Facebook... Buy Now or Regret Later

Andrew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB) is now hovering around 20 bucks a share.  It's way down from its peak of $45 a few months ago.  The reasoning behind the major sell off is pretty pitiful and short sighted.  

Facebook bears are griping about the company's poor quarterly profits and lack of a mobile business model.  Hey, if all you can do is look at P/E ratios and quarterly reports, then Facebook clearly fits the bill of a classic "bad buy." 

The thing people need to realize is that tech companies with a genius at the helm need to be evaluated a little differently than companies like Coca-Cola (NYSE: KO).  Revenue growth for companies like Coke are much easier to predict.  It's hard to imagine Coke coming up with a radically different business model than what they have now.  This is not at all true with a company like Facebook.

Zuckerberg realizes that Facebook needs to do a much better job with monetizing mobile.  More and more people are using Facebook on their mobile devices.  Since the screen size of smart phones are so small, Facebook is having a hard time finding the physical space to put enough ads on mobile devices without compromising user experience.  This is a challenge for them, but certainly one they will be able to solve.  

From the very beginning of Facebook, Zuckerberg has put the importance of user experience far ahead of profits.  This is essential to understand when looking at quarterly earnings reports.  He's not trying to maximize either revenue or profit at the moment.  He's much more concerned with people using and liking Facebook than he is with wrenching out a couple extra bucks here and there to appease Wall Street every 90 days.  He's one of those guys who thinks long term and looks at the big picture.

Facebook has grown to over 1 billion active users and is continuing to grow.  The international growth is astonishing.  Many countries are still growing more than 10% per month for the company.  This kind of news is what should be important to Facebook shareholders.

Just because the company isn't doing a great job with monetization at the moment, doesn't mean they won't in the future.  They have tons of information about each user and have the potential to tap into massive new revenue streams in a moment's notice.

  • They could potentially get into targeted affiliate marketing, where they show users ads of books, music, vacations, and other products the user may be interested in, based on the data Facebook has about each user.  Facebook would take a cut of sales.
  • They could do a slight redesign of their apps and mobile website to allow for more ads.
  • They could start charging corporations money to keep their Facebook fan pages up and running.

The point is, they could do a lot of things, immediately, to generate more money overnight.  They aren't rushing this because they realize the most important thing for their long term success is connecting the planet and building a product people want to use.  They don't want to turn off users with annoying ads.  Their biggest fear, and rightly so, is losing market share and becoming the next MySpace.  

Watch Zuckerberg in a recent interview with Techcrunch to get an idea of what he's thinking going forward.  

Zuckerberg interview

If you still aren't convinced after reading this and watching the 30+ minute interview, don't say you weren't warned...

Check out my personal international investment blog for more stock tips and international investing insights.

Foolish Bottom Line

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Fool Blogger Andrew Best does not own any shares of the companies mentioned in this entry. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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