by Merlin Hernandez

As the Facebook lock-up expires, 804 million shares can hit the market. This has triggered a jump of 12.5% for the beleaguered stock. It might be seen as vindication of the company’s strategic focus over the last six months. The share price took months of battering for what has been described as a failed IPO and arcane expense maneuverings, creating skepticism about Facebook’s growth potential. There had been fears of a massive sell-off Wednesday that would see the stock plunge even further.

But with the telecommunications sector showing signs of slow growth perhaps as a result of the impending demise of the PC, companies vested in tablets and smart phones with mobile apps are gaining momentum. Giants like HP, Dell, Microsoft, and IBM are already showing signs of vulnerability. Both Microsoft and IBM fell short of revenue estimates in the third quarter. IBM is already in its second year of projection shortfalls which would influence price-to-earnings ratios and depress the stock value going forward. It is a pattern we might expect to see repeated.

Observers are already asking what will be Apple’s next innovative wave. Time frames for the spread of new technology to competitors have been drastically shortened. This reduces the power of innovation as the primary strategy to maintain competitive edge and drive a sustained market lead in the telecommunications field. The smart phone market, however, presents growth investments as users consolidate communication usage into one technology and companies aggressively pursue expansion in emerging global markets. This means that the battle will be fought on the mobile field, more specifically in Android applications. Things are already heating up and the lines becoming more sharply defined as evidenced in the face-off between Google and Facebook.

The Instagram acquisition provided Facebook with the ability to stream mobile ads, and integrative advertising tools are now operational across international markets. Facebook’s integration with Bing has also moved the company right into Google search territory while Google Plus takes the search giant into social networking. The Google Plus linking of search and social network poses a real threat to Facebook. But while Google remains way ahead in terms of user destination and revenues, Facebook’s Q3 performance re-injected some confidence in the stock’s prospects. The applause on Wall Street on Wednesday was loud and clear and the stock looks ready to come into its own.

In Q2, moves by Facebook to secure the necessary technology leverage for increased market reach raised concerns about efficiency ratios as a result of the company’s vagueness with regard to its expense growth. Now that the cards are on the table, Facebook’s margin growth in Q3 and projections for continued growth in Q4 changes the conversation. Mobile users were up 61% from last year powered by Facebook’s ability to tap right into the personal interests of users rather than their search preferences, and advertising revenue was up 36%. Google Plus will soon have similar capabilities.

But even as Facebook appears to have turned the corner on its share price troubles, the company has already begun slow diversification into a broader ecommerce platform with services like Facebook Gifts and the Facebook Exchange for real time bidding a la eBay. The strategic direction is positive; the stock is rising and expected to accelerate in 2013. Google is certainly not resting on its laurels. With its large cash flows and innovation culture, the company is marching into fiber networks as a major diversification strategy in order to maintain its growth trajectory and huge market lead.

Some observers still think it is a case of apples and oranges to see the two companies as rivals – Google has a market cap of over $240B to Facebook’s $42B – but as the gap between business platforms and strategies continue to narrow, there will be some interesting times ahead. The new survival kit for telecommunication companies will contain innovation, diversification, emerging markets, and deeper customer
responsiveness.

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