FB - Facebook

[MrB]

What were interest rates when Buffett bought WaPo shares?

US Government Bond yield was 6.8% in 1973

[MrB]

WAPO compounded net earnings by 30% over the next 5 years.

Another interesting tidbit. ROE was 15%, which was newspaper industry avg in those days, but by 1988 ROE hit 36%. Despite all this it never really got over 10x earnings over the next 5-10 years.

[Guest Schwab711]

Anyone who has been following the stock for a while willing to share how you're thinking about fair/intrinsic value today?

 

I think FB has a more impressive business than it is given credit for.

 

First, on minutes. Minutes/user/day on FB and IG (and WhatsApp) are up over a multi-year period. They are down Y/Y. Sometimes I think the Forrest Gump philosophy is worth considering: "shit happens". Same has happened to TV in the US multiple times during the growth years. Then sports are televised, cable is introduced, ect and viewing goes up. Will FB be "the TV" of the future. I don't know but the way it's buying up media rights and creating partnerships, it seems to be considering it. I think ultimately FB is more QVC like and that sounds great to me.

 

https://www.theatlantic.com/technology/archive/2018/05/when-did-tv-watching-peak/561464/

 

Second, on ad targeting. If the US moves towards the EU model of anonymous ad targeting (protect privacy) then FB has a tremendous advantage over nearly every company in the world not named Google. The secret is the wealth of various niche databases and FB's database of your intimate friends and family. Unlike any other platform (including MySpace), most of your FB friends are known. The more horror stories about FB that came out, the more people move to close their circle to just real-life friends and family, the more valuable FB's database became. FB can find additional information on people not on their platform through facial recognition, databases tracing family relationships, ect. Once internally identified, FB can scan images submitted by their users to determine preferences, activities they like, and where they've been. FB can scan posts and private messages to learn about thought processes and intimate information about users and adjacent users. All this can be matched against generic income, demographic, ect databases. FB has the crown jewel though. If privacy is pushed (as is likely in the Western world), FB will be the best targeting mechanism for advertisers that want a specific type of person (as opposed to Google's niche of a specific request - i.e. looking for insurance, airline tickets, ect).

 

I see it as basically: is someone seeking something? Go to Google. Are you seeking someone? Go to FB.

 

 

So what are the additional costs bringing down margins? One is stories, which is attempting to drive engagement at the cost of ad dollars today. Forrest Gump principle. If it doesn't work, FB will shift again but it doesn't really matter long-term in my opinion. The other part is human-monitoring of activity, machine learning to automate that process, data centers overseas, ect. There are going to be some fantastic ancillary businesses built off this endeavor. I don't know what they will look like, but it's attempting to solve a complex and widespread problem in a systematic fashion. That's a valuable business. Imagine FB selling monitoring services to AMZN to ensure accurate reviews and legitimate products in their 3P stores. Maybe something akin to that.

 

What is the value? I don't know the future growth rate but we have a great deal of visibility on revenue and margins through 2020. Maybe +/- 10% on EBIT margin (skewed to the downside) is appropriate to consider to be conservative. Say EBIT margins end up at 30% instead of 35%. Then FB has NI of $20b in 2020 with FCF likely around $25b+. As D/A meets CapEx, post-2+ year investment period, net margins will probably rise to 30% in that bear case over time.

 

We'd also need to consider how FB scales overseas in user engagement and how the digital ad market develops. Will it look like the US? Where ever-increasing amounts of ad dollars are spent online and total ad spending is equal to 1%+ of GDP? Right now, places like India spend ~0.5% of GDP on advertising and a small amount is digital (I think 20% iirc). Those numbers are similar in Africa and much of the developed world where FB has a heavy presence. Part of the FB growth story is: do you believe advertising as a % of GDP increases in those countries and are those ad dollars spent digitally? That will ultimately effect what the growth rate for FB in years 3-10+ (from today).

