FB - Facebook

[Liberty]

Thank you, that's much better.

[Patmo]

Holy snapperoni baloni, brotheroni, tune back the hissy meter a notch or 2, we can smell the foam dripping off your mouth through the monitor.

[fareastwarriors]

https://www.bloomberg.com/graphics/2017-snapchats-copycats/

[Guest ajc]

 

 

Holy snapperoni baloni, brotheroni, tune back the hissy meter a notch or 2, we can smell the foam dripping off your mouth through the monitor.

 

 

 

Aaah, Dad....

 

All I was going to say is Liberty's right. My idea is much better.

So, so, so, so, sooooo much better.

See, he's right - I'm better.

 

Can we get pizza now? I don't know why, but I'm ravenous.

 

 

 

[Liberty]

More discussion of FB:

 

http://exponent.fm/episode-105-the-most-political/

[Guest roark33]

I didn't know this existed, but my wife bought a pair of shoes, directly from an ad on instagram this weekend.  Three clicks. 

 

1. Shop now

2. Shoe size

3. Pay with Amazon

 

That's easily measured ROI for the company...

 

Also, shows a little disconnect with facebook, who should have my wife's credit card details, but instead has to rely on amazon. 

 

But, obviously amazing what facebook has done with instagram (incidentally, my wife commented the other day, "I don't think instagram has ads..."--zuck laughing all the way to the bank). 

[LesPaul]

I didn't know this existed, but my wife bought a pair of shoes, directly from an ad on instagram this weekend.  Three clicks. 

 

1. Shop now

2. Shoe size

3. Pay with Amazon

 

That's easily measured ROI for the company...

 

Also, shows a little disconnect with facebook, who should have my wife's credit card details, but instead has to rely on amazon. 

 

But, obviously amazing what facebook has done with instagram (incidentally, my wife commented the other day, "I don't think instagram has ads..."--zuck laughing all the way to the bank).

 

Instagram is nothing but ads. Maybe not in the conventional sense (although sponsored ads exist)... Whether it's your pal posting a picture of a fancy meal at the newest steakhouse or the beautiful places in Iceland that your crush visited on their last vacation... they are ads and they are enticing! Real people are acting as content creators for brands and they gladly do it for free (or status!)...then there are the influencers who do it professionally.

 

In fact, I feel these 'ads' are far more powerful than the regular ads on TV or even targeted AdWords ads because they feel more 'genuine'.

 

[ScottHall]

An old note of mine I found in my sent box, that I PMed Liberty on September 5th, 2014.

 

I don't think I'll ever be this right about the core thesis of something again, but it was nice to find and look back on. I should take better notes; most of my investing thoughts are lost to time.

 

--------------------------------------------------------------

 

The thesis is fundamentally very simple; I think the network effects associated with websites will end up resulting in most of the world's online ad spend congregating at just a handful of companies, creating a power law dynamic where a handful of sites account for the vast majority of the advertising spending while everyone else is going to fight for scraps.

 

If that is true, and you accept the premise that Facebook's network is solid, then the stock is cheap at current levels. Today, the largest website in the world is Google. Facebook is #2. Google accounts for approximately 33% of worldwide digital ad spending today, and around 10% of worldwide ad spending. Facebook, on the other hand, accounted for just 5.8% of worldwide digital ad spending in 2013 and 1.3% of total worldwide ad spending.

 

What's really interesting is Facebook's position in mobile ads in particular. When Facebook went public, mobile ad revenue was a negligible part of its business, but since the third quarter of 2012, mobile advertising has gone from 14% of the company's advertising revenue to 62% today. Although the company doesn't directly break out mobile advertising revenue for you in its press releases, it gives you enough information to do so by giving you the percentages.

 

I went back and sussed out mobile ads from traditional digital ads for every quarter since Facebook started reporting it. In the third quarter of 2012, Facebook generated $152.6 million in mobile ad revenue and $937.4 million in traditional ad revenue. Last quarter? Mobile ad revenue was $1.66 billion and traditional was barely over $1 billion.

 

That means that mobile ad revenue increased nearly 1,000% in eight quarters, while traditional digital advertising was up just 9%. In the past three quarters, Facebook's mobile ad revenue has increased 305%, 225%, and 153% year-over-year. The growth rate is very high, and I expect it will remain very high for quite some time for a few very simple reasons.

