In Focus: Facebook
Thanks for checking out another In Focus, our brief look at companies, stocks, or markets that made the news over the past week. New week, same mess.
Mother F*ucking Facebook
On Thursday morning The NY Times released a well written story about Facebook, the issues that have plagued the company over the past year plus, and how the company responded to those issues. If you've been too busy to put all of the pieces together from the first fake news accusation to the Cambridge Analytica mess, this is the story for you.
Facebook is Broken, Yes I'm Late on This
Prior to The Times article I wasn't a "Facebook is broken" person. Yes, I was aware of the issues, all of them, but I felt that it just was. It's a huge online gathering place, anything online is susceptible to hacks, it's a part of doing business and gathering a community online. Did I expect the community to be better protected? Yes I did, but in my wildest dreams I could never have imagined a country would weaponize Facebook. I was okay with Mark and Sheryl not being prepared for it either. However, being caught off guard, really off guard, like Facebook was is one thing, but covering it up, delaying, denying, deflecting is another. That's where I hop off of the bandwagon, Facebook is beyond broken.
They Don't Care, Because They Don't Have To
I have a theory that most highly intelligent people and/or very successful people don't watch television. Not that they don't watch any television, but they don't watch it like the average American does. Our Bill Gates, Warren Buffetts, and Elon Musks, our titans of industry, don't spend weekends binge watching TV, and that is likely the reason they are where they are in life and in business. Facebook is like television.
When the scandals broke and the #DeleteFacebook wave became main stream, we were all going to show Mark and Sheryl who's boss and delete Facebook, but here is what really happened. The highly intelligent, very successful people, the ones who don't watch TV deleted Facebook and the average person stayed. The person that stayed may not be as active as they use to be, but their account is still active, they're still scrolling and liking, on the daily.
#DeleteFacebook - Started in Early 2018
Facebook's third quarter numbers support the theory. From Q3 2017 to Q3 2018 Daily Active Users (DAUs) have stayed relatively the same in the U.S. and Canada. Outrage with no action, I mean you've got to love that if you're a Facebook executive right? The people are outraged, but they're staying, so FB still has the eyeballs to peddle advertisements in front of.
For more on Facebook's Q3 Results click here
And before you say it's all Instagram, these numbers do not include Instagram, WhatsApp, or Oculus. This is all Facebook.
They've Still Got the Eyes.
Since the eyes haven't left, FB can still attract advertisers, and still make money. Like a hit television show in the 7th to 8th year of its run, the days of mind-blowing viewer growth are over, it's not going to attract many new viewers in season 8, but people are still tuned in. Facebook is no different, the days of staggering growth are gone, but people are still tuned in, and advertisers know it.
If you're a small business owner who wants to advertise and you're looking for 24 to 35 year old males interested in tech, video games, and beer. Facebook can put you in front of that demographic quickly and easily.
Wall Street jumped off of the Facebook bandwagon after Q2 earning results because of the growth outlook (not stellar) and the capital expenditure (lots of money being spent) Facebook will need to prevent future threats, but Wall Street will be back, in droves. Products need to be sold, the sellers need to advertise, for ads to work there needs to be eyes, and Facebook still has the eyes for now.
Will we see a big decline in DAU and MAU in Q4? I don't believe so. For a particular generation not being on Facebook is like not watching television, and no one wants to be left out of the Game of Thrones conversation on Monday
Yes, there are more eyes still. Maybe not more, probably the same eyes, but on a different platform. Facebook still has Instagram and WhatsApp. As of June 2018 Instagram had 1 billion monthly active users (MAUs). WhatsApp had 1.5 billion users as of October 2018. Instagram is the juggernaut, and is still the best acquisition in the history of social media. As much as I hear people say, "#DeleteFacebook" no one ever includes Instagram in that message. Instagram's ad revenue is growing and is estimated to be between $8 and $9 billion this year. Facebook is still trying to figure out how to monetize WhatsApp, which seems to get harder and harder as time goes by.
Finding New Eyes
It's no secret that younger social media users aren't signing up for Facebook as quickly as they use to, and why would they want to? What 15 year old wants to be in the same digital space as their parents and grandparents? How does Facebook solve this issue, by acquisition most likely. Facebook is sitting on over $9.5 billion in cash and cash equivalents, $41 billion if you include short-term investments.
1st One Through The Door Always Gets Shot
The public, me included, sometimes loses sight that Facebook is in uncharted territory. A 14 year old publicly traded social media company, it was going to make mistakes, big mistakes, because no social media company has been here before. There are probably more people on earth that understand the inner workings of Ferrari than understand how to manage a social media company.
Now that Facebook has taken a few to the chest, the question is will they patch it up and go or will they leak out?
Facebook is broken and The Times article has shown us all how broken it is. Should you buy Facebook's stock? I don't have an answer on this one. I am very conflicted. The behavior described in the article is bothersome to me, I don't know if that leadership team can fix what's broken and prevent it from happening again.
However, Facebook still has the users on multiple platforms and because of this the money will find it's way back to Facebook. For Wall Street to completely abandon Facebook The Street would need to find another growth story to align their money with, and there aren't many out there right now. Putting the Facebook platform aside, Instagram is a real growth story, and to be a part of that, you have to be in Facebook.
This is a pick-em. FYI I own one call option on Facebook, a sort of "what the hell" investment for when Wall Street comes back to it, because they will come back to it, I think.