FB - Facebook

[Spekulatius]

I know there are a lot of FB haters out there, but it sounds more and more like the following Jig from “Life if Brian”:

 

What have the Roman’s ever done for us?:

[Cigarbutt]

I know there are a lot of FB haters out there, but it sounds more and more like the following Jig from “Life if Brian”:

 

What have the Roman’s ever done for us?:

I thought social media had been invented by the Romans. :)

Are you suggesting that We have reached the ultimate stage in evolution?

[MrB]

Updated list of reasons to short FB from previous posts (nkp007 & Spekulatius):

Short-case:

 

1) Regulation / anti-trust / fines all unknown, but potentially huge and devastating.

Not sure how to handicap this one apart from previous experience (Exon, BP, AIG, DVA) where things usually don't turn out nearly as dire as the market expected in particular where the company is able to lawyer/lobby up. Also this has been a risk for many years. I recently read the VIC writeup on shorting FB from 2012 and its instructive to also read the back and forth over 200+ messages. Regulation/fines were a concern then and to date has not materialized; rear view mirror stuff though.

 

2) Ads are very economically sensitive, so in downturn, revenue will evaporate quickly

http://resources.emartin.net/blog/pic/SAI-US-Ad-Spending-2009-vs-2008.jpg

https://www.statista.com/chart/12136/worldwide-digital-and-tv-ad-spending/

 

3) While 18x earnings and growing 20% a year doesn't seem that expensive, the business model has shifted dramatically as past 50% profit margins likely to be 25% or lower given increasing security / regulatory costs so you're overpaying even here.

If we assume these numbers over a 5 year period then it also implies they're giving away $88Bn worth in margin to security/regulatory costs. Seems like a lot.

 

4) Engagement on FB blue app going down.

I hear this a lot, but I'm not sure how relevant it is. Probably should be looking at the ecosystem and the bit that I struggle to get visibility on most is how to think about the social graph e.g. if a user stops logging into the FB app for a year, but uses apps outside the FB family i.e. Tripadvisor then did you lose the engagement? FB did not stop collecting data and Tripadvisor would still pay FB despite. I suppose FB might have lost the engagement, but not the revenue. Engagement numbers are thrown around a lot, but I'm sceptical on exactly what it tells you.

Also, FB app is still an app that is consistently high up on the annual rankings for most downloaded on Android/iOS stores.

 

5) Inability to monetize whatsapp, instagram stories, messenger meaning growth cannot be sustained.

We've learned from Tencent that there are loads of options for a business with a exceptional social platform. To short FB means you value their cash and the above at 0. It is one thing to say you cannot monetize a particular part of your business, but if you say that is the case where others have succeeded means you also saying FB management is particularly incompetent. Don't think MZ's track record is that poor.

 

6)deteriorating employee morale.

https://www.eweek.com/it-management/facebook-google-top-glassdoor-s-2018-list-of-the-best-places-to-work

https://www.digitalinformationworld.com/2018/12/facebooks-ranking-falls-in-best-places-to-work-list-2019.html

https://www.cnet.com/news/facebooks-ranking-falls-in-best-places-to-work-list-2019/

[Parsad]

Updated list of reasons to short FB from previous posts (nkp007 & Spekulatius):

Short-case:

 

1) Regulation / anti-trust / fines all unknown, but potentially huge and devastating.

Not sure how to handicap this one apart from previous experience (Exon, BP, AIG, DVA) where things usually don't turn out nearly as dire as the market expected in particular where the company is able to lawyer/lobby up. Also this has been a risk for many years. I recently read the VIC writeup on shorting FB from 2012 and its instructive to also read the back and forth over 200+ messages. Regulation/fines were a concern then and to date has not materialized; rear view mirror stuff though.

