Facebook's Future

Dear Reader,

Facebook, one of the world's five biggest technology companies along with Apple, Microsoft, Amazon and Alphabet(Google) has risen in market capitalization to 744.22 billion USD. A staggering amount of money. Facebook is trading at a Price/Earnings ratio of 32, so Facebook does not seem wildly overvalued.

That said, internet advertising, the main revenue engine for Facebook is seeing slowing growth of the total addressable market. Facebook needs to find new avenues of growth, if it is to justify its already huge market capitalization.

And Facebook is certainly going after financial services with its cryptocurrency Libra project and its payments initiatives. What is more, Facebook is making strides into online shopping with Marketplace.

However, it has proved notoriously difficult for a firm dominant in one are of the internet, hardware or software production to emulate its previous spectacular growth into other verticals. Just ask Microsoft, Apple and Alphabet. Amazon has had quite a success with its cloud services Amazon Web Services, though.

Facebook is facing one binary event. If regulators crack down on the social network as they have threatened in the past, Facebook may well face an existential threat which will slash its market value staggeringly quickly. What is more, if future growth projections currently built into Facebook's stock price prove unrealistic, Facebook stock will crash abruptly as it did several years ago. 

What is more, there is always the threat of another hot site, social network, coming out and attracting away all Facebook's users.

All in all, I think currently Facebook is overvalued by 40%. If no credible competitor threat emerges, though, Facebook could well be worth 700 billion USD again in 5 to 7 years again.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich