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[January 14, 2013]

Speculation on phones, search bubbles ahead of Facebook event

Jan 14, 2013 (San Jose Mercury News - McClatchy-Tribune News Service via COMTEX) -- Riding high on a recent wave of upbeat financial indicators, Facebook Inc. has invited the news media to report on a mysterious event at its headquarters on Tuesday, and that has sparked a surge of rumors about the social networking company's plans.

Speculation has ranged from a new Frank Gehry-designed engineering building to plans for a Facebook-branded smartphone, all based on the company's invitation to reporters, which teased: "Come see what we're building." While Facebook isn't commenting, several analysts who follow the company are discounting the smartphone rumors and say it's more likely Facebook will unveil a new consumer-oriented mobile service _ perhaps a search engine that would combine friends' suggestions and other information, which would be a major challenge to Facebook's much larger rival, Google Inc.

Also possible, according to some analysts, are new advertising products and tools that would help advertisers measure the effectiveness of delivering personalized messages to Facebook users, especially on mobile devices.

Facebook has held other news media events since it debuted as a public company last May, but they have been relatively low-key affairs. With that in mind, Wedge Partners financial analyst Martin Pyykkonen advised investors this week that whatever Facebook announces "needs to be innovative, significant and very much focused on monetization." After sinking below $18 in September, Facebook stock has surged in recent months, as the company launched new advertising products and reported it was seeing good progress in building its mobile ad business. CEO Mark Zuckerberg has said Facebook's mobile platform is his top priority, as research shows a majority of the network's 1 billion active members use Facebook on their smartphones and tablets.

Since the new year began, Facebook shares have risen above $30 for the first time in six months, sparking hopes the stock might return to the level of its $38 initial public offering price in 2013. The surge continued last week after Facebook announced Tuesday's event, although the stock fell nearly 2 percent Monday as some investors sold in advance of the news.

Most analysts are expecting Facebook will report a strong financial performance during its December quarter, with revenue nearing $1.52 billion, when the company releases numbers Jan. 30.

"The main reason the stock is doing well is renewed faith in the company's ability to transition to mobile, and in its efforts to monetize that transition," Sterne Agee financial analyst Arvind Bhatia said Monday. Colin Sebastian of the Robert W. Baird investment firm agreed, although he said, "certainly the idea that they are hosting a major event for the press kind of helps keep the flames burning." Speculation around this week's event _ especially the prospect of Facebook announcing its own smartphone _ has fueled a wave of breathless posts on tech blogs. Facebook reportedly has explored the idea of building its own smartphone or mobile operating system in the past, as a way to lessen its dependence on the leading mobile platforms built by Apple Inc. and Google.

But Zuckerberg discounted that prospect when he spoke at an industry conference last fall, saying that would be the "wrong strategy" and insisting that Facebook wants to be "deeply integrated" on all mobile platforms. While the rumors are "juicy," he said then, a Facebook phone "just doesn't make sense." Building a phone that competes with Apple and Google's Android "would take a mammoth amount of resources," added Sebastian, although he said Facebook could announce some kind of new mobile service or partnership with a smartphone manufacturer or telecom service provider.

Others raised the prospect of a new video chat service or changes in the Facebook news feed, the main page where users find updates and news from all their friends. Bhatia, however, said he's guessing it might be some type of new search engine _ which Zuckerberg has acknowledged the company would like to build.

A search engine that combines friends' recommendations with information from around the Web would be useful for Facebook members, and it would help keep them from leaving the site to use Google or other search applications. "The more they can keep you engaged on their site," Bhatia said of Facebook, "the more that's good for their advertising business." ___ (c)2013 San Jose Mercury News (San Jose, Calif.) Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com Distributed by MCT Information Services ----- ARCHIVE PHOTO on MCT Direct (from MCT Photo Service, 202-383-6099): Facebook iPhone

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