 

The first is that mobile advertising is very underrepresented when compared to a consumer's time spend on mobile devices. In 2013, 4% of advertising spend went to mobile, despite consumers spending 20% of their media-focused time (defined as time spent watching TV, listening to radio, reading print, time spent consuming media online on traditional devices and time spent consuming media on mobile devices) on mobile devices.

 

There's a huge gap to be filled just for ad spending to reflect where consumer habits are today, so I expect mobile will continue to take share from the other sources of media to better reflect those habits.

 

The second big driver is that I think the trend towards mobile will continue; we'll keep seeing people moving away from traditional media consumption channels and towards mobile, as has been the trend for some time. So not only will we see ad spending increase to try to more accurately reflect the time consumers are spending on these devices, we're likely to see the time consumers are spending on these devices continue to grow as well.

 

The third big driver is that, as one of the dominant mobile sites, Facebook will be one of handful of players that will capture the lion's share of these ad dollars. We're already seeing that happen; Facebook accounted for about 18% of all mobile ad spend in 2013, but the amount of money advertisers have been spending on mobile ads on Facebook has been growing faster than mobile ad spending has as a whole.

 

For example, eMarketer projects worldwide mobile ad spending to grow about 83% in 2014, but after the first two quarters, Facebook's own mobile ad revenue grew at about 180% year-over-year. So not only are they growing, they're taking huge share here.

 

So now you have the combination of a market that is growing very quickly, that is starting from a revenue base that is well below its fair share as measured by consumer time spent, and a company benefiting from unreal network effects that is substantially outgrowing that market, and that I'd say is very likely to be one of only a handful of winners here.

 

In my model, I assumed Facebook would reach about 11% of worldwide ad spend by 2028. Assuming some operating leverage, that gave me a valuation of a bit over $100 using a 10% cost of equity. That's a pretty big share of worldwide ad spend, but it's only about 10% more than what Google reached in 2013, so it's not unheard of for a dominant digital franchise to hit that mark. If it happens more quickly, obviously the stock is worth much more.

 

In any case, it's up for everyone to decide for themselves whether or not Facebook is sustainable. I think it is. It is also up to everyone else to determine whether they think the stock is expensive or not. By the superficial valuation metrics, it certainly looks it. I am of the opinion that the business is actually so dominant that today's price will prove to be relatively cheap in hindsight. I may be wrong.

 

That is a pretty straightforward version of how I look at the business. It is a dominant franchise in an insanely fast growing market where it's likely to be one of a few companies that reaps most of the rewards.

[Guest roark33]

This is really good, Scott....

[Liberty]

While we're publishing old private messages, here's my response to Scott from back then (this is an old opinion, so it doesn't necessarily reflect what I think now):

 

----

 

Thank you for sharing your thesis, Scott. It makes a lot of sense to me. I agree that Facebook has incredibly strong network effects that make it very hard, if not impossible unless FB kills itself by making big errors, for any competition to gain critical mass.

 

The main reason why I'm not that interested in FB are more qualitative. I see FB keep doing things that benefit itself over its users over and over again (for example, brand pages have ever declining organic reach, now down to low single digits -- so if you have 100k followers and post something, you might reach a few thousand of those despite having them explicitly follow you -- all in the name of trying to force these people to spend on ads to increase their organic reach. And once you spend once on ads, your organic reach falls further so that you are now on the ad treadmill. There are also problems with regular users, who end up with feeds full of Buzzfeed and auto-playing 'funny' videos, etc).

 

All that stuff can work for a while, but I'm afraid that you can only mistreat your customers so long. They won't necessarily go away in droves, but you also don't want to be perceived as Microsoft in the early 2000s (the Borg that everybody hates yet everybody uses) because the barriers to switching were much higher back then than today.  If platforms like Whatsapp and Line and such can get hundreds of millions of users in short periods of time, I wonder if a different kind of social paradigm, different enough from facebook, yet that canibalizes the time that people spend on FB, might not gain some traction at some point in the future when people dislike facebook a lot more than they do now.

 

That's just speculation, of course, but it does give me pause for the longer term.

 

It's a similar problem with Google. Their interests are not quite aligned with their users. Their goal is to learn as much as possible about you so they can show you as many targeted ads as possible. That conflict in the relationship can only get worse over time (you don't want to show fewer ads to your users over time... growth requires ever more). Apple, on the other hand, is pretty aligned with its customers. They want you to have a really good experience so you'll keep buying their hardware and services.

 

But as I said, all that is more on the qualitative side. I'm sure that Facebook still has a lot of growth potential, especially in mobile and geotargeted ads. It could be a very good investment.

