Is Facebook an obvious future home run?

Investment Analysis Clubs Saul’s Investing Discussions
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Facebook seems to me like Amazon, especially the Amazon of several years ago - a stock that mostly goes up, and should do so for years. I recently decided to buy a small amount (maybe $2000). Saul must have a reason not to buy, and I’m wondering what it is. Is there a discussion of FB here that I’ve missed?

I agree that Skechers is likely a better value in quantitative measures, but FB is so overwhelming with its name recognition and tendency to grow income every quarter. And the market will be more forgiving of the occasional stumble. We need to watch SKX like hawks, and buy on the dips. With FB, I think you could buy almost any time there hasn’t been a crazy spike.

Other mega-growth stocks:
Google/Alphabet is similar to FB, but has already grown so much over more years, so its percentage growth should be less than FB. Same for Apple. Netflix is the most problematic of the FANG stocks, with its gigantic P/E and heavy move into original programming. TSLA - great world-changing story, but huge valuation and no profit yet. AMZN has already been talked to death, and I can never find a good price entry point. It’s like a nice car whose sticker price keeps going up, so I buy something else. (This has actually happened to me more than once years ago, when Hondas were always pricier than Mazdas for very similar cars.)

That leaves FB, unless someone can name something even more likely to win big and often in the not-too-distant and longer-term future. Maybe Starbucks, with its expansion into food?

The main obstacles for FB that I see are when everybody is already using it so much that they forget to eat and have a life, or advertising is saturated and has to be cut back to keep users happy, or ad blocking gets strong enough to make a real difference.

Comic relief:
https://www.youtube.com/watch?v=6LcOKQg2Gbc
https://www.youtube.com/watch?v=z8xbgdw9uvY
https://www.youtube.com/watch?v=l3NmVLYR5pg

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Another “buy” signal for FB is that I don’t find it particularly compelling for my own use. Same for Apple, where I buy their old equipment for cheap, and sometimes resell it if it’s cheap enough and still popular enough. Google is the hardest for me to avoid, but even there I often use duckduckgo.com, which doesn’t track you.

Full disclosure: I do have a FB page, where I occasionally discuss random things, but not stocks:

https://www.facebook.com/mira.thehusky

When I go to my home page, it’s loaded with other people’s postings, and mine are well hidden, even though I have only about 10 “friends” there.

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You might want to take Meli out for a test drive:

http://seekingalpha.com/article/3996384-back-future-mercadol…

http://seekingalpha.com/article/4001171-mercadolibre-e-comme…

http://finance.yahoo.com/m/91deb3ce-dfb8-3cd2-8e2c-e9f069bfe…

I’ve been in the company since forever, still expect a 3-4 bagger from here and have no intention of selling for years. Your milage may vary.

Apologies to everyone - and especially Saul - if this doesn’t fit or is a distraction.

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It seems that women are the biggest users of Facebook, and women tend to control the purse.

Facebook is a win.

Cheers
Qazulgiht

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Thank you for reminding me about MercadoLibre! Yes, another one with big potential.

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FB is a weird one. It definitely has a similar vibe to GOOGL and AMZN in that it’s an internet service that keeps growing steadily for years. Also, with all three a lot of investors are expecting them to plateau one of these days.

I personally expected FB to start slumping a long time ago and it just keeps on chugging along just like the other two. The thing is, with GOOGL and AMZN I can understand where they can still grow (cloud services, streaming, mobile, even hardware). With FB I just don’t see the 5 year future. Though to be fair I did not see it 3 years ago either and I was wrong.

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My problem with Facebook is that I had an account which I hardly ever used, but then I started getting these notifications that XXX accepted your request to be a friend, and YYY accepted your request to be a friend, etc etc. Basically, my account was hacked. I tried closing it, but within a day I was again finding all sorts of “friends” that I never heard of filling my account. I had to totally close down the account. So I figured why invest in a company that I have no interest in, which I never used when I had an account, and where there were clearly annoying problems, when there are so many alternative companies that I really like. But that’s just my feelings, and you guys should do what you want.

Best,

Saul

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You might want to take Meli out for a test drive:

Champico - I love how Skyworks Solutions was in the top 5 undervalued list in your posting. And thats after the 15% increase in the last month.

http://finance.yahoo.com/m/91deb3ce-dfb8-3cd2-8e2c-e9f069bfe……

Thanks for sharing.

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Hi EdGrey,

My opinion - I am staying away from FB because of the valuation. I did a quick screen of large cap stocks on CAPS.

http://tinyurl.com/z6lcq8g

Click on the market capitalization link twice to sort everything by descending market cap.

