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Alibaba And Tencent's Edge Over Facebook

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ALT Perspective


  • Facebook's valuation multiples have been on a downtrend even before the recent user data scandal.
  • In fact, Facebook has traded below Alibaba and Tencent in terms of P/E and EV/EBITDA since 2016.
  • Facebook relies almost completely on advertising revenue while Alibaba and Tencent are more diversified in their businesses.
  • In addition, thanks to the more liberal attitude to personal data privacy in China, the Chinese firms can generate highly useful analytics and leverage that edge to retain and attract advertisers.
  • As such, the two Chinese firms deserve to trade at higher multiples than Facebook. Read on to find out my justifications.

Facebook's User Data Scandal

By now, you should have read about the debacle over at Facebook (FB) with regards to its (mis)handling of user data. There's a good chance that the topic had surfaced between conversations among your family and friends during the Easter holidays. The fact that Facebook derives virtually all its revenue from advertising makes it vulnerable to regulatory tightening. Heightened scrutiny is inevitable given the media attention on the lapses at the company.

What couldn't have been worse for the social media titan was a leaked memo published by Buzzfeed which was written by supposedly one of Facebook CEO Mark Zuckerberg’s most trusted lieutenants. In it, the senior executive appeared to have prioritized corporate growth even if the consequences came at the expense of human lives.

“We connect people. Period. That’s why all the work we do in growth is justified. All the questionable contact importing practices. All the subtle language that helps people stay searchable by friends. All of the work we do to bring more communication in. The work we will likely have to do in China some day. All of it... So we connect more people. That can be bad if they make it negative. Maybe it costs someone a life by exposing someone to bullies. Maybe someone dies in a terrorist attack coordinated on our tools.”
- Andrew Bosworth, Vice President, Facebook

Facebook's Valuation Multiple Dipped Way Before The User Data Debacle

Given the big brouhaha, one might be forgiven for thinking that Facebook suffered a large drop in its share price. In fact, the valuation of Facebook only dipped slightly when viewed from its appreciation over the past three years. Even after accounting for the recent decline, the share price of Facebook is still nearly double that three years ago.

ChartBABA data

ChartFB PE Ratio (TTM) data by YCharts

This article was written by

ALT Perspective profile picture
I am honored to have been categorized as a 5-Star financial expert and ranked among the top 2% of financial bloggers on TipRanks in 2017/18. For a period, I was among the top 3 “Opinion Leaders” for Insider Ownership and Services, as well as top 5 for Long Ideas and Fund Holdings. I am an avid reader of market news and company publications with the aim of improving my investment acumen. I enjoy expressing my findings and opinions through writings. My appreciation and understanding of business strategies improved to a whole new level since completing an MBA (Distinction) from a FT100 MBA school. I have worked in companies with businesses that span multiple industries, according me with the exposure to a myriad of sectors.Check out my Author's Picks and over 190 Editor's Picks, among the highest in Seeking Alpha, if not the most.

Analyst’s Disclosure: I am/we are long BABA. 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.

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