Friday, September 14, 2012
Facebook: A value investment?
Not quite. But the pessimism is over done. The valuation of sub $50B given the potential ad revenue (mobile and desktop) is too cynical for a platform with 500m active users. What turned the table for me is the hope and promise of the new Facebook Exchange. This tool sells real time data on user interest and then sells the add spots related to that subject. "Facebook is doing a better job than Google Inc. (GOOG) in getting Web surfers to click on advertising based on browsing history, according to some partners using Facebook Exchange. Facebook Exchange, or FBX, generates as much as four times the return on ad dollars than other real-time bidding systems, said Triggit Inc., which makes software tools to help Facebook deliver the ads. Another partner, AdRoll, said advertisers used to getting $10 for every $1 they spend are making $16 for every dollar spent on FBX." If Facebook is able to garner even part of the promise of this enhancement of the platform, the valuation will skyrocket from here. Unfortunately, based on the authors personal 'user experience' with Facebook, this investment is still a opportunitistic trade on the markets enthusiasm for high potential concepts rather than an intended long term holding. The author has already initiated a position in Facebook at $21.90.