Well, for the world’s biggest social network, Facebook Inc (NASDAQ:FB), user growth and monetization don’t seem to be much of a problem even after 13 years, can’t say the same for eight years old Twitter Inc (NYSE:TWTR). TWTR shares fell 14% on troubled user growth and muted margins, while FB shares ended the Thursday session nearly 3% higher as it crossed the 2 billion users-mark with a 47% operating margin and an effective tax rate of just 13%.
FB, for the first time, crossed a market capitalization of $500 billion. EPS for the second quarter came in at $1.32, way above inflated-expectations of $1.13, a year-ago quarter’s $0.78, and the previous quarter’s $1.04. The average user on Facebook generated $4.73 for the social media platform with a user-base of 2 billion, compared to $3.82 in per user revenue and 1.7 billion users during the same quarter last year.
If you bought FB a year ago, you must be sitting on a 40% gain and if you’re one of the IPO investors, it might be the biggest winner in your portfolio with a nearly 350% gain. But what about now? Are these returns going to repeat like the other technology favorites: Amazon and Alphabet?
What sets apart Facebook
Few investors consider valuation and competition as serious concerns for a company like Facebook, which continues to grab advertising revenue at one of the fastest pace ever seen in the history. And it remains focused on that unlike Alphabet, which is competing in the cloud against Amazon and Microsoft; in hardware against Apple, and may not be crowned for having the most cutting edge page-rank algorithm of its search engine anymore.
Alphabet’s core strength are the network effects — there’s no industry whose target audience may not be a google user. And now the same can be said about Facebook, which also uses what billionaire investor Peter Theil calls a “creative monopoly”. A monopoly over people-to-people connections, including everything they want to share and use, now across the world is a big advantage. What it didn’t create that posed even the slightest threat to its monopoly was acquired and scaled up: Instagram and WhatsApp.
Facebook’s capability to move mountains (the successful video rollout) and persistent focus on value should put it in any investors’ opportunities basket. After huge gains in share prices over the past few years, its current valuation isn’t so attractive. But for a long-term investor, one of the rare technology companies with operating margin consistently above 40% hardly seems like a bad bet. Being a long-term investor also allows to find a good margin of safety, which the stock markets have a tendency to offer even in the most popular stocks.
The time to buy is when there’s blood in the streets — Warren Buffett