Facebook Investments; What’s Next for the Tech Giant?

Facebook is made up of more than 50 companies.

The social networking giant, which you’ve no doubt used 18 times in the last hour, launched in 2004 and has since gone from strength to strength. Today the company has a market cap of $375 billion, which puts them in similar company with the likes of Microsoft and Berkshire Hathaway.

Their success is in part, to the smart acquisitions made by the leadership in the last decade. Let’s take a look at some of the social network’s biggest hits as we consider the question: is it time to invest in Facebook stock?

Instagram

Internet denizens collectively raised their eyebrows in 2012 when Facebook acquired Instagram for $1 billion dollars. At the time, Instagram had 13 employees and made no money. It seemed mad.

Today that deal looks like a slam dunk.

From around 30 million users four years ago, today the photo-sharing app has 500 million monthly active users. Even the Pope is on Instagram! Now, if only he can figure out how to get more followers than Kim Kardashian…

Source: Instagram.com

Instagram brought in half a billion dollars in revenue in the first quarter of 2016 with many projections saying the photo-sharing app could bring in over $3 billion before the year is out.

WhatsApp

If the Instagram deal was huge, then WhatsApp totally blows it out of the water. Facebook paid nearly $40 per user to Instagram, but shelled out more than $55 per user as they forked over $22 billionf2   f1to the founders of WhatsApp. At the time the company only made $20 million dollars a year (according to estimates by Forbes magazine) and was operating on a loss. It was a bold move and in line with the company’s desire to absolutely dominate mobile.

That was 2014, just a mere two years ago. Where are we now?

A billion users.

f3

It still doesn’t make much money. In fact, Facebook announced that it would be cutting subscription fees on the service, making it totally free. It might be that Mark Zuckerberg is playing the extremely long game here, or is deriving some other benefit (access to user data perhaps) that keeps him sated. After all, they have access to billions upon billions of messages, in addition to user location and contact lists.

Oculus VR

This one represents a bit of diversification from the social network. Acquired for $2 billion in 2014, it seems like a bargain to be at the forefront of the Virtual Reality revolution.

The fact that Facebook took a punt on Oculus meant that overall investment in VR tripled since the acquisition. Facebook investing in Oculus put the VR race on turbo-charge.

Estimates are that Oculus will sell 600,000 units this year and more than two million next year. This year Oculus could bring in 10% of Facebook’s revenue, generating $400 million.

And they’re just getting started.

Ascenta & Others

Ascenta is a UK-based company which builds UAVs, unmanned aerial vehicles, and Facebook acquired them for $20 million. Facebook’s got drones now, guys.

Other notable acquisitions include LiveRail, a publisher monetization platform, for half a billion dollars as well as Pebbles, an augmented reality start up, for $60 million.

Should You Buy Facebook stock now?

Facebook has become an internet giant. Look at how far it’s come since the early days in Mark Zuckerberg’s Harvard dorm room. It’s done so by focusing on user growth, prioritizing it above all else. They’ve also since made a number of shrewd acquisitions to help them dominate in mobile as well as venture out into new areas.

On the negative side, one has to be aware that Facebook is almost entirely dependent on advertising revenue. But then again, so is Google.

It’s also hard to imagine Facebook going defunct, like Napster or Myspace, but that risk does exist – however small. Furthermore, the social network is fighting off competitors in the form of Twitter, Snapchat and even Apple and Google.

At the end of the day, the company has solid fundamentals and a kickass game plan that they are not shy to execute. The only question then becomes, is the share price worth it?

The answer to that is a bit outside the scope of this post but let’s leave it at this: tech companies tend to be grossly overpriced when evaluated by more classical investing models. It’s almost certain that this trend will hold for Facebook.

Is Facebook a deal at $130 a share? Probably not, you just need to figure out if you’re willing to pay the premium.

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