The Greatest Investing Story of the Next Decade?

Apple (Nasdaq: AAPL  ) was arguably the greatest investing story of the past 10 years. During that period, its market cap grew from $8.7 billion to roughly $545 billion today. And the world witnessed the introduction of the iPod, iPhone, and iPad -- products that have changed many of our lives in remarkable ways.

What will be the biggest story of the next 10 years? I believe Facebook might be the greatest company of the next decade and that its growth potential is similar to that of the outstanding companies in recent history at similar stages of their development. Understanding its almost indescribable potential could be incredibly valuable to investors.

A messianic quest to change the world
John Battelle, executive of Federated Media Publishing, recently told Wired that Facebook -- just like Google (Nasdaq: GOOG  ) , Microsoft (Nasdaq: MSFT  ) , and Apple -- wants to be the "place where we engage and store all of our data, and use it to do just about anything." He also feels that the most notably successful companies in recent years have all been "guided by the supreme arrogance of their founders' long-term vision. It's almost a messianic quest to change the world."

I think there's a very strong case to be made that Facebook is in the very early stages of its quest. It currently has 845 million monthly users, a number that is almost three times the entire population of the United States. It makes its money primarily through advertising, though it also has a growing payments revenue stream from its platform developers. Its total revenue in 2011 increased 88% to $3.7 billion with roughly 85% coming from advertising. Zynga (Nasdaq: ZNGA  ) , which provides online social games, accounted for 12% of its revenue. In future quarters, Facebook will be looking to expand the number of its users, while also increasing its revenue per user. Battelle believes the company knows how to "turn those dials" in order to create a profitable advertising engine.

Yes, but is it worth $100 billion?
The key question on everyone's minds, of course, is whether this business is worth $100 billion -- which is a possible valuation for the company after its IPO. Motley Fool CEO Tom Gardner feels that "earnings will now accelerate" and that investors shouldn't "lazily accept jokes about the IPO valuation." Fortune's Adam Lashinsky thinks "Facebook's growth potential is massive." He sees the company growing revenues from advertising and payments, while also pursuing new opportunities in mobile advertising. Battelle has said that "Facebook is an existential threat to Google."

I've heard concerns from commentators who feel that Facebook might be another Groupon (Nasdaq: GRPN  ) , which is down almost 35% since its IPO. Others have raised concerns that advertising doesn't work very well on Facebook, which will result in smaller revenue streams than analysts are anticipating.

I can understand those concerns, though I don't share them. Facebook is in another class altogether from Groupon, and I believe it will continue to improve its advertising engine. The number that most intrigues me is 845 million, which is the number of monthly users worldwide. The possibilities that such a number raises is almost beyond belief. For a lot of people I know, Facebook isn't just an Internet company. It is the Internet. Just because we can't precisely forecast all of the future revenue streams on our spreadsheets doesn't mean the cash flows won't be astonishing. They will be. There's no way they can't be when you are talking about a network this large.

My biggest concern about Facebook is whether it will continue to be the dominant social site on the Internet. Clearly, Google+ isn't much of a threat at the moment, but I wonder if more and more competitors will increasingly chip away at the amount of time people spend in the Facebook universe. When I look at how much time my 13-year-old and his friends spend on Facebook, I'm amazed by its power and dominance. But things can change fast in the online world. Remaining relevant will be the No. 1 challenge for Facebook over the very long term.

The social era
Facebook has had some serious doubters throughout the course of its history. When the company was valued at $15 billion in 2007, the Techdirt blog said, "it tips the scales in terms of totally ridiculous valuations." I've even ranted myself about the lunacy of folks buying virtual cattle during a Great Recession.

Despite all that, Facebook keeps on growing. Will I be buying on day one? Probably not, though I'm very interested in the company, and feel it has tremendous growth ahead of it. I'll be watching closely and may consider buying shares in the months after it goes public. I'm not quite sure it will be the greatest investing story of the next decade. But I'm not sure it won't be either.

The mobile revolution also promises to be one of the biggest future trends in the technology space, and our analysts have identified an intriguing company at the forefront of it all. To learn more about the company, have a look at "The Next Trillion Dollar Revolution." You can access the free report by clicking here -- it's free.

John Reeves owns shares of Apple and Google. You can follow him on Twitter where he goes by @TMFBane.

The Motley Fool owns shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 20, 2012, at 10:45 AM, pondee619 wrote:

    "revenue ... with roughly 85% coming from advertising"

    "Others have raised concerns that advertising doesn't work very well on Facebook,"

    Is Facebook wrong in depending on advertising for 85%+/- of its revenue, or are the "others"? Kinda seems like the $100 billion question going unaddressed.

  • Report this Comment On March 20, 2012, at 11:42 AM, GrandSlammer wrote:

    One great invest story of this decade will certainly by the mobile and social gaming sector as smartphones and tablets are growing rapidly, thereby creating an ever increasing customer base for the app developers. one good way to play this segment is Sweden based G5 Entertainment. more info at www.nordicinvestor.net

  • Report this Comment On March 20, 2012, at 12:21 PM, TMFBane wrote:

    @pondee619, great question! I've just been reading about when Sheryl Sandberg came on board. She actually held meetings on this very issue, and the consensus seemed to be that 70% or more of the company's revenues would come from advertising.

    85% does seem high, but I suspect revenues from other streams will lower that number eventually.

    Finally, I think they will get better and better with their advertising over time. This is a company with a lot of talent in that department now.

  • Report this Comment On March 20, 2012, at 4:35 PM, moneyman35 wrote:

    You have to rememeber that this is all very new stuff. The kids that have actually studied social marketing for an extended period of time are just out of college and the real dynamos will be graduating soon.

    This type of marketing is only just beginning to grow in my opinion.

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