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