[panarky]

Facebook isn't going to disappear, but the company's valuation has fast growth baked in the cake.

We're already seeing dramatic deterioration in DAUs and minutes per user.

This episode will cause a few users to leave Facebook completely, but many more will use it less.

And that deceleration in the growth rate will need to be offset with an acceleration in earnings and cash flow for the stock price to increase from here.

[adventured]

> the company's valuation has fast growth baked in

That used to be the case. It's trading at a particularly unusual discount today in fact, on a growth to valuation metric. It's radically superior to Amazon on that front. It's better than Google. And it's dramatically better than Microsoft (which barely has any growth).

Facebook is trading for ~23 times likely 2018 earnings. And perhaps 17 or 18 times 2019 earnings.

Google has half the growth rate of Facebook, with a higher multiple (messy earnings statements the past year, but it's reasonably around 30 times 2018 likely earnings).

Microsoft has barely grown earnings for a decade. Their sales growth is single digits. ~30 PE ratio.

Amazon? Ha.

Netflix? Ha.

Cisco has had a contracting business for years on the top line. Profit has also declined. They're being granted a ~20-21 PE ratio on the basis of zero growth. That's barely below what Facebook is getting for considerable growth.

Or take Activision, trading for ~55-60 times earnings, with something around 1/5th the growth of Facebook.

Facebook has a PE ratio a lot closer to Oracle, which has a stagnant business that hasn't increased earnings in years.

Even pathetic Coca Cola, which has a collapsing business (years of sales declines), is trading for ~30 times earnings.

McDonald's which has a business that has been contracting for years, is trading for ~25 times earnings.

Facebook is cheap in just about every way compared to the broad market and compared to most slow-growth blue chips.

[panarky]

It's only cheap if you assume that today's margin and growth rate will continue uninterrupted.

If margins get squeezed, or if growth slows, or both, the valuation is in jeopardy.

The average user spends 43 minutes per day on Facebook. Last quarter, users spent 2 minutes less per day.

What happens if Facebook is perceived as mildly toxic to many users?

Just like people used to drink gallons of carbonated high-fructose corn syrup every week, almost overnight most people decided that's not healthy, and soda sales have declined every year for 12 years straight.

What if something similar happens to Facebook? If a year from now people are spending 25 minutes a day instead of 40, what happens to the margins and growth rate that justify a $500B valuation?

[bsaul]

Most people i've seen move away from facebook ended up in instagram and whatsapp. So i'm not worried for the stock in the long term. They do however need to prepare for the post-instragram era. Not sure what it's going to be.

[pyjammas]

I've been curious about what the effects are of people moving to Instagram and WhatsApp.

I'm not too familiar with the former, but am I correct in assuming it's less useful, compared to FB proper, for both ads and information gathering?

And with WhatsApp, if everything is indeed end-to-end encrypted, would this not be even more the case? Instead of a steady supply of chats, photos, location data, FB would 'only' have metadata to work with. And ads are probably not really a realistic option at all.

Unless I'm wrong about all that, I imagine the value of these two platforms is significantly lower than the original value of Facebook (to them, anyways)

[gnode]

In Instagram's case, it's trivial to profile people by what they follow, and the platform has become heavily laden with ads. It was too much for me to bear, and the main reason I left it.

Also, I don't know about global statistics, but in the UK amongst adults, adblocker usage is around 22%. Delivering ads to these people becomes far easier in smartphone apps.

[deepbreath]

The WhatsApp client could still learn your interests from your conversations and request ads related to them from the server.

[pyjammas]

Isn't all that end-to-end encrypted?

[deepbreath]

It is, but your own client obviously has access to the conversation (how else would it display it on your screen?). So learning your interests can be done on the client-side, rather than server-side. Then your list of interests is reported to the server.

[collective]

oculus