In my concluding post, I noted that the FANG stocks receive got been inward the spotlight, as tech has taken a beating inward the market, but it is Facebook that is at the middle of the storm. It was the intelligence story on Cambridge Analytica's misuse of Facebook user data, in mid-March of 2018, that started the ball rolling as well as inward the days since, non exclusively receive got to a greater extent than unpleasant details emerged most Facebook's culpability, but the residue of the earth seems to receive got decided to unfriend Facebook. More ominously, regulators as well as politicians receive got also turned their attending to the society as well as that attending volition live on heightened, alongside Zuckerberg testifying inward front end of Congress. That is a acuate autumn from grace for a society that exclusively a curt spell agone epitomized the novel economy.
A Personal Odyssey
My involvement inward Facebook dates dorsum to the twelvemonth earlier it went public, when it was already getting attending because of its giant user base of operations as well as its high individual society valuation. In the weeks leading upwards to its IPO, I valued Facebook at most $29/share, alongside a story built merely about it becoming a Google wannabe. If that sounded insulting, it was non meant to be, since having a revenue path as well as operating margins that mimicked the most successful tech companies inward the decade prior is quite a feat.
That initial world offering was amidst the most mismanaged inward recent years as well as a combination of hubris as well as pathetic timing led to an offering hateful solar daytime fiasco, where the investment bankers had to stride inward to back upwards the priced. The starting fourth dimension few months afterwards the offering were tough ones for Facebook, alongside the stock dropping to $19 past times September 2012, when I argued that it was fourth dimension to befriend the company as well as purchase its stock, 1 of the few times inward my life when I receive got bought a stock at its absolute low.
Much as I would similar to say you lot that I had the foresight to run across Facebook's ascent from 2012 through 2017 as well as that I held on to the stock, I did not, as well as I sold the stock merely as it got to $50, concerned that the advertising line organization was non large plenty to adapt the players (Google, the social media companies as well as traditional advertising companies), elbowing for marketplace position share. I nether estimated how much Google as well as Facebook would both expand the marketplace position as well as dominate it, but I receive got no regrets most selling likewise early. I did what I felt was right, given my assessment as well as investment philosophy, at the time.
That initial world offering was amidst the most mismanaged inward recent years as well as a combination of hubris as well as pathetic timing led to an offering hateful solar daytime fiasco, where the investment bankers had to stride inward to back upwards the priced. The starting fourth dimension few months afterwards the offering were tough ones for Facebook, alongside the stock dropping to $19 past times September 2012, when I argued that it was fourth dimension to befriend the company as well as purchase its stock, 1 of the few times inward my life when I receive got bought a stock at its absolute low.
Much as I would similar to say you lot that I had the foresight to run across Facebook's ascent from 2012 through 2017 as well as that I held on to the stock, I did not, as well as I sold the stock merely as it got to $50, concerned that the advertising line organization was non large plenty to adapt the players (Google, the social media companies as well as traditional advertising companies), elbowing for marketplace position share. I nether estimated how much Google as well as Facebook would both expand the marketplace position as well as dominate it, but I receive got no regrets most selling likewise early. I did what I felt was right, given my assessment as well as investment philosophy, at the time.
A Numbers Update
To undersand how Facebook became the society that it is today, let's start alongside its most impressive numbers, which are related to its user base. At the start of 2018, Facebook had to a greater extent than than 2.1 billion users, most 30% of the world's population:
While the user numbers receive got leveled off inward North America, where Facebook already counts 72.5% of the population inward its user base, the society continues to grow its user base of operations inward the residue of the world, alongside an added impetus coming from the scaling upwards of Instagram, Facebook's video arm. These user numbers, spell staggering, are made fifty-fifty to a greater extent than hence when you lot consider how much fourth dimension Facebook users pass on its platforms:
Collectively, users spent to a greater extent than than an hr a hateful solar daytime on Facebook platforms, as well as that usage does non reverberate the fourth dimension spent on WhatsApp, also owned past times Facebook, past times its 1.5 billion users.
If you lot are a value investor, it would slow to dismiss Facebook as some other user-chasing tech society as well as deliver a cutting remark that you lot cannot pay dividends alongside users, but Facebook is an exception. It has managed to to convert its user base of operations into revenues as well as to a greater extent than critically, operating profits.
With its operating margin approaching 58%, if you lot capitalize its applied scientific discipline as well as content costs, Facebook outshines most of the other companies inward the S&P 500, inward both increment as well as profitability:
What makes Facebook's ascent fifty-fifty to a greater extent than impressive is that it has been able to deliver these results inward a market, where it faces an as voracious challenger inward Google.
