Investors Not Buying Into $FB For Payments
Facebook, $FB, wants to change the way we exchange information, news, photos, emails, text messages and, now, money.
— Bidness Etc (@BidnessEtc) Apr. 14 at 09:21 AM
The Financial Times reported late yesterday that the leading social network is “only weeks away” from launching a service that would allow users to pay each other. The paper said Ireland would authorize the bank to become an e-money institution and that the company explored a partnership with a digital payment processing company. The stock climbed 3% by 11 a.m.
Facebook’s reported foray into payments is not surprising given the trajectory of other major Internet players such as Google, $GOOG, $GOOGL, which has an e-wallet product. Diversifying revenue streams away from advertising is necessary for large Internet companies to keep growing at the double digit rates that justify their earnings multiples.
The global online advertising world is $121 billion and growing at a rate of about 16%, according to a report this month by Zenith Optimedia, a unit of Publicis. Facebook revenues grew 55% last year. It trades at 35X anticipated 2015 earnings.
However, investors on StockTwits.com wondered whether a payment service was a good option for Facebook. They said that CEO Mark Zuckerberg could overpay to enter the space, as some argue he did to enter the messenger space with the $19 billion acquisition of WhatsApp and the virtual reality world with a $2 billion purchase of Oculus VR.
$FB confusing times. Earnings growth .. check. Somewhat reasonably valued on fwd growth.. check. CEO shown no respect for capital .. check.
— LockYourGains (@LockYourGains) Apr. 14 at 09:03 AM
They also said Facebook may be moving out of its comfort zone by expanding aggressively into payments beyond processing in app purchases for Facebook software developers.
— SteveZ1 (@Stevez1) Apr. 14 at 09:25 AM
@standardoil Amazon has been innovating with shareholders $'s and has yet to turn them into earnings. Payment systems another world
— SteveZ1 (@Stevez1) Apr. 14 at 10:25 AM
Payment information is arguably more sensitive than browsing history. Consumers may need to feel comfortable that it will not be shared. Facebook, which makes the vast majority of its money sharing information on its users with companies who then use it to target ads, may not instill confidence that information will be kept private.
Worse, users could fear that the information would leak to their friends. Imagine receiving an emergency loan from a family member that gets inadvertently published to your broader social network, showing everyone just what financial straights you may be in.
Moreover, it’s not so easy to start a payment system, as Google has learned. Google Wallet has failed to gain much traction, despite years of investment. Meanwhile, dominant e-Wallet player PayPal basically prints money for eBay, $EBAY, its parent company.
PayPal generated $6.6 billion in sales last year after processing $180 billion in payments, according to the company’s fourth quarter release. The company sales grew 19% and net payment volume grew 25%. Billionaire activist investor Carl Icahn, who has more than a 2% stake in eBay, has argued—unsuccessfully—that eBay should spin-off the company to create more value for shareholders. Icahn dropped his proxy fight to push this issue on April 10, but still believes that, down the road, eBay should spin-off the company.
Despite the bearish comments on Facebook’s reported entry into payments, sentiment on the stock remained 78% bullish. Ultimately, Facebook’s advertising promise seems enough to keep the majority of the StockTwits’ crowd calling for gains. Many investors also see positive signs in the chart.
$FB Looks like upside down head and shoulder pattern developing! New highs coming!
— THOMAS CADOGAN (@TSTEWART) Apr. 14 at 09:16 AM
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