PHUKET: One of the main things I like about Facebook is that I can stay in touch with my family and friends all via one platform. Before I had to keep emailing, making phone calls and writing the occasional letter to and from the US. Now with Facebook, I don’t have to do that anymore. I’m able to share my life here in Thailand and be able to see the events in the lives of those closest to me.
All of this has led me to wonder if now is the time to buy Facebook stock since I use it every day.
Last year when the company went public, I had clients calling me asking if they should buy. I told them that I never buy stock on the IPO because there’s too much risk. Boy was I right. The stock came public at US$38, popped to $45 and then started a gradual decline to a low of $17.55. The stock is currently trading around $26 and my investment radar is on high alert.
Facebook has the largest database of user’s personal data in the world. Users have shared with Facebook data that no other site has. How many sites have the user’s birthday, employment, likes, employment and education? The company is an aggregator of user information. The question that has been on investor minds is how can the company capitalize on all that information and justify a huge market cap.
To capitalize on all this info-rmation, the company has launched Graph Search, Facebook’s challenge to Google. With Graph Search, users can search and find anything that’s been shared on the site within one’s own network. You can find people, places, photos and the likes of your friends.
Facebook’s strategy is have the user search Facebook before they turn to Google.
With Graph Search, businesses can pay to have their rankings higher than competitors the same way they do with Google search. Since the user’s information is localized, businesses can target the user and provide the nearest location for the customer to purchase. In comparing the two companies, Google last year had $50 billion in revenues versus Facebook’s $5bn. If Facebook can capture just 5% of Google’s search business, revenue will increase by 50%.
One of the ways Facebook is seeking to monetize this data is through the use of the Facebook Gift Card. This is a potential game changer in the growing gift card industry. Facebook users can search a user’s likes and then purchase a gift card tailored to their interests. This eliminates the hassle of figuring out what to get someone for their birthday or an occasion. So far the program is only available for the Olive Garden, Jamba Juice, Target and Sephora. Look for many more companies to join the program as Facebook grows the business.
One of the key acquisitions that Facebook has made is Instagram. Instagram has been a growth phenomenon. When Facebook purchased Instagram for $1bn, Instagram had 27 million users. Almost one year later, Instagram has over 100mn users. Instagram has 90mn active monthly users that upload 40mn photos per day. Users make more than 1000 comments per second and over 8,500 likes per second.
If you compare the growth of Instagram to that of Facebook, you’ll find that Instagram is growing at a much faster rate than Facebook did.
It took Facebook four and a half years to reach 100mn users. Instagram reached this milestone in only two and a half years.
Making this feat even more impressive is the fact that the photo-sharing application is limited to iPhone and Android devices.
The immense popularity of Instagram is being led by teenagers. Teenagers are typically at the forefront of the latest and greatest. They were the first ones to get on Facebook and then their parents and grandparents followed.
Now they’re spending more time on Instagram and their parents and grandparents are likely to follow as well.
Some of the smartest investors in the world have been recently buying Facebook stock. Among those buying are former Fidelity Magellan star manager, Jeffrey Vinik and billionaire Leon Cooperman. Last quarter the number of funds owning Facebook stock increased from 48 to 67. The buying interest in the stock by the big funds is a positive sign for long-term holders of Facebook stock.
I have been watching the stock since the company went public 10 months ago. The stock got a little ahead of itself when it hit $32 last month but now Facebook has consolidated nicely and technically looks very good. This pullback appears to be a good spot for long-term buyers to get in the stock. Don Freeman is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand. He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Call 089-970-5795 or email: [email protected].Keep checking the Gazette's business pages for the latest local and national business news updates affecting Phuket and Thailand. Alternatively, join our Facebook fan page or follow us on Twitter.
This article first appeared in the August 17-23 issue of the hard-copy Phuket Gazette newspaper. Digital subscribers may download the full newspaper, this week and every week, by clicking here.