FB - Facebook

[spartansaver]

WSJ calls out FB.

 

https://www.wsj.com/articles/fact-checking-facebooks-fact-checkers-11614987375?mod=mhp

[KCLarkin]

Uggh. I might be forced to make this a full position.

 

Has anyone started or added to a large position recently? How large? I'm at 4% and fighting an intense urge to go to 10%. Talk me off the ledge please.

[Arski]

Uggh. I might be forced to make this a full position.

 

Has anyone started or added to a large position recently? How large? I'm at 4% and fighting an intense urge to go to 10%. Talk me off the ledge please.

 

Still 2.7% holding for me. I am only willing to add when it dips to $230 or something and don't mind if I won't add.

 

I would say: determine for yourself if it's FOMO or FB is at a reasonable price and if the expected future return makes it worthy holding it.

[fareastwarriors]

Uggh. I might be forced to make this a full position.

 

Has anyone started or added to a large position recently? How large? I'm at 4% and fighting an intense urge to go to 10%. Talk me off the ledge please.

 

Just jump  8)

[ourkid8]

take the plunge! :)  I had the same dilemma earlier this week as FB is ~4% of my portfolio.

 

What I love with FB is it’s future growth profile- Oculus potentially being the next platform, e-commerce (Jio) and whatsapp pay in India along with facebook shops. I am also not too worried about the iOS14 IDFA impact as well. 

 

Uggh. I might be forced to make this a full position.

 

Has anyone started or added to a large position recently? How large? I'm at 4% and fighting an intense urge to go to 10%. Talk me off the ledge please.

[BG2008]

Uggh. I might be forced to make this a full position.

 

Has anyone started or added to a large position recently? How large? I'm at 4% and fighting an intense urge to go to 10%. Talk me off the ledge please.

 

Why don't you add 1% via LEAPs that get you 10% notional exposure?

[KCLarkin]

I would say: determine for yourself if it's FOMO or FB is at a reasonable price and if the expected future return makes it worthy holding it.

 

FAAMG is >20% of the S&P 500. By being underweight FAAMG, I've been unintentionally betting AGAINST these great businesses. Not a smart bet. So I'm comfortable having up to 20% in these (or similar businesses).

 

Within FAAMG, the relative valuations have shifted dramatically. Facebook used to sell at a premium because it had the best combination of growth, profitability, and ROIC. It is now the cheapest by a wide margin. Because... yuck.

 

--

Has anyone gotten past the ick factor? I'd gladly put 10% into any of the other FAAMGs at cheaper prices. But Facebook is just too gross.

 

--

To sum:

- Great business

- Cheap price

- Super icky

 

That's three buy signals, creating an intense urge to make it a full position. And vomit.

 

 

 

 

[dwy000]

If it's going to make you uncomfortable, why do it?  Investing is hard/stressful enough even when you're absolutely convinced about each position you're in.  If you're not absolutely sure, don't do it.  I'd rather miss a big move in something and sleep well at night.  There's always another pitch coming. 

[Spekulatius]

I would say: determine for yourself if it's FOMO or FB is at a reasonable price and if the expected future return makes it worthy holding it.

 

FAAMG is >20% of the S&P 500. By being underweight FAAMG, I've been unintentionally betting AGAINST these great businesses. Not a smart bet. So I'm comfortable having up to 20% in these (or similar businesses).

 

Within FAAMG, the relative valuations have shifted dramatically. Facebook used to sell at a premium because it had the best combination of growth, profitability, and ROIC. It is now the cheapest by a wide margin. Because... yuck.

 

--

Has anyone gotten past the ick factor? I'd gladly put 10% into any of the other FAAMGs at cheaper prices. But Facebook is just too gross.

 

--

To sum:

- Great business

- Cheap price

- Super icky

 

That's three buy signals, creating an intense urge to make it a full position. And vomit.

 

What is so icky about FB?

I own several defense stocks, Bayer, MO and booze stocks and don’t feel bad about any of those.

[KCLarkin]

Thanks all. I woke up this morning planning to make this a full 10% position, but it has run up enough in the past few days for me to take a breather. I did add this morning.

 

I won't bore anyone with the thesis. This thing has been very attractive since 2018. And my only plausible excuse is that I made Google my FAAMG of choice. Once I overcame the ick factor, I like the Facebook business even more than Google. Net margins are already world class, but they are under-earning. Google is less risky. But Facebook is a much better business right now.

