Facebook did not introduce a phone as many had hoped, but its new Graph Search might actually be able to generate revenue for the social-networking giant, analysts say.
Still, Facebook likely won't make much money from the tool in the near term as it focuses on user experience, analysts added, and people shouldn't expect Facebook to actually challenge Google's search dominance anytime soon.
In addition, Facebook's stock could see some short-term pressure from investors who were expecting a larger announcement like a phone or Web search, RBC analyst Mark Mahaney said.
Facebook, during an event yesterday at its headquarters in Menlo Park, Calif., unveiled a new tool that essentially is Facebook search with context. A bigger search bar offers members a way to type in their natural language queries and find photos from their past, restaurants their friends have visited, music and movies their buddies like, or even potential dates, would-be pals, job recruits, or media sources. When Facebook doesn't have the answer, Microsoft's Bing will fill in the blanks with regular Web results.
Bank of America Merrill Lynch analyst Justin Post noted today that "search could help increase engagement on Facebook, either through making information on Facebook more accessible or, possibly, encouraging entry of more likes, posts and interests data."
That, in turn, could result in "some highly monetizable category suggestions for Graph Search," like nearby restaurants and games, Post said, and it should be easy to incorporate commercial search results through Facebook's partnership with Bing.
"Given Facebook's large scale, getting users to search on the platform is a significant opportunity; if Facebook can generate just one paid click per user per year, the company could add $500 [million] in annual revenue," Post said as he boosted his price target for Facebook shares to $35 from $31.
Meanwhile, Sterne Agee analyst Arvind Bhatia said Graph Search should enable Facebook to expand beyond display advertising into the much bigger market for search advertising. He also raised his target price and said yesterday's announcement expands Facebook's longer-term growth opportunity. He added:
Long term, we think this will be a big revenue opportunity. We believe users will engage strongly with the product, which should result in better monetization overall as users spend more time on the platform. The Bing partnership for Web search received less focus during the presentation. However, we think this could perhaps represent just as big an opportunity from an incremental revenue standpoint, depending on whether Facebook users adopt the Facebook/Bing integration for general Web searches as a replacement for their current preferred search engine of choice. In the long run, we would not be surprised if FB developed its own search engine to crawl the wider Web.
However, analysts noted that overlap with Google appears to be low, at least for the time being. Graph Search is likely a bigger threat to Yelp and IAC/InteractiveCorp's Match.com, they said.