Whoa there Facebook! – “That’s English for stop a horse.”

06 Apr

At the time of writing $100 billion has been wiped off of Facebook’s value in a couple of weeks, it’s time to step back and take a look at what’s really going on. Should investors be abandoning the sinking ship or is now the time to buy a 20% dip?

Digital Media will take 44 percent, or $237 billion, of all ad money spent globally in 2018. Google and Facebook shared more than 60% of 2017 digital ad spend. From last year Facebook takes over 20% of the total US Digital ad spend. Facebook’s monster revenue (ttm) sits at over $40bn with almost a 40% profit margin, and from their last quarter they’re sitting on over $40bn cash.

Now we’ve got the numbers out of the way how do we think the recent data privacy revelations will effect Facebook? First of all let’s not forget, before the scandal hit, the average Facebook user was already aging, and the platform was haemorrhaging young users. The value in Facebook has been it’s superiority over rivals in delivering tailored ads to just the right audience. Now the data it mines to deliver those ads is coming under threat. The question now is if the data is removed will Facebook still be able to deliver a valuable service to businesses while maintaining it’s user engagement? The hard truth that may be surprising right now, is that everyone knew what Facebook and Google does with user data. Often users appreciate having certain parts of their data recorded to make user interface more smooth, like getting weather updates on a widget on your phone. But today it’s Facebook in the public cross-hairs and the #deletefacebook movement has had a lot of traction. If the value of Facebook lies in it’s huge number of monthly active users, far out numbering any other social network, where will these users go?

Twitter has long disappointed it’s investors but some recent signs could signal the tides are changing. There has been a massive amount of action policing the platform, deleting bots and automated accounts. This is a great step for the users. Twitter already mines less info about users, as profiles contain very little information. It’s advertising platform trails Facebook’s by some distance in effectiveness though.

Something that is well worth remembering is that Facebook also owns plenty of other platforms users may be moving to. Instagram users grew 17% from 2014 to 2017. Facebook also owns the 2 largest private messaging apps, whatsapp & messenger, both with around a billion monthly users. Private messaging is sometimes referred to as ‘Dark Social.’ It is true that without data mining of users info, Facebook loses some major artillery from it’s arsenal, but let’s not forget if Amazon owns the marketplace, Google owns ad distribution and Facebook owns where the conversations are taking place. Which surely has an incredible value.

Finally let’s have a look at an investor’s favourite number, PE Ratio (TTM,) for the other Tech heavyweights;
Google 55.82
Amazon 232.75
Netflix 228.62
Facebook 28.39  ¯\_(° ͜ʖ °)_/¯

Sean Porritt