Facebook's "graph search" tool, rolled out on Tuesday, lets its more than 1 billion users trawl their network of friends to find everything from restaurants to movie recommendations and is the company's biggest foray into online search.
Graph search contains some category suggestions that can be easily monetized, BofA Merrill Lynch analysts said in a note.
"It should be easy to incorporate commercial search results via Facebook's partnership with Bing," they added.
Facebook currently has a partnership with Microsoft Corp, whose Bing search engine provides search results for external websites. Microsoft also integrates certain Facebook results into its Bing search results.
BofA Merrill Lynch analysts estimated Facebook could add $500 million in annual revenue if it can generate just one paid click per user per year, and raised its price target on the stock by $4 to $35.
Facebook's shares were flat at $30.10 in early trading on Wednesday. They have jumped about 50 percent since November to Tuesday's close after months of weakness following its bungled Nasdaq listing in May.
However, analysts at J.P. Morgan Securities said the lack of a timeline for the possible launch of graph search on mobile devices may weigh on the tool's prospects.
The success of the graph search, which will rely heavily on local information, depends on Facebook launching a mobile product, the analysts said. Half of all searches on mobile devices seek local information, according to Google.
Graph search also lacks the depth of review content of Yelp Inc, the analysts added.
Pivotal Research Group analyst Brian Wieser said monetization potential would be largely determined by Facebook's ability to generate a significant portion of search query share volumes and he expects that quantity to be relatively low.
"Consumers are likely to continue prioritizing other sources, i.e. Google. Advertisers would consequently only use search if they can, or are perceived to, satisfy their goals efficiently with Facebook," Wieser said.
No Google killer
Analysts mostly agreed that Facebook's search tool was unlikely to challenge Google's dominance in web search at least in the near term.
"As of now, we do not see Graph Search as a threat to Google Web search. Looking forward, Facebook Graph searches could be competitive with certain categories of Google searches, such as Places and Maps," BofA Merrill said.
Internet search, social networking tools and e-commerce are among the biggest weapons that companies such as Facebook, Google and Amazon.com Inc have in their battle for supremacy. A successful combination of the three could win the day for them.
Google has been trying to combine social networking and search for more than a year by integrating Google+ into its search engine.
"Overall, Graph Search offers users a unique view to information not available on Google, but does not replace Google. We view the relationship between Facebook Graph Search and Google as both competitive and complementary," Piper Jaffray & Co analysts said.
The brokerage said users looking to buy a cellphone, for example, could search for friends' reviews on Facebook and expert reviews on Google.
© Thomson Reuters 2012