Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Facebook (FB) is a Value Investment

Facebook (FB) is a value investment because it meets two important value criteria. Specifically, those criteria are being undervalued and having a poor reputation.

First, Facebook was cheap at $170.49 a share on 6 February 2018. Second, Facebook is making a lot of money. Second, Facebook has a terrible reputation which limits its value.

Facebook is a value investment because it has built the world’s largest social media empire. For instance, Facebook itself had 2.3 billion users in 4th Quarter 2018, Statista estimates. Meanwhile, the Facebook-owned messaging app WhatsApp had 1.9 billion users in 180 countries in December 2018.

Facebook is the Largest Social Media Empire

Moreover, four of the top 10 social networking apps in the USA in July were Facebook-owned, Statista calculates. In detail, those apps are Facebook (168.76 million users), Instagram (116.99 million users), Facebook Messenger (110.95 million users) and (WhatsApp 20.94 million users).

Hence, Facebook’s solutions have 417.34 million users in the United States. Strangely, this number exceeds the US population of 328.152 million. To clarify, there are obviously many people who use three or four Facebook-owned apps. Hence, Mark Zuckerberg knows how to get customers coming back for more.

In contrast, the most watched TV network in the United States; NBC, had 7.876 million viewers in 2018, Statista estimates. Comparatively, the four big US broadcast TV networks (NBC, ABC, FOX, and CBS) had 25.085 million viewers in 2018.

In comparison, the Big Four broadcast TV networks’ “audience” equals 6% of Facebook’s American audience. Thus, Mark Zuckerberg is now the greatest media baron in American history. Therefore, William Randolph Hearst and Rupert Murdoch are jokes compared to Zuckerberg.

Facebook Owns Social Media

Under these circumstances, Facebook (FB) is a value investment because it owns social media.

For example, Facebook owns four of the top 10 social media apps on Earth, Statista calculates. Specifically, those apps are Facebook (2.234 billion users), WhatsApp 1.9 billion users), Instagram (one billion users), and Facebook Messenger (1.5 billion users).

Thus, Facebook’s social media had 6.034 billion users out of a global population of 7.681 billion people, in October 2018. Therefore, Facebook has an audience of several billion people even with duplicate users.

In the final analysis, Mark Zuckerberg is the greatest media baron of all time. In fact, Zuckerberg could be the first person to connect the world with a global communications network.

Facebook (FB) is an Incredible Value Investment

Facebook has built the greatest communications network in human history and they are selling shares in it for $170. If that is not a value investment, I do not know what is.

More importantly, Facebook (NASDAQ: FB) is making a lot of money. For example, Facebook reports a gross profit of $14.118 billion, an operating income of $7.82 billion, and a net income of $6.882 billion for 4th Quarter 2018.

Moreover, Facebook records revenues of $16.914 billion for 4th Quarter 2018. Impressively, that revenue grew at a rate of 30.39% during 4th Quarter 2018.

Facebook (FB) is Generating a lot of Cash

Best of all, Facebook (FB) is generating a lot of cash. For instance, Facebook reports an operating cash flow of $7.618 billion for 4th Quarter 2018. Plus, Facebook recorded a free cash flow of $3.317 billion on 31 December 2018.

 Hence, Facebook is a cash-rich company. Tellingly, Facebook reported $10.019 billion in cash and equivalents and $31.095 billion in short-term investments on 31 December 2019.

Therefore, Facebook had $41.114 billion in the bank at the end of 2018. Thus, Facebook is a cash-generating network rather than a social network.

Facebook (FB) is a value investment because of its terrible reputation

Finally, Facebook has a very terrible reputation which makes it a value investment. Fortunately, this reputation has an unfair and irrational basis.

For example, many people unfairly blame Facebook for the election of unpopular U.S. President Donald J. Trump (R-New York). The current irrational conspiracy theory is that Russian hackers influenced U.S. public opinion with Facebook pages that spread misinformation.

Notably, knowledgeable observers of American politics point to other factors for Trump’s elections. Those factors include; the incompetence of the Democratic candidate; Hillary R. Clinton (New York), voter suppression, and a backlash against the Democratic Party. For instance, I think we can attribute Trump’s success to African-American; and leftwing voters, punishing the Democrats for nominating the white moderate Hillary Clinton.

Why Investors should buy Facebook (FB) Now

Thus, the criticism of Facebook is a false narrative. Moreover, that false narrative is unlikely to withstand the test of time.

For instance, the narrative will collapse if a Democrat wins the 2020 presidential election. Tellingly, Democrats won impressive victories in the US House of Representatives and several governors’ races during the 2018 midterm elections.

Under these circumstances, Facebook’s share price is likely to soar in 2020 and 2021 as investors realize the criticism is false. In addition, the Facebook rigged the election theory could take a bigger hit if special counsel Robert Mueller’s investigation of the Russian interference allegations concludes with no Trump indictment.

I predict Facebook’s share price could increase if the allegations of Russian interference collapse. Finally, Facebook’s media empire will last but Trump and the Russia conspiracy theory will become historical footnotes in a few years. Thus, Facebook is a great long-term investment.

Facebook (FB) should issue a Dividend

Facebook (FB) is a value investment because it is a stock that should issue a dividend but does not.

I think Facebook should issue a dividend because it is a cash-rich company with a low share price. Like eBay (NASDAQ: EBAY); which plans to issue its first dividend in March 2019, Facebook is under-appreciated by Mr. Market.

A dividend will attract income, institutional, and growth investors to Facebook (FB). Interestingly, I think Facebook will be very attractive to retirement investors.

In particular, Facebook’s products are popular with Baby Boomers (Americans born between 1945 and 1964). Incredibly, 10,000 Baby Boomers reach America’s standard retirement age (65) each day in 2018, The American Association of Retired People (AARP) claims.

Facebook (FB) is a Long-term Value Investment

Hence, there will be a lot of demand for income and dividend stocks among retiring Baby Boomers. Moreover, Facebook is likely to be one of Boomers’ favorite stocks so its share value could increase with demand.

Thus Facebook (FB) is potentially a good long-term value investment. Under present circumstances, I think people who Facebook today and hold it for a few years will enjoy dividends and share price growth.