Why I Am Bullish On Facebook The Company
As a rule, and with only rare exceptions, I don't buy public stocks. I prefer to limit my equity investments to early stage start-ups. Thus, I won't be buying Facebook shares when they go public
soon. However, I am very bullish on the company.
As big as Facebook is today, I believe that it will become a much, much bigger and more valuable company over time, and I suspect that folks who buy its stock will do well. Here are my reasons why:
Big network effects. The more people who use Facebook -- and the more time they spend on it -- the more valuable it becomes for everyone else. The more value-adding services Facebook offers, the more people who will use it and the more time they will spend on it. Facebook is in the vortex of a massive, explosive viruous circle. The bigger and faster it gets, the bigger and faster and more valuable it will grow.
Partnership ecosystem-focused. Facebook appears to have recognized early on that that the key to growing a big platform fast is to support and add unique value to partners. It started with social gaming and Zynga, and is now trying to establish similar partnerships in music (Spotify) and news (WashPost) and e-commerce. It is trying to create a value-adding ecosystem where its platform is the essential center. Microsoft initiated a very similar and quite successful strategy 30 years ago with the personal computer ecosystem and its Windows and then Office franchises, each of which still generate many billions of dollars of profit every quarter.
Enormous monetization opportunities. Clearly, given the size of its audience, the intensity of their engagement and the robustness of its proprietary data, Facebook has the potential to build the largest advertising business we have ever seen. However, I also like all of the non-advertising opportunities it has. There's already a nice business with Facebook credits. It certainly has a lot of potential as a commerce platform. And, given its mandate to only observe "real" identities, it has the capacity to build a global payments business that could dwarf all of its other monetization opportunities.
Smart, engaged team. In fast-growing companies today, people are as important -- or even more essential -- as technology. Mark Zuckerberg appears to be growing into the role of CEO. Sheryl Sandberg certainly seems to be coming into her own as a strong operating executive. And Carolyn Everson, who runs advertising sales, is one of the industry's rising stars.
Not afraid to think and act like a media company. The business of media is the provisioning of consumer contact. Paradoxically, many technology-driven Web companies have been uncomfortable with the "media company" label, in spite of relying on the provisioning of consumer contact for the vast majority of their revenue. Think Netscape, Yahoo and, most recently, Google. This is one of the reasons these firms hit ceilings in their development as advertising companies. While Facebook at this point also talks of itself as a tech company, it seems more comfortable than its predecessors in thinking and acting like a media company.
I don't have a well-formed opinion on what's the right price for Facebook stock, nor do I know what's a reasonable market capitalization for the company. And I certainly don't know how institutional investors will treat it once it's public. I am sure it will be a roller-coaster ride. That said, I'm very bullish on Facebook's future as an operating company. What about you?