Does anyone on the board invest in or follow Facebook? I’m wondering about investing in it and would appreciate comments. It seems to be growing sales and earnings at a fairly good rate, but I’m wondering if it’s just starting or reaching maturity. I’ve heard rumors that young people have moved on to other social media, which would reduce long-term prospects. What do you think?
Thanks in advance for any opinions.
Saul
Hi Saul,
This is an interesting article about Facebook’s long term growth prospects that you may find useful. It was written about 2 months ago.
http://www.theglobeandmail.com/globe-investor/investment-ide…
Cheers!
CB
I recently bought a few shares of Facebook.
Mark Zuckerburg is still quite young.
FB has, among many acquisitions, Oculus Rift and Instagram.
The are making money and have money.
FB is evolving.
So, I think a small or medium sized position to hold for years and years should play out well.
mazske
Does anyone on the board invest in or follow Facebook? I’m wondering about investing in it and would appreciate comments. It seems to be growing sales and earnings at a fairly good rate, but I’m wondering if it’s just starting or reaching maturity. I’ve heard rumors that young people have moved on to other social media, which would reduce long-term prospects. What do you think?
Thanks in advance for any opinions.
[Saul, FB is held in multiple real-money portfolios. I think the coverage over at both PRO and MDP are excellent and thorough. Below are my thoughts … ]
I have been holding Facebook for a while now. It’s one of my larger positions and its one that I will be holding for a longtime. I think Facebook has a lot of “optionality”, because it has more than 1 billion people coming regularly using its service. This gives them the option of leveraging these billion users in so many different ways. Facebook also has so much contextual data about the users that they can pretty much customise the experience on a per user basis. I have a wild theory regarding Facebook – a theory that doesn’t really need to come into fruition for the Facebook investment to make sense — but if it does come true it would turn Facebook into something even bigger.
My theory is that Facebook must be silently working on developing the next-generation of context-aware search engines. They have data about the users. They have data about each user’s friends and family, what they do, what they eat, where they holiday, and what not. This information can be used with crawl-based search data to potentially create a very different search experience. Anyways, this is one of the many options in front of Facebook.
With respect to slowdown in growth of users, this is now to be expected. It can’t grow at a fast clip from the 1 billion user base and there’s always some churn in the user base because of new apps. Facebook has been smart to acquire other popular services such as Instagram and WhatsApp, so I don’t worry too much about this. It’s a “network effect” type of phenomenon, where once a desired threshold has been reached people keep coming and staying with Facebook because it has all your friends and family there.
Facebook currently is making monies off advertising. It could also make monies of many others things:
I 'm quite bullish on Facebook and also on Twitter. I think these two will do well for a while.
Anirban
Thanks Clever bear for that very useful link.
Saul
Thanks Anirban, Just knowing you are invested in FB and positive about it makes me feel better about it.
Saul
Does anyone on the board invest in or follow Facebook? I’m wondering about investing in it and would appreciate comments. It seems to be growing sales and earnings at a fairly good rate, but I’m wondering if it’s just starting or reaching maturity. I’ve heard rumors that young people have moved on to other social media, which would reduce long-term prospects. What do you think?
…I own shares in FB, however, it was the first company that I would try the “Foolish” ‘buy in thirds’ nonsense…
…made my first purchase below 20 (or just at, too lazy to look it up) and I never purchased again…
…I should have done what I’ve always done, and buy a full position from the start…alas…
…my kids, 16 and 19, still use the service regularly, as do their friends, and I see nothing abating that trend…
…I recently had the opportunity to speak with a CEO of a large, private company, who needed to switch marketing campaigns from a large internet search engine to another…
…they switched to Facebook instead, and replaced their marketing in a matter of days, instead of the months they spent with the search engine…
…why?..
…Facebook can find twice divorced grandmothers who wear pink army boots on Thursday in a matter of minutes, so you can send them your pink army boot promotions on Wednesday…
…marketing, marketing, marketing, the mantra of big bucks on the internet, and I believe no one does it better than Facebook…
…good luck!..
…my kids, 16 and 19, still use the service regularly, as do their friends, and I see nothing abating that trend…
I thought I read something about kids turning away from Facebook because their parents were now on it.
