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Facebook rallies ahead of News Feed revamp

March 6, 2013: 12:08 PM ET
Facebook's News Feed may not look like this for much longer. But will changes lead to more ad revenue?

Facebook's News Feed may not look like this for much longer. But will changes lead to more ad revenue?

Facebook (FB) shares have lagged the broader market this year. The stock even fell on Tuesday as the Dow was marching to a new all-time high.

And Facebook has really done poorly compared to rivals Google (GOOG), Yahoo (YHOO), AOL (AOL) and LinkedIn (LNKD).

But the stock was up more than 1% Wednesday, a day before the social network was set to announce changes to its News Feed feature.

Investors are probably hoping that whatever Facebook unveils at its Menlo Park headquarters on Thursday can lead to more advertising revenue, especially from mobile users.

Still, Facebook hasn't had a great track record of convincing Wall Street that new products will lead to higher sales and profits. The company's Graph Search announcement in mid-January underwhelmed analysts. And Facebook's stock fell in late January after reporting fourth-quarter results. Although sales are still rising rapidly, analysts are worried about profit margins and slowing growth of mobile users.

Traders on StockTwits are skeptical that any changes to News Feed will lead to an uptick in revenue. In fact, some fear that more advertising on Facebook could alienate the site's more than 1 billion users.

tyen
youngsters are getting off facebook...same thing happened with myspace when ads started hitting...sell on media hype IMO $FB

LClark1
$FB What happens when more users leave when they bothered by more ads and changes to Newsfeed? Sell, Sell, Sell

That is a big problem. I've long maintained that Facebook is essentially nothing more than a 21st century phone company. It's a communications utility. You pay your phone company every month to call and text. But you don't have to sit through an ad before doing so.

Facebook may need to do a better job of diversifying beyond advertising. Fees may sound like a dirty word. But that business model works swimmingly for LinkedIn.

SwordofDamoclese
Yeah, that $FB Graph Search is a real disruptive game-changer. Guess $FB disrupts in baby-steps.

To be fair, it's probably too soon to declare that Graph Search is a dud. But here's something interesting. Remember how shares of Yelp (YELP) took a big nosedive on the day of the Graph Search news? Investors were worried about whether Yelp would be marginalized now that Facebook users can look for things like restaurant reviews from friends via Facebook. Well check out the performance of Yelp versus Facebook since mid-January.

One trader suggested that Facebook needs to fall further before it might be a buy again. And that makes sense considering that the stock is still valued at a frothy 49 times 2013 earnings estimates.

ShipofFools
$FB Don't buy until you see the whites of their eyes.

Ha! With that nod to the famous line about the Battle of Bunker Hill, I was expecting your photo to be that of a Revolutionary War soldier. It was a pleasant surprise to see the Heat Miser from "Year Without a Santa Claus" instead. Too much!

But not everyone is a Facebook bear.

psychologist
$FB is the way of the future This is how people will come to talk, meet and live in the future. I see it in my patients everyday.

A fair point. But nobody is disputing the popularity and wide use of Facebook. Now investors want to see the company turn 1 billion users into the type of healthy profits that Google and Apple (AAPL) consistently generate.

Maykiljil
$FB will be 40$ at end 1 st quarter . End March 2013. Very good Earnings.

Now that is a bold, bold call. Facebook rose above $40 on the day of its IPO. It hasn't been there since.

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Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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