I’ve posted a lot on this blog about Facebook and when it comes to their business, I’m fanboy. Other than Apple, Facebook is the second highest (tied with Google) on my investing rubric.
Investment Rubric
| Stock | My Love | Leadership | PE | Cash | Potential | Macro view | Total |
| FB | 8 | 10 | 4 | 8 | 8 | 9 | 31.3 |
| AAPL | 10 | 9 | 10 | 10 | 7 | 8 | 36.1 |
| AMZN | 7 | 9 | 1 | 3 | 8 | 10 | 26.4 |
| TWTR | 7 | 9 | 1 | 5 | 9 | 9 | 27.2 |
| GOOG | 8 | 8 | 8 | 8 | 7 | 8 | 31.3 |
| BRK.B | 5 | 10 | 8 | 8 | 5 | 7 | 28 |
| CMG | 10 | 8 | 5 | 3 | 7 | 7 | 29.2 |
| UA | 8 | 9 | 4 | 2 | 7 | 7 | 27 |
| SIRI | 7 | 6 | 6 | 2 | 5 | 5 | 22.6 |
| TEAM | 8 | 9 | 1 | 8 | 8 | 9 | 28.4 |
Cash
Facebook has nearly $5 billion in cash along with $21 billion of overall assets, a growing position year over year. Facebook has enough cash in the bank to weather a bad year or two and enough cash, along with an attractive stock to own, to make acquisitions such as Instagram and WhatsApp.
PE
As of this writing, Facebook’s PE is 74.33. I give FB a low score of 4 for this high PE. That being said, considering FB’s growth last year (23% earnings growth, 43% revenue growth) they’re growing into that valuation reasonably quickly (although the price has appreciated nearly a quickly as the growth).
Potential
Facebook’s user base and the information about their users puts it into a fascinatingly strong position. There are many categories Facebook could dominate if they chose to, such as events.
The upside within the Big Blue App is enormous but the potential with their other products is an attractive icing to the cake. Instagram, WhatsApp and Oculus are growing and still a ways away from achieving their true potential. We may think of Facebook not as a Social Network, but as a Virtual Reality company someday.
Macro View
More internet users are coming on board every day. 46% of the current population is on the internet, plenty of room to grow. Internet users grow 7.5% yearly.
Online advertising, where Facebook makes its money, continues to grow as well. Online advertising accounted for 28% of all advertising and is growing 13% per year.
Leadership
Mark Zuckerberg has the ability to see a clear vision of the future and execute to get there. It appears Mark still owns voting control. Mark has shown the ability over and over again to delay gratification and think in the long term. As a buy and hold investor, this gives me great confidence that our interests are aligned.
My Love
I use Facebook every day. It’s typically the first app I open when I wake up in the morning. I use WhatsApp to communicate with my cousins around the world and I use Instagram nearly daily. I’m a fan of their products.
My Concerns
Time spent on Facebook per day (~40 minutes / day) is high. Will people fatigue? Will Snapchat, Twitter and yet-to-be-named startups chip away at this time spent? Will another Social Network overtake Facebook someday?
They’re betting a lot of money on messaging – Messenger and WhatsApp. Can they win this war? Can they monetize communication like AT&T and others have in the past?
When I’ll Sell
I’d sell if Zuckerberg left but I thought I’d sell Apple when Steve Jobs died but I haven’t. Zuckerberg leaving would make me think long and hard about their prospects.
I’d sell if they started to stretch themselves too thin. Although I invest in companies who do a lot (Google, Apple, Amazon) I love Facebook’s relatively focused product line.