 

2) Ads are very economically sensitive, so in downturn, revenue will evaporate quickly

http://resources.emartin.net/blog/pic/SAI-US-Ad-Spending-2009-vs-2008.jpg

https://www.statista.com/chart/12136/worldwide-digital-and-tv-ad-spending/

 

3) While 18x earnings and growing 20% a year doesn't seem that expensive, the business model has shifted dramatically as past 50% profit margins likely to be 25% or lower given increasing security / regulatory costs so you're overpaying even here.

If we assume these numbers over a 5 year period then it also implies they're giving away $88Bn worth in margin to security/regulatory costs. Seems like a lot.

 

4) Engagement on FB blue app going down.

I hear this a lot, but I'm not sure how relevant it is. Probably should be looking at the ecosystem and the bit that I struggle to get visibility on most is how to think about the social graph e.g. if a user stops logging into the FB app for a year, but uses apps outside the FB family i.e. Tripadvisor then did you lose the engagement? FB did not stop collecting data and Tripadvisor would still pay FB despite. I suppose FB might have lost the engagement, but not the revenue. Engagement numbers are thrown around a lot, but I'm sceptical on exactly what it tells you.

Also, FB app is still an app that is consistently high up on the annual rankings for most downloaded on Android/iOS stores.

 

5) Inability to monetize whatsapp, instagram stories, messenger meaning growth cannot be sustained.

We've learned from Tencent that there are loads of options for a business with a exceptional social platform. To short FB means you value their cash and the above at 0. It is one thing to say you cannot monetize a particular part of your business, but if you say that is the case where others have succeeded means you also saying FB management is particularly incompetent. Don't think MZ's track record is that poor.

 

6)deteriorating employee morale.

https://www.eweek.com/it-management/facebook-google-top-glassdoor-s-2018-list-of-the-best-places-to-work

https://www.digitalinformationworld.com/2018/12/facebooks-ranking-falls-in-best-places-to-work-list-2019.html

https://www.cnet.com/news/facebooks-ranking-falls-in-best-places-to-work-list-2019/

 

1)  Name one company that has truly been devastated by anti-trust/fines...Microsoft, nope...Google, nope...Phillip Morris, nope...BP, nope...Bridgestone, nope...Kodak, not really.  About the only two significant cases were Standard Oil and AT&T.

 

2)  This would also occur to Microsoft and Google, as well as all print/television/radio/online ad companies.

 

3)  I think they are being careful about guidance on their profit margins, but does anyone really think they are going to take a 25% cut on margins for security and regulatory issues?

 

4)  Offset by growth elsewhere

 

5)  Monetizing is actually the easy part...getting a billion users is the hard part!  How many other companies can say that they have a platform with a billion users?  How many can say that they have four (FB, Whatsapp, Messenger & essentially Instagram)?

 

6)  I'm sure employee morale and benefits were great at GE five years ago...not so great today!  I'm sure employee morale was terrible at Bank of America ten years ago, but looks pretty damn good today! 

 

Cheers!

 

[Shooter MacGavin]

Updated list of reasons to short FB from previous posts (nkp007 & Spekulatius):

 

 

2) Ads are very economically sensitive, so in downturn, revenue will evaporate quickly

http://resources.emartin.net/blog/pic/SAI-US-Ad-Spending-2009-vs-2008.jpg

https://www.statista.com/chart/12136/worldwide-digital-and-tv-ad-spending/

 

Digital ads grew right through the great recession.  In fact a perverse thing happened then to Google (from memory, I'm too lazy to check the transcripts). Advertisers that could afford to stepped up buying more keywords more aggressively on Google/Yahoo/Bing and others because it was far cheaper than TV/print etc and it converted and/or reached very well and the advertisers needed the sales so were willing to accept lesser ROIs. I would argue today Facebook has better data and therefore reach than Google, and lower pricing per impression, though not higher intent. 

[bizaro86]

I think the risk to advertising revenue is more that a certain  percentage of recent growth has been from non-economic venture funded startups spending their VC money on ads. If VC capital is in a bubble, how much spending on FB ads evaporates if it bursts?

