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Different Economics: Facebook Is Nipping at Berkshire Hathaway's Heels

By Alex Dumortier, CFA - Jan 28, 2016 at 12:46PM

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Today's pop in the shares of Facebook Inc puts the company's market capitalization within spitting distance of Warren Buffett's conglomerate Berkshire Hathaway Inc.

U.S. stocks oscillated between gains and losses this morning, with the Dow Jones Industrial Average (^DJI 1.27%) and the S&P 500 (^GSPC 1.73%) up 0.54% and 0.71%, respectively, at 12:40 p.m. EST. Shares of Facebook Inc are outperforming sharply, up 15.73%, after the company reported blockbuster fourth-quarter results.

Bloomberg reported this morning that Facebook CEO Mark Zuckerberg has just overtaken the Koch brothers on the Bloomberg Billionaires list to become the sixth-richest person in the world, with a net worth of roughly $47 billion. Zuckerberg is 31 years old.

That's another milestone on a gold-paved road that has seen Zuckerberg turn a social network for college students into one of the two dominant players in digital advertising globally (the other being Google, now a unit of Alphabet Inc).

There are no two ways about it: Even a former Facebook doubter like this columnist has to admit the numbers driving the stock higher today are very impressive:

  • Mobile daily active users (DAUs) rose to an average of 934 million in December, a 25% increase over December 2014 (mobile monthly active users were 1.44 billion at the end of 2015!).
  • Total revenue rose 52% year over year, with net income more than doubling to $1.56 billion.
  • From a standing start in 2012, mobile advertising revenue accounted for roughly four-fifths of total advertising revenue.

Those are the sort of statistics that prompted Facebook chief operating officer Sheryl Sandberg to qualify the fourth quarter as "a defining moment for digital advertising." One analyst quipped that "Facebook and Google eat the world. Everyone else is showing very little share growth."

While Zuckerberg overtakes the Koch brothers, whose fortune was built on industrial activities including oil and gas, Facebook's market value is nipping at the heels of another conglomerate that's mostly involved in stodgy activities: Berkshire Hathaway, Inc.

Facebook's market capitalization is now $303.6 billion versus $308.8 billion for Berkshire Hathaway, according to data from Bloomberg. This is an illustration of the way in which technology, a global marketplace, and winner-take-all markets have created opportunities for wealth creation on a scale that could not have previously be imagined.

Think of it in these terms: By the time Facebook was founded in February 2004, Warren Buffett had already been at the head of Berkshire Hathaway for nearly four decades -- and he is arguably the greatest capital allocator in the history of business. That's a staggering observation.

That's why I believe it's likely the richest person in the world in 10 years' time will be one of the following four people: Mark Zuckerberg, Alphabet's Sergey Brin or Larry Page, or Amazon.com's Jeff Bezos. Through a combination of skill, focused effort, luck, and timing, these four businesspeople created dynastic wealth well within the span of a single generation, and that process isn't over.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Amazon.com, Berkshire Hathaway, and Facebook. 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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
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S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
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