Look on the Bright Side, Facebook

Choose your cliche for Facebook (Nasdaq: FB  ) : The bigger they are, the harder they fall. The hits keep on coming. The jig is up. While Facebook shares continue to slide, the bad news piles on. But there must be some silver lining to all the news, right? Well, let's take a look at what Facebook investors can cheer about.

Fake users means more revenue per user
Facebook recently disclosed that 83 million of its user accounts weren't true users. These accounts were described as duplicates, user-misclassified, or undesirable. While advertisers may not appreciate the news that their advertising dollars are spent showing pages to, say, any dog with a Facebook profile, this does mean that Facebook's average revenue per user, or ARPU, is higher than reported.

When compared with other tech companies, Facebook's recent ARPU of $1.28 sits at the low end of the spectrum. Google (Nasdaq: GOOG  ) earns $9.52 in ARPU, LinkedIn (NYSE: LNKD  ) makes $1.84, and Yahoo! brings in $1.74. But if 83 million users are taken out of the 955 million reported monthly users, Facebook could have an ARPU of around $1.36. Facebook calculates its ARPU with its average monthly users over the period, so this is a little distorted, taking its final user count for the period, but is still an increase of 6%.

If it turns out even more accounts are suspect, ARPU could edge even higher!

Lower stock price means paying less for acquisitions
When Facebook announced it was acquiring Instagram for $1 billion, Facebook's stock was near its peak. The deal was made up of $300 million in cash, with the rest in stock -- and now with Facebook's stock fall, the deal is worth about $760 million. While Instagram will receive the same amount of shares, and shareholders will experience the same amount of share dilution, Facebook was able to acquire an upstart rival by leveraging their highest market value to date.

No one knows whether Instagram would have taken a deal worth a quarter of a million dollars less, and at this point it may have demanded even more shares, or it might not have wanted to be acquired by a company with negative press swirling around it. The timing was impeccable for Facebook, and it shows that Facebook's management is capable of shrewd moves.

Fake ad clicks will lead to a better product
Even more speculation came down on Facebook's ad platform following the widely reported story by the BBC's tech reporters about establishing a fake startup to test Facebook advertising and finding that 80% of clicks on its ads were from robots instead of humans. True or not, this news will drive Facebook that much harder to produce real value for its advertisers, or find an entirely different method of making money. There is real value in a communication and photo-sharing platform, and Facebook will probably find a way to extract that value.

Zynga's suffering means a possible bargain acquisition
While some may look at Zynga (Nasdaq: ZNGA  ) and be concerned that such a shaky company represents more than 12% of Facebook's revenue, the shakiness of the company might allow Facebook to nab the powerful partner for a steal. Assuming Facebook doesn't like depending on an outside entity that it can't control, it could acquire the gaming company for a bargain compared with even just a month ago.

The coming lockup period will give way to long-term investors
Institutions and IPO investors didn't get the slam-dunk IPO pop that the market foresaw and have since dumped shares. Longer-term investors are looking at Facebook's two lockup period expirations in August and November, concerned with another potential sell off. After this period, however, most of those trading Facebook and looking for a quick buck should have given up, and long-term investors who truly believe in Facebook's future will stick around, stabilizing the price.

Close your eyes for a while
Even though each bad bit of Facebook news has a good side, I believe it will be a while before Facebook represents a good investment. For a more in-depth look at Facebook's opportunities and threats, along with the key drivers you should monitor and updates for a full year, check out our brand-new premium research report.

Fool contributor Dan Newman holds no position in any of the above companies. Follow him on Twitter, @TMFHelloNewman.

The Motley Fool owns shares of Facebook, Google, and LinkedIn.
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  • Report this Comment On August 04, 2012, at 6:45 AM, Phool4Muulah wrote:

    Great write-up for FB investors, present and future. I personally do not own FB and will not own social media stock, but I see this as a valuable analysis for those going forward.

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