 

Do you have some of the same reservations but they're overruled by the current growth inertia for the foreseeable future, or do you think those concerns aren't valid? Just curious.

[bonkers]

I'm not into FB at all, so I'm sure this sounds stupid to everyone who values their service.

 

I think people talk about "network effects" too lightly. Sure, there is a lot of value that almost everyone can be found on a single platform, and it is certainly appealing to people as 2 B people (and growing) currently use it.

 

But it's not like FB owns its users: If people find better things to do (like spending time on some cooler mousetrap), they can drop FB if not overnight then at least fairly quickly. I really cannot estimate the power of habit here, but I do know that sometimes people also stop doing certain things, like playing the yo-yo, or Nintendo Donkey Kong, or doing IRC... And I do know that considering the size of the prize, Silicon Valley is full of people trying to develop new things every day.

 

When anyone around the planet invents "the new thing" - e.g. a new way to reach other people - distribution over the Internet has no entry barrier. Microsoft has within its own turf played defense very well over the years, so maybe FB can as well. But they couldn't buy e.g. Snapchat because those guys didn't need to sell. What if they couldn't have bought WhatsApp? And people don't have to leave overnight, they can start using a few things first in parallel, sliding over.

 

So at some point time spent on FB will decline, then "first quitters" will stop using it altogether. Even if new people would still join, finally value to advertisers goes down. Revenues and profits go down. Multiple collapses.

 

I have no idea if and when this is going to happen, and how quickly it will happen. Without that, I cannot value FB with any certainty, and I doubt they will pay me enough dividends to cover the market cap before it happens. So for me it is not an investment, but pure speculation.

[rishig]

I'm not into FB at all, so I'm sure this sounds stupid to everyone who values their service.

 

I think people talk about "network effects" too lightly. Sure, there is a lot of value that almost everyone can be found on a single platform, and it is certainly appealing to people as 2 B people (and growing) currently use it.

 

But it's not like FB owns its users: If people find better things to do (like spending time on some cooler mousetrap), they can drop FB if not overnight then at least fairly quickly. I really cannot estimate the power of habit here, but I do know that sometimes people also stop doing certain things, like playing the yo-yo, or Nintendo Donkey Kong, or doing IRC... And I do know that considering the size of the prize, Silicon Valley is full of people trying to develop new things every day.

 

When anyone around the planet invents "the new thing" - e.g. a new way to reach other people - distribution over the Internet has no entry barrier. Microsoft has within its own turf played defense very well over the years, so maybe FB can as well. But they couldn't buy e.g. Snapchat because those guys didn't need to sell. What if they couldn't have bought WhatsApp? And people don't have to leave overnight, they can start using a few things first in parallel, sliding over.

 

So at some point time spent on FB will decline, then "first quitters" will stop using it altogether. Even if new people would still join, finally value to advertisers goes down. Revenues and profits go down. Multiple collapses.

 

I have no idea if and when this is going to happen, and how quickly it will happen. Without that, I cannot value FB with any certainty, and I doubt they will pay me enough dividends to cover the market cap before it happens. So for me it is not an investment, but pure speculation.

 

You are right when you say that Facebook doesn't its users. Isn't it true that none of the networks (ESPN, Discovery etc) owns their user base. Customers "choose" to spend their time on the network consuming content because they find value, not because they are captive. And as soon as don't find value, they may choose to not spend time there.

 

Close to two billion users are voting for Facebook by choosing to spend significant part of their day there. Facebook is smart to keep innovating to improve the core interactions that engages its users on its platform. They started with news feed, moved on to picture sharing, and now onto video content. And I don't think they are going to stop here. What could the future be like: Visit Shanghai and watch a Chinese user use WeChat to know what the future is like. Leave the question of investment on the side for now, and I suggest you keep an open mind to see this video on WeChat usage on China: http://a16z.com/2017/02/06/china-trends-2016-2017/

 

You are right that network effects can be disrupted. Any other network with a billion or two users can start stealing users time onto their platform. Having said that, it is incredibly hard. It is hard to convince a user and its 500 friends to move to the alternate platform that is still emerging i.e. does not have the rich content as Facebook. Users aren't simply on the platform because their friends are there. It is because of the finely curated content (using machine learning) on the platform. An emerging platform can't get the content without the users and users won't come without the content. Comparing the content to playing yo-yo or Donkey King is naive in my opinion.

