Young, Broke and Foolish
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When I walked across the lawn and received my high school diploma, I didn't have a penny to my name. I had a small fistful of scholarship dollars and a truckload of loan debt, hell I still do. I never had money growing up, how was I going to pay that money back? Or ever get ahead? I had no concept of "capital gains" or investing, that was for "Older People". Looking back I was so, so wrong. With this weight upon my mind, I found myself, what seemed like immediately, moving into a freshman dormitory overlooking the Pacific ocean in beautiful Malibu, California, a place where the rewards of a healthy portfolio can be found anywhere you look. I was inspired. Slowly I set out to build a small portfolio of several stocks and ETF's. Hardly having enough to eat, you can imagine that my contributions to my brokerage account are meager at best.
After extensive research, the first stock I ever bought, was Facebook (NASDAQ: FB). I encourage college aged potential investors to "Buy What You Know," we all use Facebook. we've seen it grow up and mature, I check it meticulously every day, as do all of my peers. Using that mantra it makes sense to invest in this company.
With over 1.1 billion users per month, the sites potential audience is huge. That's almost a sixth of the world population using a single site! These users make up the foundation of Facebook's income. It doesn't take a skilled analyst to decipher Facebook's monetization policy. Anyone who uses the site will tell you what the majority of their income comes from, Ads, Ads and more Ads, over $1.3 billion gross income worth of them. Some have criticized the saturation of advertising on our news feeds, however no one has dumped using the site en masse yet and probably won't and here's why.
The youth are finally coming of age. The prevalence of instant communication, entertainment and the high level of young people that use social media retains this audience and in turn, the revenue stream. I myself make heavy use of the site. I can share photos, videos, links, organize events, start groups, keep in touch with friends and acquaintances, video call my aunt or boss, sign up for outside accounts with my data from my profile, use Facebook messages as a texting substitute and much more.
This radical horizontal integration of social media life is only strengthening the company and its outlook and carving out its niche as the general use, heavy duty social media avenue for a majority of the young, technology-wielding crowd. The forecast consensus verifies this, lots of cash flow and high profit margins, $392 million and 73% respectively. In short, Facebook is here to stay.
Facebook is just one of the "Big Three" companies currently catering to the tech-savvy youth, as a young investor I would start with companies like these to build a foundation of will carry your portfolio into the new age. "The Big Three" of social networking sites are rounded out with the micro-blogging site Twitter, which has been rumored to be nearing its much anticipated IPO very soon and the more "Grown Up" LinkedIn (NYSE: LNKD)
LinkedIn, the business side of social media, is primarily focused on cultivating your connections and sharing industry specific news. With a P/E ratio of over 500, excessively over inflated some analysts assert, and a stock price nearing a 52-week high, investor confidence in LinkedIn is solid. In my opinion, Facebook and LinkedIn are not direct competitors in the same social media realm because each one is focusing on a different audience, LinkedIn being the more specialized and formal of the two. This distinction allows each company to grow and monetize their user base independently. You go to Facebook to learn what's new in the world, you got LinkedIn to learn about the business model behind the "new." They're two different things. I would evaluate them independently, rather than competitively.
One major competitor to watch however, is the mini-blogging site Tumblr, recently acquired for $1.1 billion by Yahoo!(NASDAQ: YHOO)Tumblr, with its younger audience has massive potential for growth reminiscent of what a pre-IPO Facebook had. With the guidance of its new parent, Yahoo!, there can only be positives to come. With little debt, Yahoo! has room to grow with the scrappy blogging site. Yahoo! will deliver using Tumblr and pose a serious challenge to Facebook.
College-aged youths have an amazing opportunity to enhance their social circles and careers using all these new social media sites, while building a foundation for a stable financial future. Using first-hand knowledge of these products, a little research coupled with the spirit of exploration, students have the greatest opportunity right now to strike out and build something worthwhile.
Mr. Larry Palmer wrote a brilliant article in The Daily Bruin, UCLA's campus paper, in it he had what I found to be a brilliant summary of what I believe to be true and have been making the point of. He says,
"For many college students, deciding how and where to invest seems like a task best left for the distant future. Any young person will admit that investing is a no-brainer in the long run, and many even dare to dream about what kinds of decisions they'll make with their money years from now when they're swimming in piles of it."
If you'd like to read the rest of his take you can find the full article, here: http://bit.ly/13gReQz
In summary, begin by posting to your wall you just began your journey to financial security, accept your mothers friend request and start a Tumblr page following the latest about your favorite artist. Start young, start now and educate yourself. It will pay off with leaps and bounds in the future.
Jacob Norte owns shares in Facebook. He is the owner of jacobnorte.com and tweets, @jacobnorte. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!