 

What's the downside? Looking at the history of US regulations of addicting/damaging products that remain legal (say cigarettes), there's some history of taxing the product to pay for part of the externalities. In the case of cigs, it's on a per-pack basis. Nothing stops the US/EU from taxing FB and the like on a per-ad basis (though I find it hard to believe governments' could pull it off). Similarly, the US/EU could force FB to store data in the country (which is happening and increases costs in the near-term [and engagement in the long-term]). The US/EU could force FB to allow other companies to license their data at a competitive rate to allow for advertising competition. They could force FB to separate the platform from the auction house, similar to Kodak back in the day. There are certainly many other examples I'm unaware of but Congressional pages/assistants are.

 

I suppose another downside worth considering is a drop in users/engagement. I get this is a common trope but the aggregate numbers don't support this in any country. EU had a tiny decline in active users and engagement. Nothing statistically significant. In the US, users are flat and overall engagement is slightly up over all platforms. Both are well-above any other digital platform/website. They still demand a lot of eyeball-hours. I think it's worth revisiting if users decline 10%+, but until then I'm not buying it. It's a lifetime/scrapbook-like platform. I'm not surprised young kids aren't using it like the original young kids did. As people take various steps in life, FB tends to eventually enter the picture to document/share those moments with incredible ease. They are only missing the 'Facebook Moment' advertising campaign.

 

What's FB worth? It's a very complex question but I think more than the current price is a safe bet. I don't have an exact number in mind.

[MrB]

WAPO compounded net earnings by 30% over the next 5 years.

Another interesting tidbit. ROE was 15%, which was newspaper industry avg in those days, but by 1988 ROE hit 36%. Despite all this it never really got over 10x earnings over the next 5-10 years.

Just to add. Revenues grew at about 15% over the following 5 years (73-78) and of course FB is in the 50% range. Historically/rear view mirror.

[Guest Schwab711]

What were interest rates when Buffett bought WaPo shares?

US Government Bond yield was 6.8% in 1973

 

Inflation was 6.2% after we had just switched to fiat money. In 1974, inflation was 11%+. We were in the midst of an oil crisis and wars in the Middle East. WaPo had just published the Pentagon Papers and there was a real possibility the company would be harmed in the long-run for publishing government secrets. They had already been blackballed by Nixon and were experiencing some of the same blow-back that FB faces today. It wasn't the easiest purchase ever.

 

6x 2020 earnings would make it a lot easier to purchase FB though.

[cmlber]

I don't know the future growth rate but we have a great deal of visibility on revenue and margins through 2020. Maybe +/- 10% on EBIT margin (skewed to the downside) is appropriate to consider to be conservative. Say EBIT margins end up at 30% instead of 35%. Then FB has NI of $20b in 2020 with FCF likely around $25b+. As D/A meets CapEx, post-2+ year investment period, net margins will probably rise to 30% in that bear case over time.

 

What gives you the confidence that FCF would be $5B higher than NI in 2020?  FCF is currently $10B lower than NI?

[Guest Schwab711]

I don't know the future growth rate but we have a great deal of visibility on revenue and margins through 2020. Maybe +/- 10% on EBIT margin (skewed to the downside) is appropriate to consider to be conservative. Say EBIT margins end up at 30% instead of 35%. Then FB has NI of $20b in 2020 with FCF likely around $25b+. As D/A meets CapEx, post-2+ year investment period, net margins will probably rise to 30% in that bear case over time.

 

What gives you the confidence that FCF would be $5B higher than NI in 2020?  FCF is currently $10B lower than NI?

 

Ballpark guess but I suspect the heavy hit to margins and increased capex is due to the 2017 tax act's accelerated depreciation and expensing rules. I'm going off memory that many of the best provisions moonlight by the end of 2020. I think FB is pulling forward as much investment as possible for tax reasons. We can see support for this intention in the way FB adjusted for foreign untaxed income at 12/31/2017.

 

I don't know what you mean by $10b lower. I see NI slightly greater than FCF at the moment, not that that point matters much.