 

The de-facto leading economists on multi-sided markets (i.e. what we call as markets driven by network effects) recently wrote a book called 'Platform Revolution'. I highly recommend reading this book. I am happy to point to more resources for learning if you are open.

[glorysk87]

I do know that sometimes people also stop doing certain things, like playing the yo-yo, or Nintendo Donkey Kong, or doing IRC...

 

er. the difference is that none of those things have any sort of self-reinforcing network effect. which kind of makes me think you're misunderstanding the term network effect.

[bonkers]

As said, my apologies for being so stupid. I'm interested in the book, though. Should make an interesting read.

 

My naïve point was simply that people have spent their time in different ways over time, sometimes dropping widely popular things quite quickly.

 

As for the network effects, my point is that while they provide value to users, they do not provide protection for the system.

 

I remember from history IRC, ICQ, etc. as ways of communicating with other Internet users, early "social networks". They certainly had (small) network effects, but are now history.

 

One can argue that Facebook is now so big that it has become an unsurmountable titan. Well, maybe. But it's not only the sheer amount of users that counts, it's also the user experience, features, method of communicating, reputation, fads, cool...new innovation.

 

MySpace certainly had network effects from its 100 M users. I'm sure that was more than enough to cover 90 % of my friends and relatives. How many more do you really need, after certain point there's a diminishing marginal utility. Was that sufficient to protect them? No.

 

I'm out of my league here, but I understood eBay should have some of the strongest network effects out there to use for its advantage. Now I read merchants who once sold there have apparently decided to jump ship to sell at Amazon (that also has a bunch of "networks"). Most probably sell at both places, but the volumes are not 100 % eBay, they will be split.

 

I do appreciate the logic more content - more users - more content... But that would be much stronger if FB would own the content (and there were no close substitute). If the users create and own or just share others' content, they can take it with them to the next network. And as said, this does not have to happen in one big bang. It can happen gradually.

 

Snapchat started from a single user and grew from there while Facebook already had substantial scale and network effects. Didn't stop them. Considering the user demographics, I bet that almost all Snapchat users use both Snap AND Facebook, and have already cut down on their Facebook time.

 

Especially with consumer-centric technology, more often that not something comes out of left field, and things move quickly. I'm not saying one cannot make money owning FB shares, I'm just saying I find it highly speculative.

 

As an aspiring value investor, I'd like to know how everyone else values Facebook. P/Friends, perhaps?  ;)

[JayGatsby]

Facebook seems like one of those companies where in 10 years people will look back and the outcome will have seemed so obvious but half will have missed it.

Path 1: Facebook leverage its growing network by adding content and advertisers. Facebook becomes a platform of sorts for other forms of content. The data they have drives continually increasing ARPU.

Path 2: Facebook users tire of sharing their personal happenings with a "friend" base that grow increasingly disconnected with given the passage of time. Despite a growing user base, average time per user declines.

 

Currently I think you see both trends happening. User #s have continued to increase creating a "network effect" that in some ways requires people to be registered users. Facebook has leveraged that to sell ads that are very profitable for both them and the advertiser. Meanwhile original content is declining.

[rishig]

As said, my apologies for being so stupid. I'm interested in the book, though. Should make an interesting read.

 

My naïve point was simply that people have spent their time in different ways over time, sometimes dropping widely popular things quite quickly.

 

As for the network effects, my point is that while they provide value to users, they do not provide protection for the system.

 

I remember from history IRC, ICQ, etc. as ways of communicating with other Internet users, early "social networks". They certainly had (small) network effects, but are now history.

 

One can argue that Facebook is now so big that it has become an unsurmountable titan. Well, maybe. But it's not only the sheer amount of users that counts, it's also the user experience, features, method of communicating, reputation, fads, cool...new innovation.

 

MySpace certainly had network effects from its 100 M users. I'm sure that was more than enough to cover 90 % of my friends and relatives. How many more do you really need, after certain point there's a diminishing marginal utility. Was that sufficient to protect them? No.

 

I'm out of my league here, but I understood eBay should have some of the strongest network effects out there to use for its advantage. Now I read merchants who once sold there have apparently decided to jump ship to sell at Amazon (that also has a bunch of "networks"). Most probably sell at both places, but the volumes are not 100 % eBay, they will be split.

 

I do appreciate the logic more content - more users - more content... But that would be much stronger if FB would own the content (and there were no close substitute). If the users create and own or just share others' content, they can take it with them to the next network. And as said, this does not have to happen in one big bang. It can happen gradually.

