The recent FTC lawsuit is also more than just a potential hiccup. If the FTC gets its way, Facebook would be forced to divest itself of Instagram (purchased in 2012 for $1 billion) and WhatsApp (purchased in 2014 for $19 billion). Even though both acquisitions are tiny compared to the more than $770 billion juggernaut Facebook is today, the FTC claims Facebook got where it is by illegally squashing competitors via takeovers like these. Facebook rightfully argues the FTC itself and the Department of Justice signed off on the acquisitions, but that doesn't mean reversing an old decision is out of the question. There's historical precedence here.
The arguments calling out social media's negative influence on society are ones I can't totally get on board with unless those making these arguments include other media companies. Social media does amplify individual voices, including those that may be less than honest and out to harm others. But an advertising-based business that relies on consumer eyeballs staying glued to a screen isn't new. Traditional media (TV, and radio and newspapers before it) have always had similar issues. Demonizing Facebook without calling out its predecessors in media and their negative impact on society doesn't jibe.
Nevertheless, the pressure mounting on Facebook is real, and the company could look very different in a few years. However, Facebook isn't powerless in forging a path forward.
About those 56 billion reasons to buy...
As mentioned earlier, Facebook has had to shell out tens of billions in recent years to make its social networks more user friendly. However, even in tough times, Facebook is highly profitable. It generated net income of $17.9 billion through the first three quarters of 2020 on revenue of $57.9 billion.
And because of years of dominance in social media, Facebook boasted nearly $56 billion in cash and short-term equivalents, $6.2 billion in equity investments, and zero debt on its books at the end of September 2020. These advantages make this one of the wealthiest organizations on the planet equipped with an enviable war chest from which to seed new growth. Its Oculus virtual reality business and growing aspirations in financial technology and digital payments are just two examples with massive potential.
But what about antitrust risk? In a worst case scenario, Facebook could be forced to sell Instagram and/or WhatsApp. But Facebook is still a dominant force in technology with billions of users globally. And let's not forget that a sale of either subsidiary would potentially equip Facebook with even more cash since both would now be massive social platforms in their own right with hundreds of millions of users.
Then there's the infrastructure behind the scenes that operates Facebook's various social media services. If the lawsuit is successful, what assets (a data center, for example) belong to Facebook and which (if any) get spun off as part of IG or WhatsApp? These are big questions demanding complex answers. But the point is, Facebook would be far from toothless if stripped of Instagram and WhatsApp, and could quickly alter the way it monetizes its massive global operation. Possessing billions of users and sprawling digital assets to support all of those users afford a great many options.
Risks abound and storm clouds keep stubbornly gathering around Facebook, but I remain a buyer for the long haul. I expect this leader in global communications will be around for a very long time.
The arguments calling out social media's negative influence on society are ones I can't totally get on board with unless those making these arguments include other media companies. Social media does amplify individual voices, including those that may be less than honest and out to harm others. But an advertising-based business that relies on consumer eyeballs staying glued to a screen isn't new. Traditional media (TV, and radio and newspapers before it) have always had similar issues. Demonizing Facebook without calling out its predecessors in media and their negative impact on society doesn't jibe.
Nevertheless, the pressure mounting on Facebook is real, and the company could look very different in a few years. However, Facebook isn't powerless in forging a path forward.
About those 56 billion reasons to buy...
As mentioned earlier, Facebook has had to shell out tens of billions in recent years to make its social networks more user friendly. However, even in tough times, Facebook is highly profitable. It generated net income of $17.9 billion through the first three quarters of 2020 on revenue of $57.9 billion.
And because of years of dominance in social media, Facebook boasted nearly $56 billion in cash and short-term equivalents, $6.2 billion in equity investments, and zero debt on its books at the end of September 2020. These advantages make this one of the wealthiest organizations on the planet equipped with an enviable war chest from which to seed new growth. Its Oculus virtual reality business and growing aspirations in financial technology and digital payments are just two examples with massive potential.
But what about antitrust risk? In a worst case scenario, Facebook could be forced to sell Instagram and/or WhatsApp. But Facebook is still a dominant force in technology with billions of users globally. And let's not forget that a sale of either subsidiary would potentially equip Facebook with even more cash since both would now be massive social platforms in their own right with hundreds of millions of users.
Then there's the infrastructure behind the scenes that operates Facebook's various social media services. If the lawsuit is successful, what assets (a data center, for example) belong to Facebook and which (if any) get spun off as part of IG or WhatsApp? These are big questions demanding complex answers. But the point is, Facebook would be far from toothless if stripped of Instagram and WhatsApp, and could quickly alter the way it monetizes its massive global operation. Possessing billions of users and sprawling digital assets to support all of those users afford a great many options.
Risks abound and storm clouds keep stubbornly gathering around Facebook, but I remain a buyer for the long haul. I expect this leader in global communications will be around for a very long time.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.