“The richest people in the world look for and build networks and everyone else look for work.” Robert Kiyosaki.
Would you buy Facebook for $402 billion which earns $22 billion in net income out of $55 billion revenue per year?
In average, 23.45 million people per trading day think Facebook is not worth $402 billion, while the same number of people think it is worth.
One of those group is definitely right. Though, it is pretty difficult to tell which group.
According to FACEBOOK INC, 10-K filed on 1/31/2019, its net Income is 22.1 billion in 2018 (see detail below). If the earnings continue at the same level, it takes 18.2 years to get all of your invested money back (had facebook paid all of it’s earnings to the shareholder, which is impossible). By any means, 18 years is a long time, therefore, facebook is deemed expensive by value oriented investors.
| Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
|---|---|---|---|
| Revenue | $ 55 | $ 40 | $ 27 |
| Net Income | $ 22 | $ 15 | $ 10 |
| Market Price | $ 402 | $ 551 | $ 360 |
(In billions and decimals omitted (not rounded) for simplicity)
You can buy Facebook for cheaper than last year.
Profitability ratios of Facebook look very attractive. They, indeed, are very impressive. Though they are very important, I personally do not put a heavy emphasis on those ratios, since they go up and down year over year.
| Net Margin | 39.6 |
| Return on Assets | 24.32 |
| Return on Equity | 27.9 |
| Return on Invested Capital | 27.9 |
The thing which makes a real difference is its user base, which is growing consistently. The growing users are the real moat of the company. As users grow, Facebook is able to grow its revenue per user. Which means it will take less than 18 years to get your invested money back.
“The current generation of wireless technology ushered in a host of new smartphone applications that helped put the mobile phone at the center of e-commerce, socializing and navigation.” Wall Street Journal.
Facebook also owns Instagram, WhatsApp, and Messenger. They have combined users of 4.3 billion and growing. No money is enough to rival their stats. Google tried with Google+ and failed miserably. Google+ is closing for good.
More importantly, Facebook is in good hands. Its managers are prudent in the leadership of Mark Zuckerberg. There will be a wide array of operational difficulties and challenges, but they will not be big enough to kill today’s online socializing movement.
In developing counties, the messenger is official communication means for schools and colleges. Local buses and trucks are painted with facebook signs. This signifies the widening and deep moat of Facebook. Its brand image is far greater than imagined.
I do not know exactly how much Facebook is worth right now. But, after a decade, I believe, it will worth more than today. A lot more. Is it worth to risk your money? I don’t know!
Disclaimer – Long position.
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