Facebook has become a part of many people’s activities of daily living, akin to getting a cup of coffee. It has also evolved to become a ridiculously sticky platform. I don’t know many people outside of myself (I’m a bit introverted) who don’t use it everyday to some extent. Weather they be friends, family (most of whom are far from techno savy) or coworkers. Just for some context I’m 40 and work in healthcare.
This was the basis for my Facebook thesis when I bought my initial portion of shares, sized at about 1.5% of my port. I really see the possibility for Facebook to be become a Google, Yelp, Craig’s list and more rolled into one. I want to see monetization per user improve and I’m sure it will as more apps and services like Instagram and What’s app are brought into the platform. For me this metric is more important than subscriber growth at this point as it will be more forward looking in regards to profitability. I’m also not really worried about subscriber growth, the sheer size of the network will be a self propagating entity.
What I find fascinating about this discussion is (a) my 23 and 25 year old kids disabled their FB accounts, but they love TWTR. (b) My parents are on FB “like white on rice”. This could be the generation that is pulling/pushing FB to new horizons.
My kids’ generation may propel FB in 5-10 years.
Perhaps?
~TLL
“…my kids, 16 and 19, still use the service regularly, as do their friends, and I see nothing abating that trend…”
“I thought I read something about kids turning away from Facebook because their parents were now on it.”
I’m a journalist who worked on a series of stories on how technology has redefined our society. We visited a High School class in San Jose, and most of them said they were not on Facebook but that their parents were. (But I do own FB)
Leeps123
With regards to the loss of teen subscribers, I modified the below from an article linked to by someones post on the FB page, but I can’t remember where. I thought it was very useful.
Saul
Teens could be done with Facebook for good, according to a Piper Jaffray survey that reveals that only 45% of teenagers still used the site, down from 72% a year earlier.
A large decline in teen interest is worrisome, especially after those teens become young adults. So let’s look at where teens are going instead, and how much of this exodus actually matters to Facebook. Well, the “new” Facebook for teens is owned by Facebook.? Piper Jaffray’s survey found that most teens flocked to photo- and video-sharing site Instagram, which is owned by Facebook. Teen usage of Instagram rose from 69% last year to 76% this year.
A popular theory regarding the decline of Facebook is that parents have joined the network to keep tabs on their kids. According to a study, 43% of parents check their kids’ FB profiles daily. The study also revealed that between 2010 and 2012, the number of moms using FB surged from 50% to 72%. That trend likely pushed kids to flee Facebook and share their photos on Instagram instead. As a result, CEO Mark Zuckerberg’s $1 billion acquisition of Instagram in 2012, which many ridiculed at the time, turned out to be a pretty smart move. Between 2013 and 2014 Instagram’s active users doubled from 100 million to 200 million. By comparison, Facebook’s user base only edged up from 1.16 billion to 1.32 billion.
This “illusion of choice” that Facebook gives its users is exactly why it acquired WhatsApp for $19 billion, yet kept its 600 million active users separate from the Messenger app. That way, those who don’t like using Facebook Messenger for all their messaging purposes (for example, teens avoiding parents) could access an alternative platform.
Would a teen exodus hurt Facebook’s long-term plans?? Teens leaving Facebook hasn’t affected the social network’s year-over-year growth for a simple reason – it’s being taken over by older users. A January 2014 study by iStrategyLabs revealed how striking this trend was.
Age group
13-17
18-24
25-34
35-54
55+
2011-2014 growth
(25%)
(7.5%)
32.6%
41.4%
80.4%
While that drop-off in younger users is disappointing, FB investors should remember that ads generated 92% of the company’s revenue last quarter. Even as younger users stopped using Facebook, its advertising revenue rose a whopping 67% year over year to $2.68 billion last quarter.
The reason is simple: younger users, for all their hipness, don’t have as much spending power as older users. Baby boomers are expected to control 70% of all disposable income and purchase 49% of all consumer goods between 2012 and 2017. This means FB’s steep growth among older users actually makes it a more lucrative platform for advertisers.
