My history with Facebook goes back to 2006 when I joined the service, then 2007 when I first visited their HQ in Palo Alto and wrote that I was so impressed with the company that I thought it would be worth over $10bn. That number that sounded so crazy then is but a fraction of its vaue today. And then a year later I helped Mark Zuckerberg launch Facebook in Spanish. Here’s a video of the two of us. Needless to say that Mark Zuckerberg is an absolute genius when it gets to build THE social network.
Still I did not buy Facebook shares in the IPO. I should clarify that I am a long term investor, not a trader but $38 seemed to high a valuation for me. I was waiting for the shares to come down.
Before the earnings announcement I had bought some Facebook shares at $28 and a few hours ago I bought more shares at $23. And I have another order to buy more if they get to $20.
Here’s my rational.
Facebook is an amazing company, it has a good chunk of the richest segment of humanity glued to its service. The share of global income of people with Facebook accounts must be, in my view, at least half of all global income. Not only do they have a billion users but they have the billion with the most money. The top billion.
That Facebook is so great at engagement but so bad at monetization sounds to me as a more solvable problem than the exact opposite and that’s why I am buying the shares.
Right now Facebook seems to get $2 per user per quarter. I can’t believe they are not going to be able to get double that in the near future. If Google owned FB, how much would they get out of its user base? Google gets over $40bn in revenues from its user base now but its users and time on site are comparable to FB. So a good guess could be that FB could get 10X more revenues from their user base when they grow up.
Risks? that they never get good at monetization and/or that somebody else “myspaces” them. That’s why I only recommend owning at most 3% of your net worth in Facebook shares. My main holdings are Apple, Google and Amazon and my portfolio exposure to Facebook is very small. But now I am a shareholder.
Added on August 7th. Today I sold my Facebook shares at a loss at $22. I sold them because there are so many shares coming to market that I became concerned. Also the fact that Zuckerberg sold over $1bn worth of his shares and all these other insiders sold around another $9bn shares made me worry.
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