 

Snapchat started from a single user and grew from there while Facebook already had substantial scale and network effects. Didn't stop them. Considering the user demographics, I bet that almost all Snapchat users use both Snap AND Facebook, and have already cut down on their Facebook time.

 

Especially with consumer-centric technology, more often that not something comes out of left field, and things move quickly. I'm not saying one cannot make money owning FB shares, I'm just saying I find it highly speculative.

 

As an aspiring value investor, I'd like to know how everyone else values Facebook. P/Friends, perhaps?  ;)

 

It's important to understand why MySpace fizzled out as a social network. When one builds a platform, it is very important to enforce rules that discourage or even ban users from bad behavior. MySpace completely lacked this - they focused on vanity metrics like user growth at any cost. And they ignored the bad behaviors (trolling, porn etc). The ads that became prevalent also started going downstream.

 

Unlike MySpace, Facebook was always focused on engagement, which is driven by things you mentioned - user experience, features, method of communicating, reputation, fads etc. More on this topic here if you are open to evidence that may be disconfirming to what you think: http://a16z.com/2016/07/16/network-effects-event/

 

On your comment on valuing Facebook, you do it like any other business: P/FCF. I am not sure what makes you say that one has to value it on P/friends? Do you know the level of free cash flow Facebook generates? And the kind of operating leverage the business has?

[Jurgis]

It's a similar problem with Google. Their interests are not quite aligned with their users. Their goal is to learn as much as possible about you so they can show you as many targeted ads as possible. That conflict in the relationship can only get worse over time (you don't want to show fewer ads to your users over time... growth requires ever more).

 

This is a good observation in re Youtube ad explosion that happened last couple years.

[brendanb22]

Think the growth hinges on what FB can do with the additional digital advertising demand. The question is not if FB is a dominant ad force -- the targeting and scale is unparalleled and at this point you really can't avoid the platform if you're a digital advertiser. The real question is, how much growth in ad revenue is truly possible for Facebook? Are users' news feeds at peak ad capacity? Where will the additional ad demand go and will CPM's rise so that it is no longer pofitable to advertise for many of the players?

 

It looks like the latter is starting to be the case for many companies. In ecom, I've actually seen many instances, where FB is making more contribution margin than the company itself -- i.e. An ecommerce company selling shoes for $100 with a $50 margin (pre ads), will pay $30-$50 to acquire the customer (to FB at essentially 100% margin). At the end of the day, these companies are ultimately working for FB, and the vc funding they continue to get is going right into their pockets.

 

Unless facebook can continue to expand their ad offering  (they added audience network recently to do this for example), value of user base (through better targeting options, better engagement, new ad products, etc.), i'm not sure if they can sustain the growth rates in ad revenue they've seen.

[giofranchi]

Why Facebook Keeps Beating Every Rival: It’s the Network, of Course

 

https://www.nytimes.com/2017/04/19/technology/facebook-snapchat-instagram-innovation.html?_r=0

 

Do you know what happens when you control four of the biggest social networks in the world? You get to stop worrying about competitors beating you on features.

 

Mr. Zuckerberg had done it before: Every time some other social company came up with social features that people seemed to enjoy — Twitter with the follower mechanism, Foursquare with checking in to stuff, Vine with short videos, Periscope and Meerkat with live video — Facebook or one of its subsidiaries (or all of them) could just copy and co-opt.

 

Cheers,

 

Gio

[bonkers]

I've done some more research, and one could say 'now I'm a believer':

 

With high likelihood, (net) additional users will join the network for at least a few more years, most people will spend a lot of time there also in the future, and its accurate targeting makes it a highly valuable, global media platform for advertisers. In the future they might even have some substantial ancillery businesses, a webshop or a subscription model for games and content, who knows. And they can probably play successfully "MSFT defence" against new entrants, copy them quickly, as they can't patent-protect.

 

And even if they have announced that the ad growth will slow down, I believe there is still room to increase the revenue/ad spot with an auction mechanism setting the right price, for the right advertisers. In fact, as advertisers increase their digital share, I expect FB to have substantial pricing power, even if they would not add another ad. But this is hard to know without knowing the IRRs of their advertisers, something brendanb22 referred to.

 

On your comment on valuing Facebook, you do it like any other business: P/FCF. I am not sure what makes you say that one has to value it on P/friends? Do you know the level of free cash flow Facebook generates? And the kind of operating leverage the business has?

