Facebook’s New Search Tool Fails to Impress Analysts at Debut

By Covering Business     January 23, 2013

By Sameepa Shetty
Columbia Journalism School, C’13

Facebook’s newest feature, Graph Search, promises to allow users to search their own social networks as easily as someone might search the web, but that promise has done little to convince analysts that Facebook is on the verge of a significant financial gain.

Since Facebook unveiled Graph Search on Tuesday at its headquarters in Menlo Park, Calif., no analyst covering the company has changed his or her rating on the stock.

Although it is not uncommon for analysts to take a wait-and-see approach with the debut of new technology, several of those who cover Facebook said last week that they were ambivalent or pessimistic about Graph Search’s ability to monetize Facebook’s growing user base or lift its bottom line.

“It’s still just site search,” Forrester analyst Nate Elliot said of Graph Search in a blog post Tuesday. “The big news isn’t that Facebook has fixed its search tool; the big news is that it didn’t do this long ago.”

Forrester added that Graph Search was “unlikely” to help Facebook compete with rival Google or review sites like Yelp or TripAdvisor because those services offer different or more extensive information.

Other analysts were more positive about the Graph Search’s long-term potential. Scott Devitt, an analyst with Morgan Stanley, told The Wall Street Journal Wednesday that the feature could give Facebook the ability “to incorporate… ads within user queries,” but that development “may come later.”

Jason Maynard, a tech analyst at Wells Fargo, called Graph Search “yet another way for the company to grow its revenue via promoted stories and sponsored search results, in the long term.” However, he did not change his estimates for the company’s earnings.

Facebook chief executive Mark Zuckerberg appeared to temper expectations for Graph Search Tuesday when he said the feature could be a business “in the future.”

Although Facebook has a billion active monthly users, the company is struggling to convert that user base into revenue. Over the last twelve months, Facebook made about 11 cents an hour in US advertising revenue. Over the same period, Yahoo commanded $0.45 an hour and Google pulled in $1.99.

Zack’s Investment Research said in a note Friday that Graph Search could help “bring in more advertisers to the social platform and boost Facebook’s advertisement revenue.” However, the research firm added that “lack of adequate coverage for the mobile platform will continue to hurt its revenue going forward.”

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