Facebook Home isn't exactly a game changer

The smartphone 'skin' has some cool features but may appeal to a limited core of users. The stock remains overpriced.

By Jonathan Berr Apr 5, 2013 9:29AM
The hype around yesterday's announcement regarding a Facebook (FB) phone didn't match the reality.

For one thing, Facebook CEO Mark Zuckerberg made it clear that the company has no plans to introduce its own handset or an operating system. What the Palo Alto, Calif., company has developed is a downloadable "skin" it calls Facebook Home that will serve as a smartphone’s home screen. It will enable users of some Android devices to gain access to Facebook features such as Instagram, Facebook Messenger and Facebook Camera without having to download separate apps.  
Facebook Home has its good points. For one thing, users will see all of their messages from Facebook Mail, Messenger and text in one conversation, which CNNMoney argues is "one of the more radical tweaks in mobile messaging to come from a major company in years."

Facebook Home has the potential to be a moneymaker for Zuckerberg's company, which is under pressure from Wall Street to develop a strategy for tapping into the surging mobile ads market. But "potential" is the operative word here. At best, Facebook Home, which had the codename “Buffy,” is an incremental step in the right direction.

However, a game changer it is not. 

In fact, some pundits such as Rachel Metz at the MIT Technology Review, are arguing that the appeal of Facebook Home may be limited to hardcore Facebook users. That sentiment was echoed by Forrester analyst Charles Golvin, who told Bloomberg: "It's clear that Facebook wants to be at the center of their customers' mobile experience. It's not clear that their customers want that."
Shares of Facebook, which have plunged almost 30% over the past year, traded up 3% on Thursday’s news, though they were lower again in premarket action Friday.

Facebook Home will first be available for download April 12  on some HTC and Samsung phones. Other devices and Android tablets will be able to download Home in coming months. It can be found on Google (GOOG) Play, the search giant's Android app store.

The stakes are high for Facebook Home. Investors are eager for the company to develop a winning mobile strategy. Its share of this important market is expected to fall to 12% in 2015 from 13% this year. This clearly isn't acceptable, but reversing the trend won't be easy.

Another concern for investors is that Facebook's stock remains prohibitively expensive, trading at a price-to-earnings multiple of nearly 1,800. Wall Street analysts expect the shares to hit $33.54 in the next 52 weeks, up from around $27 now. But given the hype surrounding everything that Facebook does, investors are better off staying on the sidelines with this stock for the foreseeable future.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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