In summary, Facebook has had mayhap the most productive opening human activeness inward history of whatever publicly listed company, if you lot define production inward operating results. It promised the Luna at the fourth dimension of its IPO, as well as has delivered the sun. In my majority on connecting stories to value, I pointed to Facebook as a society that seemed to uncovering novel ways, alongside each acquisition, proclamation as well as earning report, to expand as well as broaden its story, starting fourth dimension past times conquering mobile as well as and hence going global. By the start of 2016, I had changed my story for Facebook from a Google Wannabe to 1 that would eclipse Google, alongside added potential from its user base. While the Facebook story has been 1 of line organization success, the company, its users as well as investors receive got been inward denial most key elements inward the story. Facebook's users receive got been trading information on themselves to the society inward render for a social media site where they tin interact alongside friends, menage unit of measurement as well as acquaintances, as well as their complaints most lost privacy band hollow. Facebook's strengths are built upon using the information that users render most themselves to amend target advertising as well as generate revenues, but Facebook as well as its investors receive got been unwilling to aspect to the reality that the company's high margins reverberate its role of 3rd parties as well as outsiders to collect as well as create out data, a line organization practise that is profitable but that also creates the potential for information leakages. (Some of you lot appear to live on reading into my words an implication that Facebook sells user information to 3rd parties to generate revenues. It does not. It processes the information to instruct inward information (its starting fourth dimension competitive advantage), uses that information to amend target advertising as well as generates revenues, as a consequence.)
In summary, Facebook has had mayhap the most productive opening human activeness inward history of whatever publicly listed company, if you lot define production inward operating results. It promised the Luna at the fourth dimension of its IPO, as well as has delivered the sun. In my majority on connecting stories to value, I pointed to Facebook as a society that seemed to uncovering novel ways, alongside each acquisition, proclamation as well as earning report, to expand as well as broaden its story, starting fourth dimension past times conquering mobile as well as and hence going global. By the start of 2016, I had changed my story for Facebook from a Google Wannabe to 1 that would eclipse Google, alongside added potential from its user base. While the Facebook story has been 1 of line organization success, the company, its users as well as investors receive got been inward denial most key elements inward the story. Facebook's users receive got been trading information on themselves to the society inward render for a social media site where they tin interact alongside friends, menage unit of measurement as well as acquaintances, as well as their complaints most lost privacy band hollow. Facebook's strengths are built upon using the information that users render most themselves to amend target advertising as well as generate revenues, but Facebook as well as its investors receive got been unwilling to aspect to the reality that the company's high margins reverberate its role of 3rd parties as well as outsiders to collect as well as create out data, a line organization practise that is profitable but that also creates the potential for information leakages. (Some of you lot appear to live on reading into my words an implication that Facebook sells user information to 3rd parties to generate revenues. It does not. It processes the information to instruct inward information (its starting fourth dimension competitive advantage), uses that information to amend target advertising as well as generates revenues, as a consequence.)
A Story Break, Twist or Change?
If the Facebook story hence far sounds similar a fairy tale, in that location has to live on a nighttime twist, as well as spell Facebook's troubles are ofttimes traced dorsum to the stories inward mid-March 2018, when the electrical flow user scandal intelligence bike began, its problems receive got been simmering for much longer. Put on the defensive, afterwards the 2016 the United States of America presidential elections, for beingness a purveyor of imitation news, Facebook New York Times article, "If you lot sign upwards for anything as well as it isn’t right away obvious how they’re making money, they’re making coin off of you.” There is some preliminary evidence that tin live on gleaned from surveys taken correct afterwards the stories broke, which dot that exclusively most 8% of Facebook users are considering leaving as well as 19% excogitation pregnant cutbacks inward usage. If this represents the high H2O mark, the actual impairment volition live on smaller. I volition assume that Facebook's force towards to a greater extent than information protections as well as its larger base of operations volition tedious increment inward revenues downwards to most 20% a year, for the adjacent 5 years, from the 51.53% increment charge per unit of measurement over the concluding 5 years.
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| Source: Raymond James, reported past times Variety |
Time to Buy?
Every corporate scandal becomes a morality play, as well as the electrical flow 1 that revolves merely about Facebook is no exception. Facebook has been sloppy alongside user data, driven partly past times greed (to maintain costs downwards as well as profits up) as well as partly past times arrogance (that its information protections were sufficient), as well as is as well as should live on held accountable for its mistakes. That said, I don't run across Facebook as a villain, as well as I don't recall that the society should live on used as a punching handbag for our concerns most politics as well as society. I am certain that when Mark Zuckerberg delivers his prepared testimony inward a distich of hours, senators from both parties volition lecture him on Facebook's sins, blissfully blind to their hypocrisy, since I am certain that many of them receive got had no qualms most using social media information to target their voters. I listen friends as well as acquaintances wax eloquent most invasion of privacy as well as how information is sacred, all likewise ofttimes on their favorite social media platforms, spell revealing details most their personal lives that would brand Kim Kardashian blush. I am an inactive Facebook user, having posted exclusively 1 time on its platform, but to those who would tar as well as plumage the society for its perceived sins, I volition paraphrase Shakespeare, as well as debate that the fault for our loss of privacy is non inward our social media, but inward how much nosotros part online. I volition invest inward Facebook, alongside neither shame nor apology, because I recall it remains a skillful line organization that I tin purchase at a reasonable price.
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