I have been quietly collecting Facebook shares in the past few days. At $31 – 32 they are reasonably priced. Never mind how the IPO went. Yes, at $38 the shares were a bit expensive, but then Facebook is no ordinary company.
Facebook is a big thing. Bigger then Google was ten years ago when it went public. In number of users, Facebook is the third biggest country in the world. And it reached that number in a just a few years. Extrapolate that - and a few years from now, Facebook delivers the single biggest “market” - on a plate. A global market. A way to deliver your product to the world, without having to develop a media and PR strategy for each country.
Facebook delivers another holy grail in marketing: Targeting. Facebook knows the sex and age of most of its users, plus their interests. And this makes Facebook unique. Google, by contrast, offers almost no targeting at all.
Facebook engages – in the US, people spend 20% of their time on the internet on Facebook. Users come back on a daily basis. Yes, the current advert format does not engage users, but the point is that the users are there. Now Facebook just needs to come up with a better advertising format. And it has many options to choose from.
Then there is the hosting of games and pages. Companies attract visitors to their page and are increasingly hosting their content there. Gaming companies target Facebook users and pay Facebook a fat commission. Facebook controls content and apps on its network and can make money of that.
And last but not least Facebook has an absolutely massive brand. Pretty much anything that’s human and alive and breeding has heard of Facebook.
So Facebook is a no – brainer. At least in my brain. Yes, shares are currently at approximately seventy five times profit. But with its potential, even the dimmest of management teams can triple profit overnight and grow it tenfold in just a few years. And then Facebook will be a bargain. Google IPO’d at $85 back in 2004. Its shares are now at $600. My guess is that Facebook will easily out perform that. So go and buy Facebook shares? Well, maybe, just maybe...