Facebook: Forget The Drop

Jul. 9.14 | About: Facebook (FB)


Facebook is the most dominant player in the budding social media industry.

Facebook has no debt and owns a wealth of high-tech intellectual property.

The stock is headed up in the long term with next to no bearish indicators.

On July 8th, Facebook (NASDAQ:FB) stock took a ~4.5% hit to go down to $62.5. As I write this, the stock has rebounded to ~$64.5. The stock may have taken a hit due to the recent news about the firm's 'emotional manipulation'. These allegations are founded but overhyped; every technology company mines its users for data. That's how they make money. I want to remind technology sector investors that we're dealing with a great company here: the current price may be a good point of entry if you're looking for a long-term play.

Market Power

Facebook is a behemoth in the social media industry. There is, quite literally, no other company like it. For some quick perspective, here's a chart of the market capitalization of Facebook and its biggest competitors. Facebook blows them out of the water! Even after a small share tumble, its market capitalization is immense. It's a whale swimming next to fish, and it gains certain leverage from this position. With 1.3 billion users, half of whom log on daily, it shouldn't come as a surprise.


Market Cap (Billion)

Facebook (FB)


Twitter (NYSE:TWTR)


LinkedIn (NYSE:LNKD)


Click to enlarge

Source: Google Finance

The Debt Situation

A company with revenue growth like Facebook has to have a lot of debt, right? Wrong.

Click to enlarge

Source: YCharts

Click to enlarge

Source: YCharts

Facebook's most recent debt-to-equity ratio is a whopping 0.0, with a profit margin of 25% to boot. These numbers are staggering, especially in context with their breakneck revenue growth. Clearly, Zuckerberg knows how to capitalize his business, while still maintaining growth.

Intellectual Property

Facebook has had a number of notable buyouts in the last several years. Although many of these are young upstarts, they show promise to integrate themselves into Facebook's data collection network and diversify their revenue streams.

FriendFeed: You probably didn't know that Facebook owned its own social media aggregator. Purchased back in 2009, this tool allows a user to combine inputs from a variety of social networks, including Facebook, in order to create their own custom news stream. As of this writing, it's number 1683 in terms of most popular websites in the world. And it's owned by Facebook.

Instagram: After Facebook, Instagram is the second most popular social networking website in the United States. Instagram is entirely focused on photographs, which users can edit in certain ways and then post on their profile. There is an option to integrate it partially with Facebook, but most users choose to keep the two separate. Either way, it's big. 42% of US teenagers use Instagram on their phones.

Face.com: Face.com is one of Facebook's more recent, clandestine, and expensive purchases. Bought for $100 million in late 2012, Face.com is a high-technology facial recognition service. The technology uses geometric figures on a large scale to map out user's faces - Facebook has used it to great effect in order to find out who's in a photograph whether or not they're 'tagged' or not. The patents associated with this technology are very recent and could be worth a lot more than Facebook paid for them.

WhatsApp: This is the Facebook acquisition that everyone's heard of. WhatsApp is a mobile messaging platform with over 400 million users. The acquisition allowed Facebook to get a better grasp on mobile and enter markets outside of the continental United States: most of those 400 million users are scattered across Europe and Asia.

Oculus VR: The Oculus headset is a virtual-reality device that straps on to your face in order to give full-fledged, hyper-detailed visuals for video games or other visual media. Although still very much in the works, there were a large amount of patents picked up in the acquisition. The Oculus could allow Facebook to enter markets that people would have never expected them to go into, such as video games.

Outside of these purchases Facebook also has a large amount of patents that it has bought independently, most of them related to social networking algorithms.


Facebook has a lot going for it. There doesn't seem to be anything that can stop it - it's chugging along, gaining revenue, acquiring intellectual property, and showing people more ads than ever before. Don't buy into the hype: Facebook is a great company with solid fundamentals, a stranglehold on its market, and a very capable CEO. Go long while the price is still low.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.