future of the company and began to focus its resources on sponsored stories/mobile ads that do show up in mobile feeds and can therefore be monetized (and apparently more effectively than their desktop counterparts)? You bet it is.
Now as an investor do you want to own the stock through that transition…? How long will that transition take…? Will it be effective…? Those are the right questions to ask. But (once again) implying that the company has no business model is extremely shortsighted. Remember when everyone questioned Google’s bypassing banner ads for paid search? (Read this if you don’t.) Don’t make the same mistakes with Facebook.