[cmlber]

I don't know the future growth rate but we have a great deal of visibility on revenue and margins through 2020. Maybe +/- 10% on EBIT margin (skewed to the downside) is appropriate to consider to be conservative. Say EBIT margins end up at 30% instead of 35%. Then FB has NI of $20b in 2020 with FCF likely around $25b+. As D/A meets CapEx, post-2+ year investment period, net margins will probably rise to 30% in that bear case over time.

 

What gives you the confidence that FCF would be $5B higher than NI in 2020?  FCF is currently $10B lower than NI?

 

Ballpark guess but I suspect the heavy hit to margins and increased capex is due to the 2017 tax act's accelerated depreciation and expensing rules. I'm going off memory that many of the best provisions moonlight by the end of 2020. I think FB is pulling forward as much investment as possible for tax reasons. We can see support for this intention in the way FB adjusted for foreign untaxed income at 12/31/2017.

 

I don't know what you mean by $10b lower. I see NI slightly greater than FCF at the moment, not that that point matters much.

 

Good point on the tax act, but they can depreciate data centers at different rates for tax and book purposes and just create a deferred tax liability. The fact that they haven't called that out as a cause of the margin deterioration makes me skeptical that they are assuming book D&A roughly equals capex (i.e., accelerated depreciation) when they guide to mid 30s margins. 

 

But I do agree they are probably pulling forward some capex because of the accelerated depreciation.

 

My comment about FCF < NI was just based on capex guidance being $10B higher than D&A.

[glorysk87]

 

Second, on ad targeting. If the US moves towards the EU model of anonymous ad targeting (protect privacy) then FB has a tremendous advantage over nearly every company in the world not named Google. The secret is the wealth of various niche databases and FB's database of your intimate friends and family. Unlike any other platform (including MySpace), most of your FB friends are known. The more horror stories about FB that came out, the more people move to close their circle to just real-life friends and family, the more valuable FB's database became. FB can find additional information on people not on their platform through facial recognition, databases tracing family relationships, ect. Once internally identified, FB can scan images submitted by their users to determine preferences, activities they like, and where they've been. FB can scan posts and private messages to learn about thought processes and intimate information about users and adjacent users. All this can be matched against generic income, demographic, ect databases. FB has the crown jewel though. If privacy is pushed (as is likely in the Western world), FB will be the best targeting mechanism for advertisers that want a specific type of person (as opposed to Google's niche of a specific request - i.e. looking for insurance, airline tickets, ect).

 

Curious why you say this when there are a whole host of identity resolution companies out there. LiveRamp has an identity graph almost as big as Facebook's own and it allows for ID resolution across hundreds of different platforms. Whereas Facebook's ID graph only works on...Facebook.

 

I'm not sure why having an even more closed walled garden would help Facebook more when person-specific targeting and ID matching is much more effective when data can be onboarded and then resolved against many different platforms?

[LounginMKL]

https://www.vanityfair.com/news/2018/11/wall-street-is-betting-that-lawmakers-want-to-humiliate-big-tech-facebook

 

"...there still is no natural, large constituency for regulating any of the major tech companies that dominate portions of the U.S. economy. What legislators and aides were conveying, this person told me, was that they believed the outrage was limited. 'This is a big deal to a very small subset of people,' he said, including parts of the media, people in the tech world, people who have to compete against these companies, and privacy advocates. But, the congressional staffers told my source, 'We’re not getting calls on this. Nobody’s marching on Washington because they’re upset about Facebook. When we go home to our districts, nobody’s showing up in our town halls and complaining about Instagram or complaining about Amazon. And, when that’s not happening, it’s really hard to keep attention paid to any sort of real action...'"

[johnny]

I agree that the multiples are very different to WAPO....However so is the reach and scale of FB compared to WAPO. I happen to believe we are still in the early innings of monetizing the multiple platforms with billions of users.