[johnny]

I don't think that first chart proves what we'd like it to prove. Online advertising was still so immature in 08/09 that it's not surprising that share growth overwhelmed the industry headwinds.

 

Once online has a "mature" share of the ad dollar, we're in a different world. That doesn't mean it loses revenue 1:1 with the industry in a downturn, but I'd wager the outcome is closer to that than impervious.

 

Beyond that, FB's core advertising product didn't even exist in 08/09. I'm not surprised that the bids for mesothelioma and abogados accidentes stayed strong in a recession, but if FB's mobile in-newsfeed product is dominated by things much higher on the maslow hierarchy, there's still reason to be apprehensive.

 

That said, FB is so conservatively capitalized, a bloodbath in advertising may actually give it acquisition opportunities that more than make up for the temporary earnings hit.

 

[MrB]

I think the risk to advertising revenue is more that a certain  percentage of recent growth has been from non-economic venture funded startups spending their VC money on ads. If VC capital is in a bubble, how much spending on FB ads evaporates if it bursts?

The following will suggest more a concern on the margins

https://www.healthnutnews.com/the-35-biggest-advertisers-on-facebook/

Also has not changed much since 2013

https://www.businessinsider.com/top-advertisers-on-facebook-2013-11?r=US&IR=T

[MrB]

I don't think that first chart proves what we'd like it to prove. Online advertising was still so immature in 08/09 that it's not surprising that share growth overwhelmed the industry headwinds.

 

Once online has a "mature" share of the ad dollar, we're in a different world. That doesn't mean it loses revenue 1:1 with the industry in a downturn, but I'd wager the outcome is closer to that than impervious.

 

Beyond that, FB's core advertising product didn't even exist in 08/09. I'm not surprised that the bids for mesothelioma and abogados accidentes stayed strong in a recession, but if FB's mobile in-newsfeed product is dominated by things much higher on the maslow hierarchy, there's still reason to be apprehensive.

 

That said, FB is so conservatively capitalized, a bloodbath in advertising may actually give it acquisition opportunities that more than make up for the temporary earnings hit.

Fair comment. Wonder what "maturity" looks like. Could be close.

https://www.appnexus.com/sites/default/files/whitepapers/guide-2018stats_2.pdf

[Spekulatius]

Hmm, I am getting ads for IBM cloud, credit card offers, checking accounts from Facebook and I am not interested in any of these things right now. Sometimes, I don’t see any ads at all when on Facebook. I actually feel the targeting could be way better.

[exege]

In terms of targeting, it is determined as much by the advertiser's inputs as Facebook's algos. If the advertiser wants to target ads to college educated males, age 35-55, in Kansas City, and try to sell them flower arranging lessons, Facebook will gladly take their money.

[SlowAppreciation]

https://www.nytimes.com/2018/12/18/technology/facebook-privacy.html?action=click&module=Top%20Stories&pgtype=Homepage

 

Facebook also allowed Spotify, Netflix and the Royal Bank of Canada to read, write and delete users’ private messages, and to see all participants on a thread — privileges that appeared to go beyond what the companies needed to integrate Facebook into their systems, the records show.

 

Nice.

[johnny]

There's something seriously wrong with that story--the ability to delete private messages sounds a lot more like a bug than a feature. So, while it's not good either way, presenting it as a deliberate component of "sold services" to partners seems totally irresponsible to me. There's absolutely no business purpose for this ability, especially to the three firms we're told had it.

 

Also very interested in the fact that all of the partners with this ability seem to indicate they had no idea about it, or affirmatively dispute having the ability at all. Also interesting that we never heard anybody complain about their private messages disappearing (or appearing)?

 

There's something being seriously misunderstood/underexplained here, and I've seen enough questionable mainstream reporting on tech companies to basically assign almost zero weight to that part of the story until more information comes out.