What happens when young non-Facebook users grow up?? While some pessimists believe the teens who have abandoned Facebook will never return, I believe that the opposite is true. After teens grow up and get jobs as young adults, their relationships with their parents and relatives will change. The same teens who were embarrassed to share their photos and daily musings will more likely come back to FB to keep in touch with their parents. When those young adults get married and have kids of their own, that cycle will reboot as they start showing pictures of their own kids to the grandparents, and later, checking up on their own kids.
FB has only been around for a decade. A generation lasts 25 years, so we haven’t even seen half of a full growth cycle for the social network yet. Teen user-ship numbers will inevitably fluctuate over the years, but older users will keep offsetting those losses. Moreover, more older users will generally attract more ad revenue, which should help the company’s top line continue growing into the foreseeable future.
I am not too worried(just a little concerned) about teens in US moving away from FB .FB is very popular with the teens and middle aged in India unlike in the USA.India has a huge young population and will continue to have good percent of youth for the next 20 years.I am sure FB will try and find a decent hook for the teens in US just like snapchat,whatzapp or so on…
My biggest concern with FB would be related to privacy ,if ever they would do business in China,if Mark Z makes an expensive mistake with one or more of their acquisitions. They could be become a fantastic dating site because they have a lot of personal information according to Columbia Prof Bruce Greenwald .
FB still has 6B more humans to connect.It is an opportunity and a challenge.It would be interesting if FB were to acquire something like Tripadvisor and combine their Oculus Virtual Reality into an amazing travel solution.
There is so much leverage with a billion people in a network and the opportunities are endless.We need some smart people to connect the dots and execute on it. Is Mark Z the person ? I dont know. Larry and Sergey are also good.
~Myth.
Long FB,GOOG
I’m a journalist who worked on a series of stories on how technology has redefined our society. We visited a High School class in San Jose, and most of them said they were not on Facebook but that their parents were.
…it would be interesting to hear you methodology with your questioning, as High Schoolers can be epic followers of opinions… and hugely anti parent…
…like, “are your parents on Facebook”…“yeah, they are”…
…“are you on Facebook?”…“no”…
…I’d guarantee the results would be significantly different if asked in the reverse…
…like, “are you on Facebook”?..“yes, I am”…
…“are your parents”…“ahh, I’m not sure”…
…also, I’d be interested in your slant, that is, the article you wrote before you went to the High School…
…I live 2 blocks from the World Trade Center here in New York, and witnessed, and filmed the buildings falling…
…I was interviewed (as were my children) for a half dozen articles (broadcast and print) and learned very quickly that reporters come with their article written, and merely find the necessary “facts” to back up their story…(including snipping and cutting interviews to make me say whatever they wanted me to say, even 180 degrees from what I’d actually said)…
…so pardon my cynicism with the news media, it runs pretty deep…
…as I’ve mentioned, both of my children are on FB, and they each have about 6-700 “friends”…
…including their parents… 
…but if a reporter asked them that question while in High School, there’s no telling what they’d say…
“…it would be interesting to hear you methodology with your questioning, as High Schoolers can be epic followers of opinions… and hugely anti parent…”
We went to several different classrooms and while there were some Facebook users among them, it seemed that it was not that popular among these teens. To clarify, the article wasn’t about which social media services teens used but the consequences of social media. To get a sense of which services they used we started by asking how many used Facebook. Not too many responded and they offered that their parents were more regular users. I seem to recall that they used Instagram instead, which I thought was odd because I always thought that was used more for photos.
We didn’t really focus on which social media services the teens used in the article.
Interestingly, my girlfriend’s pre-teen kids are learning how to Tweet at the private school they attend.
“…so pardon my cynicism with the news media, it runs pretty deep…”
There is some basis to what you say. How bad that gets depends on the kind of story it is and how good the reporters and editors are.
FB has only been around for a decade. A generation lasts 25 years, so we haven’t even seen half of a full growth cycle for the social network yet. Teen user-ship numbers will inevitably fluctuate over the years, but older users will keep offsetting those losses. Moreover, more older users will generally attract more ad revenue, which should help the company’s top line continue growing into the foreseeable future.
This nicely sums up why I 'm not at all concerned with the so called lack of teen interest. Because it doesn’t matter, and the above post from Saul nicely articulates why it doesn’t matter. To cover its bases, Mark Z went and got Instagram. Over time, other platforms will get acquired … Lots of optionality here.