There are ten companies including FB with a market cap greater than 250 billion dollars: AAPL, MSFT, AMZN, XOM, JNJ, FB, GE, GOOG, WFC, T. Of all of those companies, FB has the highest price to sales ratio at 16.34 and the next closest of those ten is GOOG at 6.76. On a price to sales basis, FB is second (behind AMZN) with a PE of 60.6 and number three on the list is XOM at 34.6.

So I stayed away from FB, and this is my opinion on what is best for me, because I don’t see FB as having the potential to double in stock price in the near future given its market cap of over $290 billion. I also think it is priced for perfection on a PS and PE ratio basis relative to its megacap peers. At some point, FB will undergo some type of multiple contraction, hopefully for all the longs out there, by growing sales and earnings with a stagnant share price or through a drop in share price once sales and earnings stop growing.

Did I miss out on a once in a lifetime investment in FB by sitting on the sidelines? Probably. But I prefer to take more calculated risks in my investing and I think FB has always carried too much risk for my comfort given its valuation.

Wiseguy,

Long AMZN, GOOG, AAPL

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AMZN has already been talked to death, and I can never find a good price entry point.

I own (and have owned) numerous stocks like this (SBUX, AMZN, GOOG, UA to name a few). They never once looked cheap.

If you had bought a few shares the last time you seriously looked at AMZN, would you be better off now? I don’t know how to predict which ones will keep going, but there’s money to be made if you can get it right.

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“With FB I just don’t see the 5 year future. Though to be fair I did not see it 3 years ago either and I was wrong.”

Well, since I’m a George Costanza of investing, and since I just bought some, we’ve now reached Peak Friendface…er…Peak Facebook.

Saul, I agree with your personal assessment of Friendface as a service, even without my account being hacked. That’s why I listed those comic relief videos in my first post. (“The I.T. Crowd” is one of my favorite all-time TV shows.)

I’m buying Friendface as a contrarian to my own past impulses, just like George Costanza in the Seinfeld “Opposite” episode, where he kept coming out ahead by doing the opposite of his normal behavior.

If I really wanted to be contrarian to myself, I’d buy Amazon, too. Maybe I’ll buy one share, and then become a proud thousandaire if it ever splits again.

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As the board’s resident bull on Facebook, I feel obliged to respond :slight_smile:

Facebook just began monetizing Instagram and videos on their flagship platform this year. I believe these both have a good year left of ramping up revenues and earnings. Beyond that, however, Facebook has not even tried to monetize Messenger or WhatsApp yet. Both of these platforms have nearly a billion active users. A billion. Those are two HUGE revenue sources that Facebook has not yet even begun to tap.

And the plans Facebook has to integrate these platforms with e-commerce…I’m not just talking about ads, though there is some potential for that too. I’m talking about more along the lines with how Tencent has monetized WeChat Payments in China.

Indeed, FB’s plans for 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 (yes, that’s how many advertisers currently sells ads across FB’s platforms!) the most direct way to reach their targeted audience across different platforms, I think FB’s future is bright.

Beyond this, Facebook owns Oculus Rift, one of the most promising players in the burgeoning virtual reality space. I’m not sure how much potential Oculus has to move the needle, but it is another channel we have yet to see serious earnings or revenue from.

Matt
Long FB
MasterCard (MA), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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About a year and a half ago i realized i was spending about 3 hrs a day reading about and researching stocks. My wife was spending those same 3 hrs on her smart phone on Facebook. She is hooked on Facebook and it is her favorite way to stay connected with friends. Her phone is constantly dinging notifying her of a new Facebook update. It made me wonder how many millions were hooked like her. I bought it about a year and half ago.
:slight_smile:

Kindest Regards,
Steve

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A couple of sideways thoughts:

At the dawn of radio there was one network, then two, then three. After three it stopped, because the economics weren’t there to support those kinds of expenses. (A few smaller regional networks came into being, but that was it.) Likewise at the beginning of the television era the radios networks transitioned to the new medium, and the Dumont network gave it a try, but didn’t make it. ABC almost didn’t either, but hung on (largely due to its vastly profitable radio properties.)

Cable TV developed differently with consumers paying cash money for the service, and a few “free” channels appeared (WGN, WTBS) and nothing much else for a decade. There were two satellite radio companies, but only enough subscribers for one, and that remains true today.

Facebook is the aggregation of the next new media, it encompasses entertainment, news, gossip, and “friends”, and it is the only one of scale enough to interest national advertisers. (There are a few pretenders in Instagram, etc. but there is no entity poised to knock Facebook out. Facebook is now rivaling “screen time” with the networks, and may turn out to be the delivery vehicle for the cable programmers who are now dependent on “channels” to reach their audience. If you look at the behavior of under-35s, the trend is to portable, not plugging into a coaxial cable in the living room. And while there will be some “independent” services (as CBS and HBO are trying to start) it seems as likely that Facebook will be the universal coupler for all of them - and at lest for those ‘minority’ channels which don’t have the scale to operate their own monthly franchises.

