Thoughts on Facebook?

Saul and other esteemed contributors of this magisterial board,

I would like to offer a penny for everyone’s thoughts on Facebook. This is for a position in my wife’s Roth. She spends an inordinate amount of time swapping pics and stories on Facebook with her friends and I feel like a medium position in FB could spark an interest in her to learn more about investing. I know, I know, that alone would be a horrible reason to invest in a company.

But I also feel like Facebook has a lot of growth ahead of it. I do worry about its valuation though. It’s P/E is a lot higher than I like. That is why I am here, humbly asking for all of your thoughts.

  • Matt

I am not yet an esteemed contributor, but I’ll help you get things going here.

One or more of the services I subscribe to recommends Facebook, and Cramer recommends Facebook (highly). Oh, I did a type-up a while ago about why Cramer loved Facebook so very much… perhaps I can go find and repost.

The main thing is that Facebook has eyeballs. Lots and lots and lots of eyeballs, I almost feel it’s becoming the new television. And it’s so sticky. Last month I attempted to leave Facebook but I could not pull the trigger. (I still might, or I might scale back considerably.)

The other thing is that Facebook is very international. In some countries it is helping people communicate faster and acts as their primary connection.

Facebook has not started to monetize so much. They have huge potential for that.

They said this year is like a building-up year. Cramer expects it to hit $100 but it is stalling out a bit.

One of the services says it is possibly “the next Google”.

I am long FB and have LEAP calls on it. See the conversation here about Netflix and about how for some growth companies, PE may not be the most important thing.

I am putting FB into my kids’ college accounts too.


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I do not own FB. Yes, FB has great potential to grow its profits. They have a business model that requires little capital investment (not at all a capital intensive business). These are both great things. The P/E is high but I would be willing to tolerate it given its earnings growth rate and its light capital business model. So why will I not buy the shares?

It’s because the company has demonstrated that it is willing to make huge acquisitions that I consider speculative. FB bought WhatsApp for $19 Billion!!!. WhatsApp was not and is not profitable. That’s a huge bet and I consider it speculative. Will WhatsApp ever be able to generate enough profits to justify such a huge purchase price? Maybe, but I can’t see it and it’s certainly risky. I don’t know what FB will be willing to pay for future acquisitions and I see this as an enormous wildcard.



Facebook has not started to monetize so much. They have huge potential for that.

I agree, Karen. It seems that while the site itself is pretty mature and growth in domestic market is fairly saturated, that they are just beginning to monetize their amazing social networking site. Thanks for your thoughts.

It’s because the company has demonstrated that it is willing to make huge acquisitions that I consider speculative.

No doubt, Chris. That is a huge sum of money. Was it worth that much? Like you, I honestly have no idea. Yet there is potential there, as WhatsApp is supposed to help FB immensely with integrating payment processing with their site. Who knows? Thank you for your thoughts as well.

One of the things I really like about FB is that their founder is still their CEO. Zuckerburg is clearly a visionary in many ways. Infallible? Hardly. But he definitely sees the potential in things long before they take shape.

I’m a much more conservative investor than most on this board. I am learning so much though and am trying to stretch myself.

Thanks so much for both of your thoughts.

  • Matt
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I think that it’s wrong to look at these purchases like whatsapp or instagram as a separate part of the business. It’s all part of creating more ways for people to be engaged in the platform and also removing competition. It makes the overall product stickier.

Whatsapp has more messages sent through it than worldwide text messages. Many people use that and instagram more than FB or FB messenger becuase the experience is better.

FB is kinda one of those necessary evils of the internet these day, but the platform kinda sucks from a user experience now. I think a big part of the value that whatsapp brings to facebook is the value that it prevents being eroded from FB as it further integrates all of its data together.

Love it or hate it, it is a platform that is here to stay, (TWTR is in the same boat too) much like GOOGL was way back when people thought they were only search, now the venture arm has a ton of companies under the umbrella -

Zuck is pretty smart with how he has run the business so far, and it’s one of those that will be hard for it to not be successful in the long term IMO.

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