[SlowAppreciation]

Maybe, but do you give the benefit of the doubt to FB or to the NYT....?

[johnny]

This really feels to me like just a slightly more sophisticated version of the "Facebook is recording me and serving me ads for pizza when I say pizza" paranoia. You don't have to adopt a position of defending Facebook's moral virtue to disbelieve it, you just have to think about it from an engineering/business perspective and recognize that it's sort of an asinine product to develop, under the expectation that you'll somehow be able to deploy it secretly.

 

I have seen so much "tech journalism" performed by people who clearly don't have even a base understanding of the topics they're authoritatively covering, that in a case like this I assign predictive value of 0 to the specific claim made by the NYT. Obviously something exists on some document that, when looked at by somebody with sufficiently crossed eyes, inspired the author to say what they said. But my starting position here is that whatever this journo looked at, they either blunderously misunderstood, or shamelessly misrepresented (in your quoted sentence).

 

 

[MYDemaray]

I think the risk to advertising revenue is more that a certain  percentage of recent growth has been from non-economic venture funded startups spending their VC money on ads. If VC capital is in a bubble, how much spending on FB ads evaporates if it bursts?

The following will suggest more a concern on the margins

https://www.healthnutnews.com/the-35-biggest-advertisers-on-facebook/

Also has not changed much since 2013

https://www.businessinsider.com/top-advertisers-on-facebook-2013-11?r=US&IR=T

 

Wow, this implies P&G spent ~0.8% of their sales budget with Facebook.

 

And, it's interesting that this is a criticism of Peltz:

 

https://adage.com/article/cmo-strategy/peltz-h/310369/

[rb]

At this point Facebook is basically a deuchebag company that vacuums personal information and gives it to anyone who may want it.

[johnny]

Okay. So, we have substantial clarification on this point.

 

Those partners were allowed API access such that app-users could send FB messages from within the Partner apps (IE without having to be switched over to FBM). It's not clear (from Facebook's response) if they're saying this revealed the entire message history between the sender and receiver (that would be very bad and, per my post above, inexcusably stupid) or if this just meant the messages sent/received from that point on would be accessible by Spotify (this would not be so bad, given it required explicit permission from the user, and the most obvious ways of implementing such a feature necessarily reveal the message contents to the host-application).

 

Pretty much consistent with my earlier belief. Either the person writing the article failed to understand what was going on here, or they deliberately communicated it in a way that would get their article maximum attention and maximum traction. Really pathetic behavior, in either case.

 

Or maybe I'm just starting to suffer from bag-holder persecution complex.

[Gregmal]

Zuck and Co sold their souls to Wall Street following the IPO disaster just like Pearson did at VRX. They knew what the money machine wanted and it wasn't necessarily illegal(same as jacking up drug prices) but is highly unethical and now this sort of behavior is frowned upon and as such, FB will continue to sit in the penalty box.

[SlowAppreciation]

Okay. So, we have substantial clarification on this point.

 

Those partners were allowed API access such that app-users could send FB messages from within the Partner apps (IE without having to be switched over to FBM). It's not clear (from Facebook's response) if they're saying this revealed the entire message history between the sender and receiver (that would be very bad and, per my post above, inexcusably stupid) or if this just meant the messages sent/received from that point on would be accessible by Spotify (this would not be so bad, given it required explicit permission from the user, and the most obvious ways of implementing such a feature necessarily reveal the message contents to the host-application).

 

Pretty much consistent with my earlier belief. Either the person writing the article failed to understand what was going on here, or they deliberately communicated it in a way that would get their article maximum attention and maximum traction. Really pathetic behavior, in either case.

 

Or maybe I'm just starting to suffer from bag-holder persecution complex.

 

That's still bad. You can encrypt messaging so that you—or the partners who have integrated the messaging function—don't ever see it. But they deliberately choose not to. Why?

