Firstly let me preface this by saying the following:
-This is not financial advice, please do your own research
-I am not a facebook shareholder, however I plan to be one in the future
-I am not a big user of the Facebook platform, however I do use Instagram
-I am only interested in the investment potential in Facebook. This is black and white, I don’t care about the ethics of how they do business.
-The Facebook platform I am slightly bearish on the long term
By now everyone knows about the Facebook ‘scandal’. For me this is a typical case of something being blown out of proportion by mainstream media and Wall Street. A lot of the pushing of this story is the fact it can be used to try and discredit the Trump administration, hence why mainstream media are all over the story. When things like this occur I tend to automatically default to a contrarian sceptical position, particularly when it comes to big organisations like Facebook and analysts making incredibly bearish predictions. Reason being is that large corporations most of the time have enough a) financial resources b) government resources and c) returning users/customers. I am not one to dive down deep into numbers to be honest, I prefer to take a macro view and then look deeper into numbers if required.
Firstly, the whole scandal is only a surprise to anyone that has been living under a rock for the past 8 years. How many times do people need to see leaks from Snowden/Wikileaks to understand that you have zero privacy on the internet or on your phone. This isn’t a conspiracy, just do some research and you will see the US government is tracking everything. You only have to look back to the Podesta emails to see that the Clinton campaign was in Contact with Sheryl Sandberg of Facebook and Eric Smidt of Google. What do you think they were discussing? Wedding plans of Chelsea Clinton? I very much doubt that. When you are using any platform on the internet, it is best to assume all your data is being captured and passed on to the government and advertisers.
Facebook have seen a number of advertisers pull their ads from their platform. This of course negatively affects Facebook’s revenue. While people can bash Facebook all they like, the reality is Facebook has the best advertising platform available to companies. No other platform or product can be provide the in-depth demographic targeting that Facebook has. It’s an extremely good product that is quite cost efficient especially when compared to Google and Youtube. While these advertisers are playing the PR game, they know full well their business is likely to also face a revenue decline should they continue to not utilize the Facebook advertising platform.
What many people seem to forget is that unlike Snapchat which is virtually one platform, Facebook as a company is an online technology conglomerate. Most notably two of their biggest platforms are Instagram and Whatsapp, both of which are in the top 20 downloaded apps according to Apple. Outside of apps, Facebook have acquired a number of companies including:
- Occulus (Virtual Reality)
- Ozio (Articial Intelligience)
- Faciometrics (Computer vision/Machine learning
- Confirm (Government ID platform)
All of these acquisitions fall outside of Facebook’s bread and butter advertising revenue stream and show they are very much in the process of building revenue streams from future emerging industries.
Many people like to paint the picture that Zuckerberg doesn’t really know what he is doing and that he is a poor leader, while he doesn’t present that well in interviews, his actions are what matters and the fact is he has turned facebook into a monster of an organization (no pun intended). As Gary Vaynerchuk would say Zuckerberg understands consumer attention and Facebook’s acquisitions show that. Had Facebook’s proposed acquisition of Snapchat took place, the company would have virtually a monopoly on all the biggest social media/communication platforms.
To summarize Why I am bullish on Facebook:
Facebook’s market cap has dropped around 50 billion dollars. I believe the intrinsic value of the company has not dropped anywhere that figure.
I seriously doubt that there will be a significant drop in the amount of users and advertisers. Right now is a lot of posturing, which will no doubt pass in a few month’s time.
Facebook has multiple platforms and assets that they can utilise to reduce their reliance on the Facebook platform for revenue.
Facebook has significant financial and political resources they can leverage.
Facebook still has the best advertising product in the world.
Image Sources: CNBC, Biz journal, Marketing Land, Visualit