What’s Next for Facebook?

Facebook (NASDAQ:FB) climbed over 10 percent in heavy trading over the course of the past week, breaking $30 per share for the first time since July 2012, and closing on Friday at $31.72. Investors bid the stock up ahead of a January 15 event announced late Tuesday that has so far been shrouded in secrecy, but which some are expecting to be a significant product announcement.

Is it up, up, and away for the world’s largest social network?Facebook Phone

Of course, speculation has run wild. Observers have thrown everything from from a Facebook phone to a music-sharing service on the table. The invite to the event featured the tag line “Come and see what we’re building,” which doesn’t offer any real clues to what could actually be unveiled — both a phone and a music-sharing service seem unlikely.

For the first, founder and CEO Mark Zuckerberg has said that a smartphone “wouldn’t really make much sense for us to do.” After all, why pick a fight with giants like Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL)? Compared to iOS and Android, a Facebook-specific platform would feel as utilitarian as a watch compared to a laptop. It’s better to build partnerships across the existing platforms.

For the second, the same argument applies. The online music space is already rife with competition and loaded with a thousand trap doors that Facebook doesn’t want to fall into. Its stock growth is predicated on its ability to monetize, and any deviation from that path has previously caused shareholders to sell off and walk away…

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One strong contender for the January 15 event could be an enhanced e-commerce platform, although it would have to be a huge jump from Facebook Gifts to warrant all of the buzz. Amazon (NASDAQ:AMZN) has already responded to Facebook’s foray into the world of e-commerce with a step in the social direction, launching its “Friends and Family Gifting” option. The premise behind both is similar. Social web allows you to stay in touch with the people you care about; e-commerce allows you to effortlessly send gifts through the mail. With their powers combined, they are social commerce, and the potential for profit is tremendous.

It will be interesting to see what angle wins a larger piece of the social-gifting pie. Facebook will obviously leverage its strength as the world’s largest social network and attempt to catalyze sales through things like birthday and anniversary reminders. There’s a curious social phenomenon behind the visibility of gifting, and how publicly buying your pals a gift card can either encourage or discourage spending. The denizens of Facebook could react either way to the commercialization of their social sphere.

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On the other hand, Amazon is hands down the king of online commerce and pretty much runs on the slimmest margins feasible — and some would argue that its margins are too thin (the company has a trailing-twelve-months operating margin of just 0.93 percent). The value of its warehouse and distribution network is hard to overstate, and frankly a lot of people don’t want to paste their spending behavior all over the social sphere. Many consumers would prefer their shopping and social experiences to be separate, and only cross paths when necessary — i.e. Friends and Family Gifting.

Another option is a search engine, which Zuckerberg has appeared enthusiastic about in the past, but a serious Google search competitor feels like a fiction. As Crawford Del Prete of IDC said, “Would they construct the back end? Who would power it?”

Facebook could unveil anything next Tuesday, and it’s clear investors are looking for something big. Shares were on the move even before the event was announced, and the stock is now up 9 percent over the past 5 trading days. If history teaches us anything, it’s that this stock can fall on bad news just as hard as it climbs on positive speculation.

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

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