No one really wants to buy advertising.
It's an expense, aimed at bringing people into a sales funnel, through which they can be qualified and turned into revenue.
Ads are just one step in the marketing process. What I've been telling publishers since the Web was spun is that this medium can cover the whole process, from finding customers to selling them to service after the sale. "How hungry are you?" I asked.
The point, as Arun Sundarararan tries to explain for Bloomberg, is to use the data it stores on users to help marketers push them down their sales funnels, delivering a message they want to hear, when they are receptive toward it, delivering them to "advertisers" closer to the point where they click the button that says "buy."
This is where Web marketing has sought to evolve for 15 years. First there was intrinsic targeting, aiming ads at people based on who they were rather than what they were reading. Facebook's aim is to aim marketing messages at people when they're receptive to that specific type of message, to push them further down the sales funnel than Google (NASDAQ:GOOG) or anyone else.
To do that, it needs reach (even in strange places like pre-iPhone phones) but it also needs trust. Jefferies thinks it can gain this trust, through others you know online, which is why it's called a good long-term investment even if it's dead money walking right now.
My view has been that Facebook may be a buy at $13/share, after the current lock-outs expire at the end of the year. CEO Mark Zuckerberg's promise not to sell shares for at least a year is aimed at limiting the exposure to those lock-outs, but he doesn't have the kind of stake in his company that, say, Larry Page has of Google, so the impact of what he says is limited.
The bottom line is this. If Facebook can drive people down sales funnels, if it can drive them further than existing advertising models can, it's a buy, and will come good at whatever price you buy it, at some point.
But the case is not yet proven. Until Facebook's business case is proven, everything about remains speculative.
Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.