Social Media is a “Super-Cycle” Built for Two – or Two Billion (part 4)

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This week Global X Funds celebrates the one year anniversary of their Global X Social Media Index ETF (NASDAQ: SOCL).  CEO Bruno del Ama discusses the reasoning behind the fund and considers trends and projections based on previous revolutions in global business.

[continued from part 3]

Slepko:  Analysts like to compare how the revenue per click for Facebook (NASDAQ: FB) is only a fraction of LinkedIn’s (NYSE: LNKD).  Is LinkedIn an outlier and fluke, or is it an indicator of what Facebook could achieve when it gets its act together?

del Ama:  The answer is, “We will see.” It is reasonable that one social media property for a certain segment could have a higher potential revenue-per-user based on the type of user it has.  When you consider the professional network versus the social network, it makes some intuitive sense that there might be some amount of discrepancy between the two. But LinkedIn is also more advanced in its monetization phase. Whereas Facebook currently derives most of its revenue from advertising, LinkedIn generates the majority of its revenue from hiring related services and its premium subscription service that is highly utilized by headhunters and recruiters.

The monetizing aspect of Facebook is still in its second inning, they are just scratching the surface.  Facebook has been focused on building their network, attracting users, and digging their moat.  They are just starting to figure out how to make some money – and even in these very early stages they are already massively profitable.  Once they set out to really make some money (without annoying their users and by enhancing the experience), I think there is a lot that will happen over the next decade that will surprise all of us in ways that we are not even thinking about.

Slepko:  Do you think Zuckerberg will be the CEO that takes Facebook forward, or will they do better with some changes at the top?

del Ama:  I don’t know, but what he has achieved in less than a decade is unbelievable, you can’t argue with that.  I’m always a fan of any company that is owner-operated.  He’s a massive shareholder, his incentives are clearly aligned with shareholders, and when you look at owner-operated type businesses like Steve Jobs and Apple, or Akio Morita and Sony, they may go through slow quarters but they tend to outperform the market over the long term. 

Is Zuckerberg the right guy to take Facebook forward?  When you realize he’s connecting 1+ billion people, then you also begin to understand that there so many dimensions the company will be dealing with – government regulations, user privacy, and foreign intelligence concerns to mention a few examples – I would hope at least he arms himself with an experienced team of people that can help him navigate the complexities the company will face simply as a result of its size.

Slepko:  How do you feel about the special shareholder structure he has established – and is it the wave of the future?

del Ama:  It’s good and bad.  I think the unique structure gives him a greater ability to plan strategically for the long-term.  He has been very public about what that means – that it is his paramount priority to build and maintain the best possible network, or in his words “connecting the world”.  If he didn’t have that unique shareholder structure, he’d have a lot more pressure on growing profitability now and a lot more quickly, which may not be the best thing for the firm at the moment.  (Although, it still does raise some questions with regards to governance.) 

[continued in part 5]




Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Facebook and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and LinkedIn. 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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