If you look at the following graph, you’ll realize that despite the negative news surrounding Facebook, it isn’t doing too worse compared to the rest of the tech stocks.
In fact, the rise and fall of all the tech stocks are following the same trend. Top 5 stocks combined, have lost over $1 trillion in market cap in the last 2-3 months.
Apple is no longer a trillion dollar company, neither is Amazon, as of today. Amazon is down to less than $750 B from a high of a trillion dollars, Apple is down to $840 billion from a high of $1.1 trillion and Google (Alphabet) is down to $730 Billion from a high of over $900 Billion.
It’s mostly because of the macro factors like US-China trade disputes and the tech stocks pulling each other down. It’s very temporary and it’s only a matter of time when this $1 trillion (including $200 B of Facebook’s market cap) is recovered.
Also Read: Facebook Marketing Trends
Consider the following to determine Facebook’s value:
- Facebook’s revenue in 3 quarters of this year is already more than its revenue for the entire 2017. No company in the history has grown at this rate, at the scale of Facebook (Hardly any company other than Apple, Google and MSFT have actually achieved the same levels of revenue and profit as Facebook).
- This year, 2018 Facebook is projected to cross $60 Billionin revenues, while being highly profitable. Even with its slowed growth rate, it’s projected to surpass $75 Billion in 2019.
- Facebook is starting to monetize WhatsApp. And Whatsapp revenue could rival Facebook’s own revenue in a couple of years. If WhatsApp monetization is successful, Facebook will surpass Google’s revenue in the next 2-3 years. FB Messenger is yet to realize its monetization potential too [It has a huge potential with ~1.5 Billion users, who are sending close to 30 billion messages].
- Facebook might just enter the cloud services market its given huge data center set up, open computing, etc. In his word, Dana Blankenhorn pointed that Facebook has also joined the cloud czar.If it gains even 10% of the market share in next 5 years, it would be huge in terms of additional revenue (remember, Snapchat is paying $2 Billion to Google for its cloud)
- Facebook’s current P/E ratio is nearing that of Apple’s. FB’s P/E ratio is around 19, whereas Amazon’s P/E is a staggering 80, despite being far less profitable than Facebook. [Facebook’s Quarterly profit is more than Amazon’s yearly profit). Even Google’s P/E ratio is 2X that for Facebook’s, and Google isn’t growing as fast as Facebook.
- Facebook has entered eCommerce with Instagram commerce and marketplace. If this is successful, it would boost its valuation multifold.
- Facebook is also entering Netflix’s business model with Watch. This is also a potential revenue source.
- I am not sure how Facebook’s other efforts like VR (Oculus), AR, Facebook Portal, Facebook Dating, etc. are going to pan out, but they are decent bets nonetheless. If any of these clicks, it could be a huge revenue contributor for Facebook. I am pretty sure Facebook is experimenting with many more initiatives given the surplus cash and resources at its disposal. [Facebook’s 20 apps with over 1 million users]
Facebook’s only risk is strict regulations or some crazy disruption in the whole internet business. Otherwise, Facebook is set to become a trillion dollar company by 2020.
Negative news, bad PR, naysaying, clickbaity headlines, etc. impact the valuation only in the short-term, business metrics and the company’s growth are what form the basis for market caps in the long run.
Also Read: How Not Market Your Business On Facebook
I was there when the company lost 50% of its market cap within a few weeks of its IPO. It was mostly because of the negative PR. Since it was a quiet period (legally, you aren’t allowed to talk about things that can impact your stock price for some period preceding and succeeding the IPO), Facebook couldn’t counter a lot of misinformed reporting.
Facebook stock went down to $18, with some analysts calling it overpriced and setting a price target of $9. This was despite the fact that Facebook was crushing all growth metrics and dominating mobile.
Since then, there have been only two quarters since its IPO that it hasn’t surpassed analysts estimates (doing that for over 6 years is pretty incredible).
I know Facebook stands on a pretty solid ground, but I understand how the world perceives it as just an app or a website with a flaky business model. And hence, people find it difficult to comprehend its success as a company and pounce on any negative news surrounding it.
Disclaimer: I am an ex-Facebook employee who holds some FB stocks. These are my personal views. Please do not make any stock purchase-sell decisions based on this post.