 

I worked in AdTech for ~8 years, and I don't think the NYT's articles about FB are unfair whatsoever. The industry is rife with shady stuff, data is manipulated regularly, there are layers and layers of deliberate opacity, and you have managements in place who either 1) don't think of the impact of their product/biz decisions or 2) simply don't care. That's not a recipe for a good business.

[johnny]

No level of encryption changes the fact that the sender and receiver must necessarily have the unencrypted message, which means the feature "message from the Spotify app" is going to reveal your message to the Spotify app 100% of the time with no exceptions.

 

I suppose Facebook could have insisted on auditing every line of code to make sure that the app itself wasn't storing any plaintext, but that's a pretty insane ask for such a throwaway "social feature", especially when, if we are to believe Spotify, their access via this feature began and ended with an ability to observe the message that user's would attach to a song recommendation, in-app.

 

In any case, Facebook has issued a much stronger statement that, I think, demonstrates exactly what I suspected: this was trash journalism by liberal arts majors who got pulitzer hard-ons when they saw the phrase "read/write access" in some API documentation that they were in no position to try and explain to their readership.

 

In order for you to write a message to a Facebook friend from within Spotify, for instance, we needed to give Spotify “write access.” For you to be able to read messages back, we needed Spotify to have “read access.” “Delete access” meant that if you deleted a message from within Spotify, it would also delete from Facebook. No third party was reading your private messages, or writing messages to your friends without your permission. Many news stories imply we were shipping over private messages to partners, which is not correct.

 

https://newsroom.fb.com/news/2018/12/facebooks-messaging-partnerships/

[JRM]

I don't understand the animosity.  If a person doesn't like the FB product they are free to not use it.  Unlike the credit ratings agencies. I don't have the option to opt out.  In fact, I am forced to pay to freeze my credit in order to help ensure my information doesn't get out.  Why was there not more outrage when Equifax tried to cover up that it lost personal information? 

 

This isn't meant to be a 'what about' argument, but sentiment seems to have swung too far for FB. 

 

FWIW, I called this when FB was trading above $200 earlier in the year on this board; at least the public outrage part.

[nkp007]

I now see why some people call it the Fake New York Times. Dig long enough into something and you'll find some drama.

[SlowAppreciation]

I don't understand the animosity.  If a person doesn't like the FB product they are free to not use it.  Unlike the credit ratings agencies. I don't have the option to opt out.  In fact, I am forced to pay to freeze my credit in order to help ensure my information doesn't get out.  Why was there not more outrage when Equifax tried to cover up that it lost personal information? 

 

 

That's not true. I do not have a facebook account, but they know who I am, who my friends are, what my phone number is, my email, etc. If any person has me as a contact and shares their contacts with Facebook to "find people they know", they hoover up my data and build a profile on me. Where can I opt out of that?

 

http://theconversation.com/shadow-profiles-facebook-knows-about-you-even-if-youre-not-on-facebook-94804

[Jurgis]

I don't understand the animosity.  If a person doesn't like the FB product they are free to not use it.  Unlike the credit ratings agencies. I don't have the option to opt out.  In fact, I am forced to pay to freeze my credit in order to help ensure my information doesn't get out.  Why was there not more outrage when Equifax tried to cover up that it lost personal information? 

 

 

That's not true. I do not have a facebook account, but they know who I am, who my friends are, what my phone number is, my email, etc. If any person has me as a contact and shares their contacts with Facebook to "find people they know", they hoover up my data and build a profile on me. Where can I opt out of that?

 

http://theconversation.com/shadow-profiles-facebook-knows-about-you-even-if-youre-not-on-facebook-94804

 

If any person has you as a contact, they can disclose this information to whole world in any way and you cannot do anything about it. They can share it to any site/service that asks for it. They can post it on their blog, webpage, etc. They can print 100000 business cards and drop them into NYC metro station at peak hour.

 

Well, maybe if you're famous you can sue. Good luck.

 

This is not a Facebook issue. It's an issue that info you gave to someone is not controlable.