Facebook has 1.35 billion users (without China) and did 3 billion in quarterly revenue. Annualized, it’s about $10 per user of monetization. One would guess there’s plenty of room to grow from there. But there’s a possible bearish case for Facebook. A disproportionate amount of FB revenue – and most of the growth – is from mobile “CPI” ads (cost per install), where mobile app developers pay when their mobile apps get downloaded onto new users devices. The current CPI rates are running $2/CPI and higher. Few, if any, mobile app developers can actually have sustainable businesses paying $2 or more per app install. If nothing else, typical retention rates are so so poor, that $2/CPI actually means $8/year/user in marketing and acquisition costs. Plus monetization rates are miserable, be it in app purchases or advertising.
Currently there is a tsunami of venture capital and corporate marketing capital flooding mobile app development and marketing. Corporate CEO yells at CMO – what’s our mobile strategy? CMO builds app, then despairs when nobody uses it. So spends huge to get anyone to even try it. Feels kind of like, say, 1999, when web banner ads were at $40/CPM and Lycos and Yahoo and Excite and iVillage and the rest were growing revenues like there was no tomorrow…then abruptly everything crashed, when banner buyers realized they were throwing their money away, and banner costs went from $40 CPM to $0.40/CPM. I expect a similar drop in mobile CPI rates in the year 2015. Hence, presenting FB as a shorting opportunity unless it disrupts its business model. You read it here first!