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FB CEO's Drive to Up Internet Usage

Zacks Equity Research

Facebook Inc.(FB) CEO Mark Zuckerberg recently announced that his company will collaborate with other leading technology companies for a campaign to expose more people to the world of Internet, especially the ones who cannot afford it.

The project christened internet.org is targeted at providing affordable technology to more than four billion people who are unable to access Internet due to high cost of usage. The group is mainly looking at lowering costs and building apps which have better data handling capability.

 Other members of the consortium include Samsung Electronics, Qualcomm Inc (QCOM), Ericsson (ERIC), MediaTek and Opera Software. Reportedly, Facebook has already spend $1.0 billion for developing infrastructure, much needed for the implementation of the project.

After analyzing the rate of Internet penetration across the globe, Zuckerberg concluded that there is a huge barrier in developing countries when it comes to Internet access and expansion of the Knowledge economy.

As per data collected by this group, only 2.7 billion people, approximately 33.0% of the world’s population, have access to the Internet. The rate of Internet adoption increases by less than 9% every year, implying that there is still a large section of the population which remains underserved.

We believe that Zuckerberg has adopted a prudent business strategy, wherein he could increase the reach and customer base of Facebook, while making people more Internet savvy. Facebook currently connects1.15 billion people and aims at having a user base of 5 billion. Therefore, growing Internet accessibility will help it to reach that milestone.

 Facebook users increased 21.0% year-over-year during the second quarter and intends to maintain or increase this growth rate over the next several years By bringing more and more people online, Facebook intends to grab a share of the pie.

Facebook is trying to align the interests of all group members including mobile operators, devices manufacturers, developers and even consumers. However, we believe that the initiative faces significant headwinds related to costs on developing this massive infrastructure, as many of its members are facing financial crises.Moreover, internet unfriendly nations such as China and North Korea, who tends keep a firm grip on the free-flow of information among citizens pose a major threat for the initiative.

Nevertheless, we believe this is a commendable effort from Facebook and its compatriots. The project’s success will significant their penetration into the developing economies of Asia-pacific, Latin America and Africa.

Additionally, we believe that Facebook’s recent partnership with OpenTable Inc. (OPEN) will also add to its user base. We also expect the company to continue to pursue strategic acquisitions going forward.

Currently, Facebook has a Zacks Rank #2 (Buy).

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