Anecdotes can be wonderfully illustrative when it comes to investing, but only if they back up the larger trend. And right now all stats point to Facebook’s number of users and user engagement going up…quite rapidly. Those are the facts.
Again, 20% of Americans’ mobile online time is spent on Facebook and 30% is spent on Facebook or one of its apps (e.g. Instagram, Messenger, etc.). That’s incredible!
Let me try to voice more of my reasoning for liking it so much. First, from my perspective, it enjoys one of the strongest network effect moat in business today:
The network effect occurs when the value of a particular good or service increases for both new and existing users as more people use that good or service. It can also occur when other firms design products that complement an existing product, thereby enhancing that product’s value. The network effect is arguably one of the most potent competitive advantages, and it can also quickly catapult firms to the lead in new industries.
From https://news.morningstar.com/classroom2/course.asp?docId=144…
No other social media site has ever come close to the amount of users or level of user engagement that Facebook currently possesses.
And consider what type of value Facebook offers to advertisers. Just take one small niche of advertising: political ads. Every two years the spending for these ads jump prior to election season. Candidates have to two reasons to advertise: to energize their base and to convince undecided voters to vote for them.
With the kind of amazing targeting abilities Facebook offers, a candidate can tailor ads specifically for these two different audiences and pay for only voters who fall within the targeted group.
Polls show that married Hispanic women between the ages of 40-55 who attend religious ceremonies at least once a week are having a hard time making up their mind? Find out what matters most to this demographic, tailor your message to it and pay only for the intended audience to see it. Why pay for your message to this group to be seen by young white millenial males?
Advertising on Facebook is just far more efficient than traditional advertising. Take another small example. What if advertisers want to reach Super Bowl viewers but don’t have millions of dollars to drop on one 30 second ad. No problem. Just use Facebook:
The Super Bowl drew 114.4 million viewers on TV last year. At the same time, more than 65 million people were talking about the Super Bowl on Facebook (FB). According to the social media company, 85 percent of Super Bowl TV viewers were on their mobile phones while watching the game.
“Eighty percent of our revenue is mobile,” said Matt Idema, a marketing executive at Facebook. “It’s significant and it’s grown year over year. We are a mobile ad company.”
The social network launched an ad program in August 2015 that’s designed for companies that want to market to people during live events. Even some Super Bowl television advertisers are using the service, Idema said. For example, website development company Wix will run simultaneous ads on Facebook, Instagram and through various Google platforms, throughout the game and especially around the time of its TV commercial.
“The reach that mobile devices have, and the fact that Facebook and Instagram are two of the most important mobile platforms, means you can get a lot of reach and engagement on mobile even if you’re not buying a Super Bowl ad,” said Idema.
From http://www.msn.com/en-us/money/topstories/how-to-do-a-super-…
And they don’t just have a few advertisers on their site. They have three million active advertisers - a 50% jump in one year. Think about the safety that kind of revenue diversification brings!
From http://www.cnbc.com/2016/03/02/facebook-announces-jump-in-ad…
Facebook is also exploring directly getting involved in e-commerce. Their plans for FB Messenger and WhatsApp might offer the most holistic customer service experience ever offered. The plans are for them to be a one stop place for everything in the business-to-consumer model. Want to order and pay for a product? Check. Want to ask a customer representative a question about assembling the product or installing it? Check. Want to inquire about the shipping status of an order? Check. Want to leave feedback to the business? Check. Want to review or rate the business and product? Check.
With their unique ability to offer 3 million advertisers the most direct way to reach their targeted audience across different platforms, I don’t think this can be written off as a fad.
Now maybe the trends are changing. Maybe user engagement and number of users will stall or even start to drop. We’ll see. But thus far there is no evidence of that whatsoever.
Matt
Long FB