You are getting a great GARP investment here versus a deep value play. It's classic Buffett versus Munger's evolution to great businesses compounding at high rates and returns on capital

 

Sure, I'm only starting to follow this thread because at sub-20x I think FB is interesting. But Buffet was buying a conglomerate for which, IIRC, -contemporary consensus- thought traded at a fraction of sum-of-parts. FB, by contrast, has no breakup value because it actually only has one product and all of its consumer-facing properties are just inventory generation for that single product. And there's no private market buyer (well one Belty-Roady Boy comes to mind).

 

Buying, at 6x, a business that has mostly existed in its same form for over a century is a completely different universe from buying, at 20x, a company that barely came into existence a decade ago. And Liberty, I don't an extra few percent on the long bond are sufficient to justify the difference.

 

I'm not so sure at this point we have any real ground-level visibility on what their true incremental return on capital actually is (which is something you need to have a model of at 20x, but can be totally indifferent to at 6x). Our intuition in tech is that it is, by default very high. But the revenue and margin movement over the past few quarters should give us pause. I suspect, also, that WhatsApp-style acquisitions are going to represent maintenance Capex going forward, and it seems almost impossible to model how many of those acquisitions are going to happen, at what pace, and and what price. Maybe I'm wrong and WhatsApp is so utilitarian that it's going to reach fixation and nothing will ever challenge it. Is that the base case for you?

[Guest Schwab711]

 

Second, on ad targeting. If the US moves towards the EU model of anonymous ad targeting (protect privacy) then FB has a tremendous advantage over nearly every company in the world not named Google. The secret is the wealth of various niche databases and FB's database of your intimate friends and family. Unlike any other platform (including MySpace), most of your FB friends are known. The more horror stories about FB that came out, the more people move to close their circle to just real-life friends and family, the more valuable FB's database became. FB can find additional information on people not on their platform through facial recognition, databases tracing family relationships, ect. Once internally identified, FB can scan images submitted by their users to determine preferences, activities they like, and where they've been. FB can scan posts and private messages to learn about thought processes and intimate information about users and adjacent users. All this can be matched against generic income, demographic, ect databases. FB has the crown jewel though. If privacy is pushed (as is likely in the Western world), FB will be the best targeting mechanism for advertisers that want a specific type of person (as opposed to Google's niche of a specific request - i.e. looking for insurance, airline tickets, ect).

 

Curious why you say this when there are a whole host of identity resolution companies out there. LiveRamp has an identity graph almost as big as Facebook's own and it allows for ID resolution across hundreds of different platforms. Whereas Facebook's ID graph only works on...Facebook.

 

I'm not sure why having an even more closed walled garden would help Facebook more when person-specific targeting and ID matching is much more effective when data can be onboarded and then resolved against many different platforms?

 

I think two parts. First, there's the if involved. I admitted that if privacy is not protected by regulation then FB has less of an advantage over time (which I think is what you're saying with RAMP). Second, I think LiveRamp (or anyone not GOOG) is on a completely different level from the uniqueness of data standpoint. FB has personal information that can often only be gathered if the person volunteers it (or FB/other advertiser watches you do something that indicates it).

 

Not the greatest source I've ever cited but I think it's useful

https://www.dailymail.co.uk/sciencetech/article-3753526/What-Facebook-REALLY-knows-Firm-reveals-98-pieces-data-uses-target-ads-them.html

 

https://liveramp.com/engineering/efficiently-analyzing-600-billion-edge-graph-real-time/

 

Maybe I'm misunderstanding something. I don't think FB has a wall-garden. I think the ability to see beyond registered and active users (and to weave that data with data supplied by active users) is a huge factor behind FB's data uniqueness proposition.

[bathtime]

Sheesh, this visual makes me want to buy FB stock. 4 of the 6 top social platforms.

 

http://www.visualcapitalist.com/social-media-universe/

[Foreign Tuffett]

I agree that the multiples are very different to WAPO....However so is the reach and scale of FB compared to WAPO. I happen to believe we are still in the early innings of monetizing the multiple platforms with billions of users.

