Facebook... More Reasons to BUY!
Andrew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A wise man, by the name of Warren Buffett, once said:
"Be fearful when others are greedy, and be greedy when others are fearful"
I got body slammed in the comment section of my recent article where I recommend buying shares in Facebook ).
People made some good points. Almost no one agreed with me.
While those particular comments in isolation don't represent enough opinions to cover the entire investing populace, they do give some indication as to what many people think about investing in Facebook. I've read a lot of articles about investing in Facebook and I continuously read similar sentiment. It's clear that a lot of people think Facebook would be a poor investment. Fair enough. If this is the case though, according to Buffett's rule this would count as a pro, rather than a con, for investing in the stock. When large numbers of investors agree on a stock being a poor investment, it's likely that the stock is oversold. I do realize that just because a lot of people think Facebook is a poor investment doesn't prove they are wrong, I'm just saying that this widespread negative sentiment probably means that the stock is more likely to be oversold than it is to be over bought.
What about the shares of Facebook that will soon come out of lock up and increase supply?
Good question. Of course the fact that having more shares coming out of lock up will increase supply and put downward pressure on the stock price; it's simple supply and demand at work. The problem with arguing that it will make the stock plunge further is due to the nature of the market. This is hardly insider information and the market is always forward thinking. Therefore, the shares coming out of lock up shouldn't affect the stock price too much. The stock price has already taken the hit for this news since this information has already been publicly available for a while.
What About Monetizing Mobile?
It's no secret that Facebook has been having a hard time monetizing mobile. Last week, Google ) prematurely released a very disappointing quarterly report, knocking the stock down about 9% in one day. Google CEO Larry Page was quick to point out that although Google's earnings fell far short of expectations, there was reason to be optimistic about their mobile ad revenue growth. It grew to about $8 billion from about $2.5 billion in the same period the year before. If Google can advertise on the small screens of smartphones and tablets, it should just be a matter of time before Facebook really figures it out. I don't believe these companies "copy" each other per se, but it's certainly true that tech companies don't operate in a bubble. When one company has a breakthrough in one area, it's not too long before competitors catch up. Think about smartphones and tablets. In a competitive marketplace, competitors like Google and Facebook learn from each other to some extent.
The Problem With Challenging Mark Zuckerberg's strategy...
We're talking about the youngest self made billionaire in history. It's undeniable that he's a very intelligent guy. Does it mean we should just blindly trust everything he does and believe that he'll automatically be a great CEO and make only good decisions? Of course not. What I'm suggesting it does mean, however, is that for all the seemingly stupid things Facebook may appear to be doing, Zuckerberg almost certainly has a far better explanation for what he's doing than any non-insider could guess. He's not stupid.
The top guys at Facebook are constantly staring at a mountain of private user behavior data. It doesn't matter if you or I don't like some new changes to Facebook, it's how most people are interacting with Facebook that matters. Its unlikely that readers of the Motley Fool represent Facebook's core user base anyway. The people working at Facebook actually know what their changes are doing to actual user behavior on a grand scale. Facebook is always testing out new changes and analyzing the results. If their changes don't achieve their desired result, they apologize, scrap the initiative, and step back. If their changes prove to be popular, according to actual user behavior rather than what people say they like or dislike, they push forward with their initiative.
Even if some new change makes no sense at all to me and seems counter productive, I do trust that the guys looking at the data know what they are trying to accomplish with those changes. They may be geeks, but they aren't idiots. They are well aware they need to monetize mobile and they've got very smart people working on doing it. It's truly amazing how much flack the company takes for annoying and potentially alienating their user base. The 1 billion + users should speak for itself and give us all an indication that these guys have a pretty good idea about how to retain and grow users.
Ok, so They Have a lot of Users. Big Deal. How are They Going to Make Real Money?
Simply put, they will keep rolling out potential money making experiments and analyzing the results. They will keep the winners and discard the losers. They certainly haven't perfected their monetization system yet, especially for mobile, but they do have a terrific team and an amazing amount of incoming data to build a massive income stream without alienating their users.
Time will tell, but I'm very bullish on Facebook.
Check out my personal blog for more info on tech stocks and international investing
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Fool blogger Andrew Best owns shares in Google but does not own any shares of Facebook. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. 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.