Facebook’s quarterly report came out a few weeks ago and to every Wall Street analyst I say: Simmer down!
Disclaimer: I am not an investor or trader. I don’t know much about stocks. I don’t own stocks. Well…there are those 3 shares of a stock I received for my bar mitzvah. Wonder if my shares are worth anything today…
The day FB debuted on the stock market, I heard the following in the same conversation:
“Within 6 months they’ll be worth less than half their IPO price of $38.”
“The stock price will hit $120 within a year.”
“It’s Facebook. Everyone uses it. You’re crazy if you don’t buy stock.”
“It’s not a product. They have nothing tangible to sell. It’s a fad. Stock will tank.”
As polar opposite as can be. They argued about the product, is social media stock viable, is Zuckerberg off his rocker and more. And that’s when I joined the fray:
“Gentlemen, Wall Street analysts and traders care very much about the bottom-line: Revenue. Right now, yearly revenue is in the area of $4 billion per year. That is gonna go up, way up, in the next 5 years. And here’s why…”
Many months ago I had a Twitter conversation with Andrew Gossen, a social media strategist who works for Cornell University. We were discussing how many users Facebook had and the potential of reaching a ceiling in the near future. Gossen correctly pointed out that they’re nowhere near: in Africa, India and third world countries around the globe, people are just now joining the mobile revolution- and connecting to each other via Facebook.
The numbers certainly support this:
- Since 2010, the number of Facebook users in India has risen meteorically from 8 to 50 million! With the growing number of people there using smartphones, the number will continue to rise. India’s population stands at 1.2 billion- HUGE room for growth for Facebook.
- Africa is the fastest growing mobile market in the world
- Only 20% of people living in third world countries use the Internet. As that percentage grows, so does the possibility of a great percentage of them joining Facebook- meaning more ads, more revenue for Facebook.
- Advertisers in India have increased Facebook ad spending by 40% over the last couple of years. As more and more people join, it’s reasonable to expect more advertising dollars to be spent. And finally…
- Sponsored Stories accounts for $1 million in daily revenue– with expansion around the globe, it would seem that that figure will rise steadily.
The biggest challenge for Facebook is their mobile app which, in the words of everyone I know, stinks. Mark Zuckerberg acknowledged this when the quarterly report was released. If they can create a more user-friendly app and global expansion continues to rise, revenue from ads will skyrocket. And when revenue goes up- and not just in small increments- the stock price will rise.
I don’t think the price will rise and rise- this is more of a short term thing, say over the next five years. The world’s population is 7 billion but there is a ceiling to how many users Facebook will eventually have. Right now, with mega-growth possible in Africa, India and other third-world countries, Facebook’s short-term future looks bright.
Yes, there could be competition down the road. Other social platforms, specialized social platforms created just for people in specific countries or continents and any of a million things. I may not be a trader or analyst but one thing stands out: Facebook is nowhere near its ceiling when it comes to users and revenue.
Will I be buying stock in the near future? Nope. But do I think investors will see a profit in a few years from investing in Facebook stock now? I definitely do.
Then again, in the words of Warren Buffet: I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
Ephraim Gopin is a Social Media User and Strategist who works with nonprofits and businesses to create social media strategies. Ephraim is happy to connect on Twitter or you can contact him via his blog.
Howie at Web Choice
You look at this the wrong way. In april 2010 Facebook had only 400 mil users. But they spent on average over 50 minutes a day using the network. Now it is down to 12 mins per day even while adding so many accounts. Suposedly as many as 10% of accounts are spam accounts. I know I have 4 myself. 3 are to run client facebook pages.
The question is can they grow the time spent. With 4 hrs a month spent on facebook and over 120 spent watching TV can they draw some of that time away? Now they are going to pollute our feeds with ads. Lets see how that works. The problem Facebook has is the bigger our networks, the lower a percent of posts and shares we see. When you get to around 200 connections you might see 5% and it drops from there. The sites is very clunky and the UI is poor. Who says a competitor won’t come out and be the ‘new in place to be’. It happens all the time.
I have a finance degree and was telling people to short the stock a year before the IPO. Based on earnings growth and other analytics I view them as around $30bil in value right now. Unless they can ramp up revenues the stock might flounder a long time. Doesn’t mean they will go out of business. They can still grow as a business and not as a stock.
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