You are getting a great GARP investment here versus a deep value play. It's classic Buffett versus Munger's evolution to great businesses compounding at high rates and returns on capital

 

Sure, I'm only starting to follow this thread because at sub-20x I think FB is interesting. But Buffet was buying a conglomerate for which, IIRC, -contemporary consensus- thought traded at a fraction of sum-of-parts. FB, by contrast, has no breakup value because it actually only has one product and all of its consumer-facing properties are just inventory generation for that single product. And there's no private market buyer (well one Belty-Roady Boy comes to mind).

 

Buying, at 6x, a business that has mostly existed in its same form for over a century is a completely different universe from buying, at 20x, a company that barely came into existence a decade ago. And Liberty, I don't an extra few percent on the long bond are sufficient to justify the difference.

 

I'm not so sure at this point we have any real ground-level visibility on what their true incremental return on capital actually is (which is something you need to have a model of at 20x, but can be totally indifferent to at 6x). Our intuition in tech is that it is, by default very high. But the revenue and margin movement over the past few quarters should give us pause. I suspect, also, that WhatsApp-style acquisitions are going to represent maintenance Capex going forward, and it seems almost impossible to model how many of those acquisitions are going to happen, at what pace, and and what price. Maybe I'm wrong and WhatsApp is so utilitarian that it's going to reach fixation and nothing will ever challenge it. Is that the base case for you?

 

 

Good point.

 

Just how robust is the social media business model? IMO -- and I recognize that I'm probably an outlier here -- social media platforms are not all that durable. Switching costs are low; we've already seen many users (myself included) migrate over time from Myspace to Facebook to Instagram. If the network effect was as strong as many believe it to be, I don't think we'd be seeing so much platform migration.

 

I think the reasons behind people switching social networks are complex and multi-faceted. I think one aspect is the "no one goes there anymore, it's too crowded" phenomenon. Once your grandmother is on Facebook, it's probably better to leave for greener (aka hipper) pastures. Once young trendsetters make a platform their primary outlet, others will follow.

 

I may very well be wrong about all this.

 

 

 

 

 

 

 

[Spekulatius]

I am not sure why harping on a totally different stock that was valued at 6x earnings eons ago  in a totally different economic framework (interest rates, economy, general market valuation ) makes any sense here.

[gary17]

I agree that the multiples are very different to WAPO....However so is the reach and scale of FB compared to WAPO. I happen to believe we are still in the early innings of monetizing the multiple platforms with billions of users.

You are getting a great GARP investment here versus a deep value play. It's classic Buffett versus Munger's evolution to great businesses compounding at high rates and returns on capital

 

Sure, I'm only starting to follow this thread because at sub-20x I think FB is interesting. But Buffet was buying a conglomerate for which, IIRC, -contemporary consensus- thought traded at a fraction of sum-of-parts. FB, by contrast, has no breakup value because it actually only has one product and all of its consumer-facing properties are just inventory generation for that single product. And there's no private market buyer (well one Belty-Roady Boy comes to mind).

 

Buying, at 6x, a business that has mostly existed in its same form for over a century is a completely different universe from buying, at 20x, a company that barely came into existence a decade ago. And Liberty, I don't an extra few percent on the long bond are sufficient to justify the difference.

 

I'm not so sure at this point we have any real ground-level visibility on what their true incremental return on capital actually is (which is something you need to have a model of at 20x, but can be totally indifferent to at 6x). Our intuition in tech is that it is, by default very high. But the revenue and margin movement over the past few quarters should give us pause. I suspect, also, that WhatsApp-style acquisitions are going to represent maintenance Capex going forward, and it seems almost impossible to model how many of those acquisitions are going to happen, at what pace, and and what price. Maybe I'm wrong and WhatsApp is so utilitarian that it's going to reach fixation and nothing will ever challenge it. Is that the base case for you?

 

 

Good point.