Publishers like the Wall Street Journal and New York Times are paying Facebook to carry their stories. Websites that want traffic are paying Facebook to promote a story in hopes of capturing a few new eyeballs. National advertisers are still learning how to use this new media platform (much as P&G was in the 1950’s with television).

There will be new competitive te variants: Linked-In has a niche and there are others, but nobody seriously views them as a threat to the core franchise anymore than somebody thinks duck-duck-go is worrisome to Google.

There are times when it’s “too late”, or maybe not. Amazon is the outlier that makes me reluctant to cite it, but their lately stellar growth is due to something completely different (cloud), not retail (although that’s still quite good, too.) Apple is mining the same ore, and maybe they’ll find something fabulous and new but it’s been almost a decade since the “phone” home run.

Facebook has a long way to go, and better, they’re buying their flanker competitors. That gives them breathing room in the race for eyeballs, and combination possibilities for advertising and content delivery franchise payments. I don’t see a rocketship from here, but I do see the probability of excellent growth with little downside risk. Just my take, obviously, but it’s “media” and I have a higher confidence level in looking at it than I do many other sectors.

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I 100% agree with Goofy - the network effects are incredible. Reminds me of the times when print ruled the news. In each town, you are reduced to only 2 dominating newspapers, since if not enough people use/read the newspaper, advertisers would not do business with that newspaper. Currently, mobile/internet advertising is dominated by Facebook and Google - of course the kid with a laptop in his garage risk is always present when you’re talking about technology, but Facebook doesn’t have to grow its audience from here, it just needs to maintain its market share of eyeballs, and find new ways to monetize them (messanger, live stream events, etc.)

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“But I do see the probability of excellent growth with little downside risk”

Good post Goofy,

I used to have a modest position with FB that I held for a short time. I cannot even Remember why I sold out. But a week or so ago I decided to buy back in.

Now I have a 4% stake and probably will gradually add more as my brain sees fit. Why not earlier? Probably because I thought I had missed the proverbial boat. But in reality the boat has always been taking new passengers every day. I just refused to get on board.

Frank,
Long FB

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Goofy,

An interesting insight, never considered looking at FB this way. Thank you for that.

I still see some risks though. FB might not have a competitor in social media space (users) but it does have a lot of competitors in the advertisement space (paying customers) - Google, Twitter, Microsoft, LinkedIn etc.

It’s doing well for now - a distant second after Google, but growing at the same pace. However it’s not without risks - the main one being diversification - Google has got searches, Youtube, Maps and Android - vastly different advertisements streams. FB just has got one (very good) trick up its sleeve.

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Matt,
Thanks for your post about FB. (#21334)
Very good,
Frank

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And the plans Facebook has to integrate these platforms with e-commerce…I’m not just talking about ads, though there is some potential for that too. I’m talking about more along the lines with how Tencent has monetized WeChat Payments in China.

There was a good Motley Fool article today providing more color on what I meant with these WeChat comments. Thought I would share a little:

Chinese social network WeChat just passed 800 million monthly active users, according to Tencent’s (NASDAQOTH:TCEHY) most recent earnings report. Users grew 34% year over year, taking longer for WeChat to go from 600 million to 800 million than either Messenger or WhatsApp, which each took about eight months.

Although WeChat’s active user count is growing more slowly than Facebook’s (NASDAQ:FB) messaging apps, it’s a dominant force when it comes to monetizing messaging and user engagement. KPCB analyst Mary Meeker estimates that users spend an average of 70 minutes per day using WeChat in China. Facebook says its users spend 50 minutes per day between Facebook, Instagram, and Messenger combined.

Estimates from Demystify Asia as reported by eMarketer put WeChat’s average revenue per user at more than $7. And the vast majority of those users are in Asia. Facebook’s average revenue per user in Asia Pacific last year was just $5.45.

Read the entire article at http://www.fool.com/investing/2016/09/04/what-facebook-can-l…

I forget who it was but someone on this board talked about what WeChat was doing several months ago. I was familiar with Facebook’s plans for Messenger and Whatsapp before, but had not realized it so closely mirrored what WeChat was already doing in China. Anyway, I think these plans are doable and will prove to be profitable.

If you have time, definitely read the article to get a better feel for what WeChat has done through its platform.

Matt
Long FB
MasterCard (MA), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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