 

EDIT TO ADD: 6% position now with the add this morning plus the recent price recovery.

[Longtermlens]

Thanks all. I woke up this morning planning to make this a full 10% position, but it has run up enough in the past few days for me to take a breather. I did add this morning.

 

I won't bore anyone with the thesis. This thing has been very attractive since 2018. And my only plausible excuse is that I made Google my FAAMG of choice. Once I overcame the ick factor, I like the Facebook business even more than Google. Net margins are already world class, but they are under-earning. Google is less risky. But Facebook is a much better business right now.

 

EDIT TO ADD: 6% position now with the add this morning plus the recent price recovery.

 

I have made this a 5% position in the past 2 weeks. John Huber wrote about it in 2018 and the core thesis is very much in tact in my mind.

 

https://sabercapitalmgt.com/facebook-is-undervalued/

[LC]

To reiterate Spek's question, what do you find the "ick factor" is with FB?

[KCLarkin]

To reiterate Spek's question, what do you find the "ick factor" is with FB?

 

Just saw a good summary on CNBC (see below). My main concern as an investor: most big tech companies need acquisitions to stay relevant. If Facebook's reputation with politicians and regulators prevents smart acquisitions (and Zuckerberg seems very good), the durability of Facebook's moat could be impaired.

 

CNBC:

Facebook’s reputation has been in the gutter since the March 2018 Cambridge Analytica scandal, in which a data firm improperly accessed the data of 87 million Facebook users and used it to target ads for Donald Trump in the 2016 presidential election. Since then, Facebook has endured numerous scandals, it has alienated Democrats and Republicans and it has fought a never-ending battle against misinformation on its services.

 

[KCLarkin]

I have made this a 5% position in the past 2 weeks. John Huber wrote about it in 2018 and the core thesis is very much in tact in my mind.

 

https://sabercapitalmgt.com/facebook-is-undervalued/

 

Thanks for re-posting this. This is the key for me, and the reason why I'd like a 10% position:

 

"Facebook’s operating margins went from 25% in 2012 to over 50% last year. This operating leverage is an inherent part of their business model, and it has not disappeared. Costs could rise faster than revenue in the next year or two, but they will eventually be spread over what I believe is an inevitably rising revenue base as advertisers continue to shift money to digital platforms that offer more effective ways to reach customers."

 

Despite the operating leverage built into this business, operating margins actually declined significantly since 2018. Op margins were "only" 38% last year. On 2020 earnings, FB is at a very reasonable price. But they are under-earning and margins will increase (unless the business starts to fall apart).

[Fitz]

To reiterate Spek's question, what do you find the "ick factor" is with FB?

 

Just saw a good summary on CNBC (see below). My main concern as an investor: most big tech companies need acquisitions to stay relevant. If Facebook's reputation with politicians and regulators prevents smart acquisitions (and Zuckerberg seems very good), the durability of Facebook's moat could be impaired.

 

CNBC:

Facebook’s reputation has been in the gutter since the March 2018 Cambridge Analytica scandal, in which a data firm improperly accessed the data of 87 million Facebook users and used it to target ads for Donald Trump in the 2016 presidential election. Since then, Facebook has endured numerous scandals, it has alienated Democrats and Republicans and it has fought a never-ending battle against misinformation on its services.

 

I definitely think they hit it out of the park with the Instagram addition, but do not think acquisitions are how their moat has been created or how much of there future will depend on them. I think it's pretty safe to say in this climate no social media aquisitions will pass anti-trust for FB.

 

I see their moat as:

Facebook daily active users (DAUs) were 1.84 billion on average for December 2020, an increase of 11% year-over-year. • Facebook monthly active users (MAUs) were 2.80 billion as of December 31, 2020, an increase of 12% year-over-year. • Family daily active people (DAP) was 2.60 billion on average for December 2020, an increase of 15% year-over-year. • Family monthly active people (MAP) was 3.30 billion as of December 31, 2020, an increase of 14% year-over-year.

 

1.84 BILLION people use Facebook alone daily, for 58 minutes on average. This means as they start to monetize there customers more outside of the US and EU even very small amounts per user will add to to enormous sums! And much of this will flow right to the bottom line!

