While Facebook, Inc. Common Stock (NASDAQ:FB) has encountered a number of issues over recent months, we believe that it’s important to focus on one simple point when evaluating the stock: there will never be another MySpace.
What we mean by this is quite simply that, while you may or may not like Facebook in terms of how it handles certain facets of its job of managing the world’s only truly important life homepage social network, it is now and probably always will be, through time immemorial, the world’s only truly important life homepage social network. In other words, it is the immortal King of an empire, whether you like it or not. And that has clear implications for the value of its equity.
Facebook, Inc. Common Stock (NASDAQ:FB) generated sales of $13.2B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 10.6% on the top line.
In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($42.3B against $4.7B).
The Moat
By comparison, while Apple (AAPL) has executed extremely well, it is nowhere near as immune from competition as Facebook. Every single major product line that Apple produces has serious and deep competition that presents clear challenges for the company over the coming four, eight, and twelve quarters as key time horizons.
Meanwhile, Facebook has precisely zero competition, and likely will never have any competition. Check this article in 3000 years, and you will find it is more or less still correct. The book on the social network has been written and it ends with a period. And it is called Facebook.
Why do we believe this is true? Because people are lazy. If you are into Facebook – it is the platform you use to communicate with your friends and family on a moment to moment basis as you go about your daily life and they go about there’s – then you have an inescapably deep sunk cost bias to stay with Facebook.
If another comparable service arises – one that offers all of the same features and does so 25% better than Facebook – you will have to make the decision to shift your digital life over to that new service. And that decision only makes sense if all of your friends and family make the same decision at the same time. And then, if all of that is the case, you have to go through the process of coordinating this mass migration, and working to set up all of your connections, relationships, and personalization features on the new platform.
The bar for making such a decision and actually executing it in real life is impossibly high. And every potential competitor out there to Facebook will know this before they invest one dime. And even if it begins to start happening, Facebook will simply buy them the moment they see traction.
No, it will never, ever, ever happen. Facebook is what we have. It is the immortal King destined to sit on the throne of the social networking world forever.
Make peace with it.
FB reports Q3 earnings on October 30 after market close.