Right about now it would be tempting for Facebook investors to take a victory lap. After a botched IPO and a year of queasy financials, the company finally posted a monster quarter, with revenue shooting up 53 percent to $1.8 billion behind big gains in mobile advertising. Facebook shares surged nearly 30 percent Thursday, and Facebook seemed poised to enter a new, much more optimistic era for its business.
But before the celebrations get too out of hand, let’s take a look at how sustainable that revenue growth really is. Certainly a big chunk of Facebook’s income is healthy and repeatable, coming from long-term clients who have made serious commitments to the platform. But a lot of that business — Facebook executives won’t say exactly how much — comes from advertisements promoting mobile apps. Many of those
ads are short-term deals, purchased with venture capital as part of a land-grab to ramp up user bases. In other words, exactly the kind of ads that would disappear should the tech investment bubble burst.
Before investors dive into Facebook, they’ll want to figure out exactly how reliant Facebook is on such ads, especially if they want to calibrate their exposure to potentially overheated startup investment flows. Carlos Kirjner, a sell-side stock analyst and early, prescient Facebook pessimist, says a thinning of the ranks among mobile app makers could hurt Facebook in a manner similar to the decline of Zynga, a videogame maker that once supplied 12 percent of Facebook’s revenue and which is now struggling just to keep its head above water. READ MORE