 

Just how robust is the social media business model? IMO -- and I recognize that I'm probably an outlier here -- social media platforms are not all that durable. Switching costs are low; we've already seen many users (myself included) migrate over time from Myspace to Facebook to Instagram. If the network effect was as strong as many believe it to be, I don't think we'd be seeing so much platform migration.

 

I think the reasons behind people switching social networks are complex and multi-faceted. I think one aspect is the "no one goes there anymore, it's too crowded" phenomenon. Once your grandmother is on Facebook, it's probably better to leave for greener (aka hipper) pastures. Once young trendsetters make a platform their primary outlet, others will follow.

 

I may very well be wrong about all this.

 

starbucks, mcdonalds, etc - many great businesses have very low switching cost! IMO

 

 

[kab60]

I agree that the multiples are very different to WAPO....However so is the reach and scale of FB compared to WAPO. I happen to believe we are still in the early innings of monetizing the multiple platforms with billions of users.

You are getting a great GARP investment here versus a deep value play. It's classic Buffett versus Munger's evolution to great businesses compounding at high rates and returns on capital

 

Sure, I'm only starting to follow this thread because at sub-20x I think FB is interesting. But Buffet was buying a conglomerate for which, IIRC, -contemporary consensus- thought traded at a fraction of sum-of-parts. FB, by contrast, has no breakup value because it actually only has one product and all of its consumer-facing properties are just inventory generation for that single product. And there's no private market buyer (well one Belty-Roady Boy comes to mind).

 

Buying, at 6x, a business that has mostly existed in its same form for over a century is a completely different universe from buying, at 20x, a company that barely came into existence a decade ago. And Liberty, I don't an extra few percent on the long bond are sufficient to justify the difference.

 

I'm not so sure at this point we have any real ground-level visibility on what their true incremental return on capital actually is (which is something you need to have a model of at 20x, but can be totally indifferent to at 6x). Our intuition in tech is that it is, by default very high. But the revenue and margin movement over the past few quarters should give us pause. I suspect, also, that WhatsApp-style acquisitions are going to represent maintenance Capex going forward, and it seems almost impossible to model how many of those acquisitions are going to happen, at what pace, and and what price. Maybe I'm wrong and WhatsApp is so utilitarian that it's going to reach fixation and nothing will ever challenge it. Is that the base case for you?

 

 

Good point.

 

Just how robust is the social media business model? IMO -- and I recognize that I'm probably an outlier here -- social media platforms are not all that durable. Switching costs are low; we've already seen many users (myself included) migrate over time from Myspace to Facebook to Instagram. If the network effect was as strong as many believe it to be, I don't think we'd be seeing so much platform migration.

 

I think the reasons behind people switching social networks are complex and multi-faceted. I think one aspect is the "no one goes there anymore, it's too crowded" phenomenon. Once your grandmother is on Facebook, it's probably better to leave for greener (aka hipper) pastures. Once young trendsetters make a platform their primary outlet, others will follow.

 

I may very well be wrong about all this.

 

starbucks, mcdonalds, etc - many great businesses have very low switching cost! IMO

But they aren't dependent on network effects... I think Facebook is tough to figure out and one risk I haven't seen mentioned much is they risk of getting deals blocked. Their scale means the synergies are huge with any new social media network they acquire, but would they be allowed to buy the next Instagram or Whatsapp at this time considering their dominant position?

[Guest Schwab711]

Why wouldn't they be allowed to acquire a company?

[LightWhale]

Antitrust

[Guest Schwab711]

Antitrust

 

Can you or others expand on that? I got the logic of the comment, I just think this is making a mountain out of a mole hill so maybe there's some reasoning/precedent I'm unaware of. On what precedent would the DOJ prevent them? What type of transaction would be rejected? Are you thinking of one specific transaction or just general future transactions? Why would GOOGL/AMZN get to make dozens of acquisitions a year (of all different types) but somehow FB would be prevented?