 

They are the definition of a monopoly and a great business. Just like Comcast has been, everyone hates them, but no one can leave. People have hated Facebook for years, but no one leaves. The numbers have grown at unbelievable rates. They have 60% of the entire world's population that has access to the internet! And 42% of the whole world's population period that use one of the FB products.... That is a MOAT!

 

Even if you worry about what could happen in the US or EU with regulation. That is only 600 million users. Albeit the most lucrative at the moment, but even a worst case breakup of IG, FB and WhatsApp would only have to happen in those markets and could remain intact in many other jurisdictions. You could also make a good argument that even in this example, advertising revenue could increase across the whole family as buyers would now have to spread there bets and see which former FB product has the highest ROI for their target customer. Before standard oil was split up was in fact an excellent time to buy, as the conglomerate actually produced a lot of value for the customer, much like FB today.

 

Just my two cents :)

-Fitz

[jschembs]

Thanks all. I woke up this morning planning to make this a full 10% position, but it has run up enough in the past few days for me to take a breather. I did add this morning.

 

I won't bore anyone with the thesis. This thing has been very attractive since 2018. And my only plausible excuse is that I made Google my FAAMG of choice. Once I overcame the ick factor, I like the Facebook business even more than Google. Net margins are already world class, but they are under-earning. Google is less risky. But Facebook is a much better business right now.

 

EDIT TO ADD: 6% position now with the add this morning plus the recent price recovery.

 

I have made this a 5% position in the past 2 weeks. John Huber wrote about it in 2018 and the core thesis is very much in tact in my mind.

 

https://sabercapitalmgt.com/facebook-is-undervalued/

 

Curious why you think they have a "very long runway ahead" (quote from Huber's post)? While there are some Google-esque "bets" with call-option characteristics, largely the success of the investment is based on user and ARPU growth in their core (legacy FB and Instagram) platforms, no? The core FB platform seems oversaturated with ads and (my opinion) unlikely to be the place to be for younger cohorts. Even IG seems to be saturating user feeds with ads. The business has done an admirable job staving off the MySpace extinction event, but what's the thesis for both of these platforms to deliver long-term growth?

[KCLarkin]

I definitely think they hit it out of the park with the Instagram addition, but do not think acquisitions are how their moat has been created or how much of there future will depend on them.

 

To simplify: Let's assume that if I spend 25x on Facebook, I need the company to survive 25 years for the DCF to make sense.

 

Almost 25 years ago, Apple bought NeXT, which would eventually become the operating system of the iPhone. It is just the nature of tech. Startups are the minor league for big tech. If Facebook isn't allowed to buy tech, employees, or innovations from the minor leagues, their moat will fade.

 

 

Counterpoint: they are spending almost $20B per year in R&D, so they should be building new moats.

[ourkid8]

Facebook shops, their focus is now on e-commerce. Take a look at the video of Mark explaining what they are trying to achieve.  This has the potential to be huge along with giving FB a deeper understanding of the customer and small business. - https://www.facebook.com/business/news/announcing-facebook-shops

 

Curious why you think they have a "very long runway ahead" (quote from Huber's post)? While there are some Google-esque "bets" with call-option characteristics, largely the success of the investment is based on user and ARPU growth in their core (legacy FB and Instagram) platforms, no? The core FB platform seems oversaturated with ads and (my opinion) unlikely to be the place to be for younger cohorts. Even IG seems to be saturating user feeds with ads. The business has done an admirable job staving off the MySpace extinction event, but what's the thesis for both of these platforms to deliver long-term growth?

[Casey]

I am curious how long the lack of goodwill will last.

 

Some examples I'm thinking of.. MSFT can do acquisitions now without a lot of fanfare from politician-types, but there was a time when that was not the case. Now they are boring. 3-4 years ago there was a lot of backlash against Uber. But if they wanted to buy a non-lyft company today I don't think most people would care.

 

It seems obvious to me that Facebook is not an ACTUAL monopoly. Will there be a point that public opinion catches up on that? Will there be a point where dislike of the company is weaker/not as widespread or people are actually fans?

