Aadil Mamujee

Facebook (FB) is under a lot of fire right now but despite public perception, I think that FB is still a great long term investment.

They’ve made many mistakes and lost consumer trust (with a certain segment of users) due to recent incidents such as Cambridge Analytica, data privacy in general and poor content moderation. 

However, their business continues to be very strong (2019: 2.5 BN users, $55BN revenue, $25BN profit and 35k employees,  $1.6M revenue / employee) and I think it will continue to grow and become more diversified over time. Right now, almost all of their revenue comes from advertising, which results concentration risk and has durability issue in a recession. 

There are three core segments of FB’s business – Core FB, Instagram and Whatsapp and they cater to different audiences:

• Core FB: Core FB has 2BN (a little bloated probably) monthly users. This is still very popular among baby boomers who have both time and money. Their engagement is solid, and they are a highly valuable audience from an ARPU perspective. It’s why monetization is still so strong. Core FB has seen a dip in engagement from younger audiences, and probably has low engagement with developed market teens.
• Instagram: Instagram has over 1BN monthly users. Instagram has strong engagement with younger people in developed markets and celebrities. Engaged people often have multiple accounts for multiple use cases (Interest X, close friends, ’normal’) and interaction / time spent metrics are very high – it’s probably the best product / interest discovery tool on the internet. I’m personally very excited about Instagram building shopping/transacting natively into its app – inventory management, transaction, shipping etc allow instagram to own more of the value chain, create a consistent experience for shoppers, and provide them with a completely new revenue stream (% of transaction) in addition to advertising. 
• Whatsapp: Whatsapp probably has 2BN monthly users. It has high engagement in most english speaking developing markets in Africa, SE Asia and Latin America. From my experience in Africa, it has completely revolutionized business and personal communication and will continue to do so over time. Whatsapp has very high revenue potential for FB in three areas:
  • Advertising – small business and business discovery through search and referral
  • Tools / subscription services – products to allow businesses to run better (e.g. CRM, template responses, workflow) are useful for both enterprise and small business and can generate subscription revenue
  • Payments – Whatsapp could power P2P payments (within countries and cross-border) as well as C2B payments which would open up a new revenue stream entirely for them, and bring more ‘core actions’ into their product. Payments and messaging are often strongly linked, and this is a natural extension of how people are already using the product

I think that Whatsapp (payments, business) and Instagram (discovery -> transaction) will allow FB to diversify their business model and tap into different market/people segments and think FB will continue to be a great long-term investment.

Disclaimer: I’m not a professional public markets investor, I don’t have a sense as to whether the stock is current fairly priced and came to this conclusion based on ‘value investing’ concepts and product/business thinking. This is not a recommendation to buy or sell FB stock.