 

If you are talking about social media-specific transactions I still don't think this concern makes much sense. Any area that FB would acquire in to would be relatively new and FB would allowed to compete like anyone else. They probably would have a tough time buying VSCO right now but that's true of every similar situation in any industry. FB would certainly be allowed to buy foreign companies and all sorts of adjacent assets without issue.

[LightWhale]

I don't want to speak on behalf of kab60, and I know little about the legal side of things, but here's one example of where the winds might blow (that quote refers specifically to Facebook):

 

"David Cicilline, the Democratic congressman who will soon be chair of the antitrust subcommittee, said...Congress should get to work enacting new laws to hold concentrated economic power to account".

 

https://www.reuters.com/article/us-usa-facebook-congress/u-s-lawmaker-says-facebook-cannot-be-trusted-to-regulate-itself-idUSKCN1NJ38R

 

 

[Mungerish]

In terms of the FB moat: Recall Buffett saying that if you gave him a billion dollars and told him to go after the KO brand and franchise, he would give it back to you and say it would be a waste of money.

 

Now coke isn't social media and I understand all of those arguments....But think about GOOG using  Google Plus and going after FB with all of their money, power and technological prowess. Think about GOOGs network, brand and billions of users.

 

They totally failed.

https://www.wsj.com/articles/rip-google-we-hardly-knew-ye-1539030630

 

Chaos Monkeys by Antonio Garcia Martinez is an excellent book and account of life as an ad manager inside FB. He  states in no uncertain terms that it was all out war between FB and GOOG for social media.

 

In terms of regulation and Russian trolls etc, there is a great opinion piece in the WSJ today about a Harvard Study on same

https://www.wsj.com/articles/the-scapegoating-of-facebook-1542757846?mod=searchresults&page=1&pos=1

[sleepydragon]

My problem with FB is they get to use everyone’s private information for free, and people are now aware of that. What happen to this business model 5-10 years from now is very difficult to guess. They don’t own the internet; people can switch to other platforms (ie wechat) suddenly. People could just quit using FB. They can’t quit using credit cards or a checking account. But they can quit Facebook if it stops being stimulating.

 

[DanielGMask]

My problem with FB is they get to use everyone’s private information for free, and people are now aware of that. What happen to this business model 5-10 years from now is very difficult to guess. They don’t own the internet; people can switch to other platforms (ie wechat) suddenly. People could just quit using FB. They can’t quit using credit cards or a checking account. But they can quit Facebook if it stops being stimulating.

 

I see it in a different way. FB has 1.49 Billion DAU’s (2.27B per month). There are different business models depending on several factors, FB’s model is not charging users for the service and I don’t know if that model can or will ever change, but current revenue per daily active user is less than $3 dollars per month. I think the value perceived by the user is bigger than that number and certainly don’t think that there are other platforms doing what Facebook does for its users.

[Packer16]

Clearly, Facebook has a monopoly position & this can be seen by the increase in CPMs they receive for advertising.  Growing CPMs is an anomaly in an otherwise competitive internet advertising market.  Facebook has had this position over the past few years & if it continues & grows then IMO anti-trust action will be taken.  What I find incredible is Facebook is totally tone deaf to the anti-trust argument & have chosen to fight it versus trying to downplay their position & deferring & reducing their monetization efforts.

 

In terms of anti-trust, IMO there are three options.  First, Facebook will either be forced to (1) allow others to use their network and data (that is just collected by them but not generated by them) to develop competing networks or users can take their data to another network or (2) they will be forbidden to purchase a new network or (3) the social network will be treated as utility that will be regulated by the gov't.  An example of why action 2 needs to happen would be how Facebook took over social networking from MySpace.  What Facebook has done which is different from My Space is they purchased a potential competitor (Instagram) among the younger crowd & thus locked-in future growth from another monopoly position.  The real question is who owns your social network, you or the company providing the network services that allows you to communicate.  I think you own it & legislation or the courts will enforce this.

 

Packer