[jschembs]

Facebook shops, their focus is now on e-commerce. Take a look at the video of Mark explaining what they are trying to achieve.  This has the potential to be huge along with giving FB a deeper understanding of the customer and small business. - https://www.facebook.com/business/news/announcing-facebook-shops

 

Curious why you think they have a "very long runway ahead" (quote from Huber's post)? While there are some Google-esque "bets" with call-option characteristics, largely the success of the investment is based on user and ARPU growth in their core (legacy FB and Instagram) platforms, no? The core FB platform seems oversaturated with ads and (my opinion) unlikely to be the place to be for younger cohorts. Even IG seems to be saturating user feeds with ads. The business has done an admirable job staving off the MySpace extinction event, but what's the thesis for both of these platforms to deliver long-term growth?

 

I wonder how much overlap there is in SHOP's target customers with those that FB is targeting. I remember reading about FB's efforts to embed the click-to-buy functionality within IG, and thinking how that could really hurt SHOP. Obviously hasn't hurt SHOP's growth or stock price thus far.

[jefke]

FB & SHOP are kind of working together.

 

From Stratechery 1-2 weeks ago:

 

Shopify, one of the most exciting companies in tech and the seeming leader of The Anti-Amazon Alliance, effectively moving into Facebook’s garden, because the web is increasingly a barren wasteland for small businesses. The cause is Apple: its approach to cookies makes platform-based web storefronts increasingly difficult to monetize effectively (Shop Pay performed magic in this regard), and its attack on “tracking” — which goes far beyond the IDFA — makes it increasingly impossible to acquire users in one place and convert them in another. The solution is to do user acquisition and user conversion all in one app — i.e. on Facebook — which is why Shopify is helping merchants move off the web and onto Facebook.

 

Again, it’s a good solution for Shopify, and Facebook deserves credit for recognizing that Shopify is a complement to their service, not a competitor, but I find it disappointing that once again elevating privacy above every other tradeoff is entrenching Facebook, the biggest incumbent of all.

 

https://stratechery.com/2021/the-webs-missing-interoperability/ (free)

 

 

Shopify’s merchants, however, are hugely dependent on advertising, particularly on Facebook, but given that Shopify and Facebook are different companies, that meant that one or both had to work with 3rd-party data (i.e. Facebook with Shopify data) for advertising to be effective. By cutting that off Apple is forcing a shift in the point of integration in the e-commerce value chain: Facebook will now integrate advertising and a Facebook-based storefront, which will allow it to measure how effectively its ads convert. Shopify, meanwhile, can still provide payments, but it will need to invest ever more heavily in other merchant services if it is going to preserve its own integration in the value chain, or it risks becoming a commoditized player.

 

https://stratechery.com/2021/interoperability-defined-applovin-files-s-1-the-facebook-shopify-value-chain/ (paywall)

 

 

[Ice77]

Fascinating AR/VR interview with Zuck where he talks about the upcoming eyewear launch with RayBan, their product plans in both AR and VR and the various challenges (minimising heat generation, improving display to retina quality/higher nits, spatial audio vs mono-directional zoom call audio etc), what he labels as the big opportunity in "social experience", their plans to integrate facial expressions and eye movement recognition into their devices so that your digital avatar mimics the real you, the opportunity around gaming in this medium and his intent around pricing these devices at a mass market price point (perhaps even lose money on HW since the big opportunity will be in SW) etc. It is also quite interesting that 20%+ of the FB employees are now working on AR/VR and the initiative is led by the same executive who led their mobile ads success back around IPO time. 

[KCLarkin]

It is also quite interesting that 20%+ of the FB employees are now working on AR/VR and the initiative is led by the same executive who led their mobile ads success back around IPO time.

 

This is literally insane. And I can't believe it is true. I can't imagine any scenario where you could use that many employees in an (essentially) pre-production project. To give some sense of magnitude, that would be equivalent to ALL of Apple's non-retail employees when they were developing the iPhone. (if true, this would explain why they are under-earning so badly).

 

Personally, I don't share the enthusiasm for AR/VR. Feels like a honey trap for nerd CEOs -- similar to space travel.

[Ice77]

Yep, 13000 employees working on it...almost as many as the Engineering division. Reflects his big priority

[KCLarkin]

Yep, 13000 employees working on it...almost as many as the Engineering division. Reflects his big priority

 

Is there any confirmation from the company? I don't have a sub to The Information, but it is plausible they misinterpreted the org chart.

 

I'm trying to get through The Information interview with Zuckerberg without puking, but so far it sounds like they are burning billions of dollars on a bet that is unlikely to pay off.

 

On the one hand, I have no interest in investing in an AR/VR startup. On the other, that would mean core Facebook is insanely profitable.