Oh yeah and Zygna is also heading in the wrong direction – stock price wise. I digress. This week we say Facebook “beat” their estimates, well beat them because they had set such a low bar to the street. Their shares opened at a new low today as well. During this week Apple also missed some numbers, causing some mild panic in Appleland. Add to this the rumblings about the Samsung v Apple smartphone battles and it was not a good week for the consumer electronic giant. But not all is bleak in the land of DotCom 2.0…
First, Facebook. Not really surprising that Facebook, stock wise, is under-performing. Facebook revenues were $1.18b, most from advertisement, nice chunk of change…but pales in comparison to the $11b Google did in the same time period. Granted the amount of users is reaching immense proportions – getting close to 1billion. But that no longer matters. Sorry Facebook. Investors and the market want to see how you are going to exploit and make money from those 1billion users. Based on the numbers, if each one just gave you $1.18 a quarter you would match your current revenues. That is not really a good business model for growth! Not to over simply the situation and I realize that hindsight is 20/20 but the reality is Facebook IPOd too late. Had Facebook IPO’d a few years ago, when they were hovering around 300m in users they would have been able to ride the user growth curve. Investors and the like would have rewarded Facebook for their growth curve – might not have scrutinized the economics as much. Now that would not have taken away the fundamental issue – how to make more revenue. However with a few quarters if not years of earnings under their belt, Wall Street might have been “kinder” to the stock. As is, the numbers of users leveraging Facebook does not get anyone excited. Whether it is 400 million or 500 million or a billion…so Facebook gets no “pop” from showing greater user growth.
The reality is that Facebook is no Google, the ability of Facebook to generate revenue from ads will be a major uphill battle. The major issue for Facebook, is that is really a walled garden. It is really a personal phone book via social media – unlike Twitter or Google, which are open to the entire public. You tend to go to Facebook to see how many marathons your friends are now running, how cute and wonderful their children are, that their pets are adorable or how fat your ex-boyfriend has gotten. You do not go there to search…looking for a product or service. Until Facebook realizes this and more importantly how to make revenue off a non-Google model their stock and valuation will continue to suffer.
Now what about Apple? Apple failed to meet what have become incredibly lofty expectations. Is this a malaise that will only affect Apple or more of an indication of the overall market? I think the latter, as do others click here. Of course the amazing fact is that iPhone revenues for Apple
are greater than all revenues for Microsoft…ouch ($22.7 b v $17.4b). Apple’s financials remain strong and cash on hand is slightly ridiculous – $110b, click here to see what “toys” they could acquire with that cash. Of course it was not that long ago that someone else had that problem…Microsoft. And they did not know what to do with all that money, buy SAP? Stock repurchase? Dividend? So Apple will have to navigate some tricky waters to keep the halo it has worked so hard to create.
The main issue for Apple, what next? The market for the iPhone remains strong, but is has some serious challengers in Samsung and Google. If Facebook gets into the mobile game add them to the mix, not that I think a Facebook phone will do what the iPhone did, but still a device linked to a strong brand name. What about the iPad? Google announced a new tablet, granted it appears to be going head to head with the Kindle and Nook, but still a device that will inevitably scrape off market share. Apple is rumored to be looking at creating a “mini” iPad to get into this market. The new MacBooks are supposedly wonderful (I love my older generation MacBook!) but not sure that will excite the masses.
Apple, I have faith, will weather this “storm.” Will they continue to reach for stratospheric like levels…probably not. That pace is impossible to maintain. With the new iPhone due later this year, they have a chance to once again grab top dog stature. With the cash on hand, they can invest in and make some plays and take some risks. The real worry for me is can they weather this storm without their inspirational leader Steve Jobs? Time will tell.