Facebook Value Could Soar on Mobile Usage

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Facebook Mobile has been rapidly expanding its reach, growing from 100 million users per month in February 2010 to 250 million users per month in March 2011.

Should this type of growth continue, there could be upside to our intrinsic value estimate for Facebook, which we currently peg at $45.1 billion . Facebook competes with Google(GOOG), Yahoo!(YHOO), Microsoft(MSFT), AOL(AOL) in the text and display advertising market as well as the search advertising market.

Rapid Rise in Facebook Mobile Users Expected

Until recently Facebook had two mobile Web setups -- touch.facebook.com for large touchscreen phones, and m.facebook.com for other feature phones. Now Facebook is merging these two websites into one, enabling Facebook engineers to deploy features, tweak user interface elements and optimize graphics easily for all Facebook Mobile users in one go.

This will help users access any and all Facebook features that their phone hardware can support. And it will especially help feature phone users, since only 30% of handsets in the U.S. were smartphones, as of February, 2011.

According to the comScore report, only 27% of U.S. mobile users accessed social networking sites or blogs in February 2011. This gives a lot of running room for Facebook to increase mobile usage of its platform.

How Facebook Earns Revenue from Text and Display Ads

Text and display ads account for more than 60% of Facebook's value by our estimates. Facebook social ads are mainly self-serve ads that can be targeted to appear to specific users. Facebook makes money based on how many pages are visited and the bidding rates on these advertisements.

Facebook offers both cost per click (CPC), for which advertisers pay only when users actually click on the advertisement, and cost per thousand impressions (CPM), for which advertisers pay based on the number of times these advertisements are displayed on user pages.

As more users access Facebook from mobile devices, the number of pages viewed per user will rise. While we currently estimate 2% annual growth in Facebook's page views per user, a 4% annual growth in this metric (to 545 monthly page views per user) would imply 15% upside to our $45.1 billion value estimate. This scenario would put our estimate for Facebook's value at about $51.6 billion.