[Originally published on 07/28/2013.]
Talking stocks without numbers is like discussing baseball without ERAs, RBIs, and batting averages. It is, in short, not a good idea. Among the obvious pitfalls of attempting analysis without financial metrics, letting emotions creep into investing decisions is an emphatic no-no in any experienced investor's mind. But that doesn't mean we can't make an informed decision without quantitative tools; we need only be careful not to let our "intuition" get the best of us.
As a college student, I believe Facebook (NASDAQ:FB) has been understandably, but wrongly, ignored by tried and tested investors because of its weak financials and shaky track record, its recent surge notwithstanding. Its price has shown historically high levels of volatility, it has not consistently laid out a convincing plan to monetize its business, and still struggles to justify its valuation based on a P/E basis. However, I'd like to make a case from my perspective.
This Is Facebook We're Talking About
In September of 2009, when Facebook announced it was cash-flow positive for the first time, I was in the midst of my teenage years. I grew up with Facebook--was nurtured under its watchful eye, was swept up in all the glory of relationship statii and tagged photos. Facebook is to me what Microsoft was for my parents. It governs life. Every minor tweak to its timeline spawns a brouhaha among hundreds of my friends. Each tagged photo is like money in the bank. Notifications measure the worth of one's very existence.
I'm not suggesting that mature investors don't realize how Facebook is profoundly changing the social human, only that they seem to tune out the music in the face of a so-called precarious business model.
My generation is on Facebook 24/7. It never stops. We bleed blue, all day and night, in the shower, in the car, and in classrooms worldwide. Facebook stores over 240 billion photos, of everything imaginable, from striking political remonstrations to newborn babies. It is the world's most uniting mechanism; rich, poor, healthy, ill, introvert, or extrovert, my generation filters their lives through Facebook, lives and dies by its slick blue interface. Political demonstrations and campaigns, tender remembrances and tributes, sweeping fashion and cultural movements--all these flow through Facebook and will do so even more prominently in the years to come. Consider this: the average number of posts per a Facebook page is 36, there have been 1.13 trillion likes since its inception, the average Facebook visit lasts 20 minutes, and 2 billion connections have been established between businesses and users. The list of startling statistics goes on and on.
I bought Facebook shares early last month when they were trading in the low-20s. For the first time in my life, I ignored the numbers. I didn't care about lagging mobile ad revenues, apparent over-reliance on Zynga (NASDAQ:ZNGA), or slow earnings estimates. I brushed off Facebook's paltry EPS numbers, ridiculous P/E, and Google Plus's (NASDAQ:GOOG) growing, and threatening, base of over 300 million users. I turned a blind eye on hundreds of respected investors, who frankly, are much more astute and incisive than I.
But here's where I think a can offer the older, smarter, and more skilled investor some insight.
What Facebook Means to Us
I'm here to tell you to buy, buy, buy. It doesn't matter whether Facebook is trading at $20 or $40. Here are a couple points:
1. Facebook has over 1 billion users. 1 billion. Many of those users, like me, are under the age of thirty. We aren't going anywhere. For Facebook to disappear ten years from now would a take a series of calamities. Not just calamities--complete and utter catastrophes of unprecedented proportions. I understand that a model like Facebook's is difficult to sustain, but I also have great respect for company management, and don't believe they'll let their economic moat slip.
2. When I listen to those who equivocate about Facebook's intrinsic valuation, I scoff. Are you telling me that five, ten years from now Facebook will not have figured out how to effectively monetize its social media base? Do you expect that with users bound to one day reach 2 billion, Facebook will not eventually justify its current market capitalization of 80B? I'm not going anywhere; my kids, grandkids, and great-grandchildren will all be unabating Facebook users. The tenured investor needs a reminder that even the strong-willed of my generation are forced to use such apps as Rescue Time, Minutes Please, and Limit Facebook to avoid wasting hours on hours scrolling through news feeds, sifting through thousands of photos, and staring at their own profiles.
3. Facebook has so, so much potential. And even if none of it is realized, and Facebook is somehow confined to the social media landscape alone, that shouldn't be a discouraging sign. Social media in itself is a promising and lucrative business that serves as the nexus between the social user and millions of economic and cultural opportunities. Facebook is adding a boatload of Monthly Active Users (MAUs) every day, and it continues to operate as a virtual monopoly (though you may make a case for an oligopoly).
For a company that is the cynosure of virtually every teenager's life, Facebook catches a lot of flak. And that's okay. Facebook does have risks, and perhaps I'm a little naive to unilaterally disregard most of them. But I want you to consider that Facebook is a phenomenon larger than its stock price. It lies in a category of its own, constantly redefining what it means to be human. This point, I assure you with extraordinary confidence, is no exaggeration. And as a college student, I want to emphasize to the intelligent investor that what Facebook means to my generation is nothing short of revolutionary. It can't be captured in an exorbitant P/E, stagnant mobile advertising, or a troubling bottom line.
So let's talk baseball without numbers for a moment. Let's realize that Facebook's recent surge is only marginal to what will be an outstanding growth narrative in the next decade.
You may say that I've presented an emotional argument. But a company like Facebook demands and deserves a more holistic approach of analysis, and, as a member of the generation who values Facebook like no other, I believe I'm providing one. Take this view into consideration along with all the others you've come across, and you'll have a more informed and balanced investment decision when it comes to evaluating Facebook. And next time you see a throng of teens coming you're way, ask one what Facebook means to them.
Disclosure: The author is long FB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.