Thanks Saul for finding and posting that article!
I also like Twitter. Twitter is interesting for its broadcast nature and information dissemination capabilities. It’s another one for the long haul. And, today the pessimism is just as high as it was for Facebook right after the IPO when every analyst out there was shouting how FB wouldn’t be able to handle the mobile transition. Duh, look how well they managed the transition, and now they are at the point where they are not making any investments on the desktop side of their service. FB is now an entirely mobile business. I see similar scepticism with Twitter.
May be someday, Google or Facebook make a play for Twitter!
Anirban
I find the idea that you can understand how teens use Facebook without real sampling over wide geographic and ethnographic ranges to be useless. Extrapolating from individual samples is especially flawed in this case. Most teens have a circle of friends (pre-FB definition) that is local. Within any specific circle Facebook may be In, or Out; I expect the group will tend to stay together whichever way. But that doesn’t mean that twenty miles away teens aren’t doing something different.
RH, while I completely agree with the scientific weakness of anecdotal data, I wouldn’t completely throw out the information. I have five different 25 to 30 year old females in my office, from three different academic programs. I also have two daughters in their 20s, one still at yet another university. All do live in the Northwest. Of that group, all have cut back significantly on FB use. Two have cancelled their FB accounts completely. Instagram (owned by FB), snapchat, and twitter among other social media platforms do seem to be garnering some inertia. This is not to suggest FB is dead, just some shifting demographics. Local anecdotal information is also likely wildly inaccurate at predicting what;s happening on a worldwide basis.
I still own FB but I’m not currently buying more. I also think privacy concerns have also rattled some users.
D.
I find the idea that you can understand how teens use Facebook without real sampling over wide geographic and ethnographic ranges to be useless.
Normally I would agree. However at Thanksgiving we had 12 nieces & nephews in their 20’s to low 30’s, and nearly all who had accounts have abandoned Facebook in the past year. I think two of them still post there. (Since I didn’t know this thread would come up I didn’t press deeply to understand why, but the reasons states were “takes too much time”, {privacy, stated a couple different ways as in “I don’t want everyone to know what I’m doing all the time”], and one specifically said “Because Mom is on it.” (That is too bad, because that’s how we keep up with the generation below - the 2-5 year olds, with the parents’ pictures.)
One of those who left went to Instagram, which keeps it in house, except it’s harder to monetize Instagram. Another one went to Twitter, but he was the only one.
Facebook continues to grow, albeit more slowly, a trend I expect to continue - but at some point it’s going to go negative in the US and that will tank the stock, regardless of the international numbers. It has a P/E of over 70, which means it needs to grow dynamically to grow into its shoes, and I don’t see that. (It’s not so secret, BTW, that they are trying to cobble together a search engine of their own.)
Mark Zuckerberg Says Facebook Will Compete Directly Against Google As A Search Engine
http://www.businessinsider.com/facebook-will-challenge-googl…
I bought a slug at 18, one of the few times in my life I have picked close to a bottom. I have already sold half, and when the taxes are advantageous I will likely sell most of the rest. There may be a lot of gas left in the tank, that’s all in the murky future. At the moment, and given the sales and user acquisition trends, I don’t see the kind of upside that I did when it was unmercifully beaten down.
Saul,
I have some Facebook stock and I am a weekly user. Interestingly both my mother and my mother-in-law use my Facebook login to keep up with the grandkids. They refuse to get their own accounts. My family is scattered to the four winds, the only way I know what my nieces and nephews are up to is via FB. It is fun to know.
That being said I do not like a lot of things FB does, and I really see a lot of fraud going on. I had someone steal my photos and open up a dummy account and starting “friending” my friends. I assume this was to steal their contacts for some nefarious purpose, but it clearly happens a lot. FB has easy to follow directions in the help section on how to deal with this.
Most users I know have a love/hate relationship with FB. They love keeping up with far flung friends and family. But Facebook makes makes people uneasy. It is clearly a sticky service, because people don’t like it but they still use it.
So I have some but not a large percentage of my portfolio. Like with Google “we” are the product. FB and Google and other free services sell access to us. Of course we are the product for TV as well, we are being sold to the advertisers.