Facebook (NASDAQ: FB ) is a profitable company with a large competitive advantage of network effects and healthy margins. It has more than a billion users -- probably the first company in the world to claim such a feat. The company has changed the way society interacts, and it knows more about you than your own mother.
It is not yet a $50 billion-plus company, even though that's its current market capitalization. And it shows no signs of becoming one in the near future. There's still great potential for the company, but there are better places to put your money right now.
A lack of a catalyst
Those billion-plus users each pay exactly $0 to be a member. Facebook earned only $1.35 in average revenue per user last quarter from advertising and payments. Unfortunately for Facebook, there are no royalty payments for changing global culture, and it has yet to come up with a system to charge mothers for access to their children's information.
The company sits on vast resources, but the monetization of such resources outside of advertising remains elusive. Additionally, companies are hesitant to commit advertising dollars to unproven platforms. The amount of money spent on Internet and mobile advertising lags the percentage of time Americans spend consuming that given media.
Meanwhile, spending in the established print advertising industry greatly outpaces the amount of time Americans actually consume it. The momentum toward online advertising, and especially mobile advertising, must pick up to match consumption. While this could mean a future windfall for Facebook and other online ad networks, they still need to prove the efficacy of their respective online and mobile advertising offerings.
And so Facebook remains expensive
With an undefined future, attempting to value Facebook is nearly impossible. There are still too many questions about monetization, just as there were a year ago. And in the meantime, Facebook will trade based on hype alone. There are better places to put your money while Facebook sorts out its future.
If a catalyst does come along, there will be plenty of time to pick up shares. If Facebook truly finds its monetization formula, paying a few percentage points more for the stock won't hurt the enormous returns that could come. For now, keep your eyes on Facebook, but your wallet closed.
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