Facebook is F*cked, Long Live Facebook

Posted: June 28th, 2018 | Author: | Filed under: facebook | No Comments »

In March, in the thick of the Cambridge Analytica and #DeleteFacebook “movement”, I wrote a piece defending Facebook.

It’s now June and time to reflect. Zuckerberg has been dragged in front of Congress and the European Parliament. The Cambridge Analytica headlines have slowed. #DeleteFacebook is no longer trending. Facebook released earnings results which showed user growth, not users leaving Facebook. Furthermore, Facebook’s stock has reached an all-time high, over $200 a share and a near $600B market cap.

Facebook Nevers

MG Siegler remains a top 5 tech writer in my book but I disagree with his Facebook analysis. After seeing #DeleteFacebook was a complete joke, MG has turned his rationale for Facebook’s inevitable decline…”Facebook Nevers“.

 The fall of Facebook was never going to be people quitting the service en masse — it’s too interwoven into the fabric of the way many of us use the web these days — it was always going to be the people who never really use the service in the first place. Kids.

MG compared Facebook to Cable. It’s not that people will quit en masse but youngsters won’t sign up. He acknowledged that probably wasn’t the case –

But again, Facebook is so integrated into so many lives that in many cases you’re basically forced to sign up. Even the kids in many cases. Just as they must sign up for an email account. It’s a rite of passage, in a way. Your entrée onto the internet. So perhaps “never” is a bit harsh of a word here.

Anecdotally, what MG says in the last quote is what I’ve experienced. All of my younger cousins are on Facebook but don’t post to it much (it’s unclear how often they lurk). MG’s analogy to email is spot on here but he missed the larger arch. Young people will sign up for both email and Facebook early but won’t use either…until they become adults. They’ll use email when they go to college and much more when they enter the workplace.

Facebook is awful when you’re finding yourself as a kid. But it’s awesome when you’re stuck at home raising two young children. Sharing your children grow with people around the world is amazing for parents. Facebook will have less use in the 13-25 demo but once people enter parenthood, their behavior will change in many ways, including how they use social media.

$100B Instagram

According to “Bloomberg Intelligence”, whatever the hell that is, Instagram is now worth $100B. That number may as well be right but something is worth how much someone is willing to pay for it, not based on what data or some analyst says. That being said, Instagram is killing it.

In March, I said –

Few will #DeleteFacebook and those who do will come back or increase their Instagram use.

This appears to have come to fruition. Instagram now has over 1 billion users with 400 million users using Instagram Stories daily. That’s a shitload of engagement. For some reason Facebook is not releasing time spent on Instagram so attempts to compare it to Snap is apples to oranges.

Who knows if Instagram is worth $100B but it’s safe to say it’s not being factored into Facebook’s valuation reasonably. With Facebook’s PE hovering around 25, the market isn’t expecting much growth from a product now responsible for over 15% of FB’s revenue (and growing rapidly).

Facebook to A Trillion in Five Years

Now that the media cycle has passed and the Facebook bears have went into hibernation, we can talk about where Facebook is going. Five years ago Facebook’s market cap was ~ $60B. Many thought that was absurd but here we are, five years later and $FB is worth 10x more.

Facebook is ~$400B (1.7x growth) away from the elusive $1 trillion market cap. With revenue growth at 47% in 2017 and PE at a reasonable 28, it’s hard to see this locomotive slowing down anytime soon. To get to $1 trillion dollars, FB needs to average a paltry (for Facebook) 12% market cap growth a year.

Facebook growth with 12% yoy market cap growth per year

How does it get there? Can Facebook continue to grow its user base past 2 billion? Although there are another 6 billion people to go in the world, Facebook can reach $1 trillion through ARPU Growth.

ARPU Growth

Over the past seven years Facebook has averaged 26% growth in revenue per user. Continuing this trend alone will push Facebook past the $1 trillion mark with ease. User growth, monetization of WhatsApp, Oculus revenue etc is icing on the cake.

Facebook’s demise was media hype. Instagram will continue to grow its user base and monetization. Facebook proper will continue to be Facebook, serving 2 billion people a day content and ads. ARPU will continue to increase. In 5 years, $FB will be worth $345/share at a $1 trillion market cap.

There are dozens of reasons why these predictions may not happen, but I’m putting my money on Zuckerberg and Facebook. Easy money!

Disclaimer – I own $FB and am biased AF

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