Google+ poised to threaten Facebook
Can Google's new service make the social networking site obsolete?
By Tuomo Kallio, Benzinga Staff Writer
About 625,000 new users join Google's (GOOG) social network, Google+, every day, according to Bloomberg. At this rate, the service will have 400 million users by the end of 2012, which would make it a serious competitor for Facebook.
Ancestry.com co-founder Paul Allen posted a note Tuesday saying that he expects the number of Google+ users to grow, as more and more people are using Android smartphones. He also pointed out that as Google+ becomes more popular, the number of invitations to friends and family members will go up, further accelerating the growth. A Google spokesperson told Benzinga that the company does not provide any comments on future expectations around its products.
Shares of Google have outperformed the S&P 500 in 2011 and are up nearly 8% this year. Google is also trading near its 52-week highs, part of which can be attributed to the popularity of the company's Android operating system. Furthermore, strong Google+ user numbers could help boost the stock even higher in 2012.
A rapid expansion of Google+ could be bad news for Facebook, which is expected to go public in the first quarter of 2012. Facebook, with nearly one billion users, is the sole leader in social networking, but this situation could be changing. Additionally, the rise of a serious competitor could hurt Facebook's estimated valuation, which according to recent reports, is as high as $80 billion.
The decline in Facebook's valuation would also be upsetting to Goldman Sachs (GS), GSV Capital (GSVC) and Microsoft (MSFT), which have all invested in Facebook. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
After all, user satisfaction plays a key role in determining the future of social networking. Therefore, traders should pay close attention to any new updates the two competing services roll out and should listen to the users' reactions, as these may be the best indicators of which service will be the winner in the long-run. For example, Facebook's new timeline feature has received mixed reactions from its users, which might provide an opportunity for Google+ to catch up with its social networking competitor.
Traders who believe that Google+ will catch up with Facebook might want to consider the following trades:
- An increased user base means higher advertising revenues, thus, going long Google might be a profitable play.
- A more diversified option is First Trust DJ Internet Index Fund ETF (FDN). Google makes up 10% of the fund's holdings.
Traders who believe that Google will never become a notable player in social networking may consider alternative positions:
- Google is expected to announce official Google+ user numbers with their Q4 earnings release. Buying February puts could be a good way to profit from disappointing numbers.
- Buy shares of Facebook when the company goes public.
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