That P/friends was just a lame joke to bring a memory or two from the late 1990s, my apologies.

 

However, the question still stands: I'm still interested how everyone values FB.

 

And no, I don't know what kind of operating leverage the business has, which is kind of my point. It should have a lot of op.leverage, but so far I cannot see it from the numbers. In fact, in my superficial look their GP% is improving,  but so far their SG&A (incl. R&D) of revenue shows no clear trend. To me it's still a guessing game.

 

Just for some perspective, FB made 12 B FCF last year, while even the mighty MSFT and GOOGL made some 25 B each, give or take. Where do you see FB's cash flows to go in few years' time, or longer term? And finally, will that make it a real bargain at today's 410 B market cap?

[giofranchi]

Just for some perspective, FB made 12 B FCF last year, while even the mighty MSFT and GOOGL made some 25 B each, give or take. Where do you see FB's cash flows to go in few years' time, or longer term? And finally, will that make it a real bargain at today's 410 B market cap?

 

I don't think many people know how to value FB: I certainly don't!

 

Malone called its business model the best in the world and here is a tweet I received yesterday by Jeff Stibel, author of "Breakpoint":

 

The best business model on a truly global scale and a leader at the helm who is making all the right moves. Imo very few people are estimating its rate of future growth correctly, nor for how long FB will be able to sustain it: 5 years ago a brain scientist and network expert like Jeff Stibel already was predicting that FB would become "wiser", but smaller...

 

I have a small position in case the market is still underestimating how fast and how long FB could keep growing.

 

Cheers,

 

Gio

 

[Spekulatius]

Biggest risk is that someone develops a better mousetrap out of nowhere. Since such a business is asset  light and mostly supported by network effects, it's hard to do, but once a competing business gains traction, it could grow very quickly, since you can rent out the server capacity as needed.

Network effect are hard to overcome, but again, if the user would allow an alternative software to tap into their  FB user contacts, a user could reestablish his own network very quickly.

 

I think the question with FB is not how long it is going to grow, but about the longevity of it's dominance. In the past, large business, once they gained scale where dominating based on  a mix of physical presence, brand, technology, scale, distribution etc. Now, a lot of these factors above are not issues any more in this asset light world. Just as FB grew quickly, a competitor can potentially grow just as quickly and dislodge them.

[giofranchi]

Biggest risk is that someone develops a better mousetrap out of nowhere. Since such a business is asset  light and mostly supported by network effects, it's hard to do, but once a competing business gains traction, it could grow very quickly, since you can rent out the server capacity as needed.

Network effect are hard to overcome, but again, if the user would allow an alternative software to tap into their  FB user contacts, a user could reestablish his own network very quickly.

 

I think the question with FB is not how long it is going to grow, but about the longevity of it's dominance. In the past, large business, once they gained scale where dominating based on  a mix of physical presence, brand, technology, scale, distribution etc. Now, a lot of these factors above are not issues any more in this asset light world. Just as FB grew quickly, a competitor can potentially grow just as quickly and dislodge them.

 

I guess the same could be said for AMZN and GOOG. And that’s why I keep each of them a small position (3.5% AMZN, 3.5% FB, and 5.5% GOOG). Taken as a whole they are a meaningful part of my portfolio, but I guess the risk all three will be dislodged by new competitors is small (at least for the foreseeable future).

 

Cheers,

 

Gio

 

[Liberty]

https://stratechery.com/2017/facebook-and-the-cost-of-monopoly/

[glorysk87]

I've owned FB since IPO both in my PA and at my fund. I finally sold all my shares at $140.

 

The company is obviously extremely difficult to value, and I will likely regret selling my shares, but the company finally reached my estimate of fair value.

 

I've used many many ways to value the company, but the most 'generous' was to make an estimate of total worldwide advertising spend that I thought FB could eventually capture. By this, I mean ALL advertising spend - not just digital. And then making some assumptions about their cost structure and growth at that point.

 

To justify above a $140 price in my model, I had to assume that FB will capture 10% of total global advertising spend. I can't reasonably justify a figure much above that. But at that level, my model puts fair value at $140.

 

Obviously there are some business offshoots that may develop into cash machines in their own right (WhatsApp, Messenger, Oculus, etc), but I don't have a clear view on those, and it's likely regardless that most of the revenue from those segments will be related to advertising, and thus captured in my original model.

 

I'd be interested in hearing others' methods for valuation. Can anyone make a reasonable argument for the company being worth substantially more than it is now?