Will Facebook Outperform with Graph Search in Tow?

With shares of Facebook, Inc. (NASDAQ:FB) trading around $29.66, is FB an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalysts for the Stock’s MovementFacebook Graph Search

Facebook’s latest conversation starter is Graph Search. The team over at the world’s largest social network finally made good on months of speculation and unveiled a beta version of social search on January 15. The premise is pretty simple. Facebook has tons of data, and Graph Search is a unique way to filter that data in order to find answer to particular questions.

Start 2013 better than ever by saving time and making money with your Limited Time Offer for our highly-acclaimed Stock Picker Newsletter. Click here for our fresh Feature Stock Pick now!

A quick example: If you wanted to take someone out on a date but were unsure what restaurant to go to, you could search “Restaurants liked by friends of My Date,” and the service would pull up exactly what you’d expect. Granted, this list is only as powerful as the good taste of those friends, and how public their information is. Users will not be able to see any content through search that is not already shared with them or public.

The service is backed by Microsoft’s (NASDAQ:MSFT) Bing, which will be used in the event a search turns up no social results. On one hand, this is Facebook initiating a turf war with Google (NASDAQ:GOOG), and the battle map here is pretty straight forward. Observers and speculators have been fleshing out what this fight would look like for a long time, and investors have no need to panic. At its most successful, Facebook would take years to dethrone Google as search leader. What’s more realistic is a gradual re-balancing of the market as Graph Search evolves, Google reacts to it, and consumers decide which one they like.

Heading into the Graph Search announcement, Facebook’s stock broke $30 for the first time since July, its highest level since the infamous IPO. Of course, there was a lot of overly-optimistic speculation priced in come the morning of the big announcement, and the reality of a non-monetized beta search product had some investors pulling back. But Graph Search does look like a strong, long-term strategy. As it rolls out from beta and slowly monetizes, look for this service to drive revenue and, ultimately, help move the stock.

Google ended the week on a lower note as well, but a clear loser from the announcement was Yelp (NYSE:YELP). Many observers noted that Graph Search is essentially a recommendation engine, and poses a huge competitive threat to Yelp’s online review ecosystem.

Facebook, Inc. Stock Chart - FB Interactive Chart - Yahoo! Finance