Count Facebook Inc (FB) Stock Out If You Hate Money

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Facebook Inc (NASDAQ:FB) crashed right after the election. And, after trying to put in a rally, FB stock crashed again on Dec. 1.

Facebook stock had reached its all-time high of about $130 per share early in November and it is now fighting to hold on to the $106-level of a year ago, opening for trade on Dec. 5 at $115.

None of the recent action has anything to do with FB’s financial performance. Operating margins are pushing 50%, net income is over 25% and September’s revenue of $7.011 billion was up 55% over a year earlier.

Still, Facebook stock is fully valued. At its present market cap of $333 billion, it’s worth 10 times the revenue it would have for the next year, if it keeps up its present pace.

The argument, detailed well by InvestorPlace contributor Aaron Levitt, is over whether FB stock can keep up that pace, or whether it has reached its potential and can only slow from here.

And part of that argument involves that dreadful word — politics.

Global Trumpism and Facebook Stock

Donald Trump is not the first example of nationalism rearing its head over the global internet, nor is he even the most recent, Italy’s Prime Minister having resigned on Dec. 4.

The argument is that nationalism is today’s greatest threat to the global internet that Facebook seeks to build. Nationalism can lead to censorship of ideas, and cross-border conversations that leaders don’t like. Conflict can arise when these leaders seek to extend their reach beyond their borders.

One example: The European Union is demanding that FB crack down on “hate speech” with a definition broad enough to stop almost any criticism of any group of people. It’s a standard that’s impossible to police, especially as nationalism continues to rise.

In the wake of Trump’s win, Facebook is being blamed for the genocide in Syria, for the failure of the media business, for both fighting and not fighting fake news.

The problem goes to the heart of FB stock, as well as services like Google from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Curation requires judgement, judgement is exercised by people and judgement can’t scale the way an algorithm does. By denying it is a media company, Facebook is trying to maintain its margins.

Is It All Bad for FB?

At its heart, FB is a communications medium. The business model behind Facebook stock depends on people feeling they can communicate freely. If they are afraid to do that, they won’t, and FB stock will suffer.

But this is all a set of assumptions. It’s not reflected in markets where censorship is prevalent, like China, where TenCent Holdings Ltd. (OTCMKTS:TCTZF) is now worth $230 billion, and has done even better, in the public market than Facebook has for its early VC backers.

This is not just the case in China. Yandex NV (NASDAQ:YNDX), called “Russia’s Google,” is worth almost $6 billion and considered a “buy” by analysts.

Government interference in the internet is no guarantee that internet services are going to atrophy. What matters less is what governments seek to do with connections than whether connections exist. You can get around blocks, but if there are no connections, it doesn’t matter.

That’s why Facebook stock’s most important initiative is Internet.org, which is seeking to improve global connectivity via everything from drone aircraft to lasers.

The Bottom Line on FB Stock

Political fashions change, but your view on a company should not be subject to political fashion. What matters is whether a company is meeting its goals, and planning adequately to meet its future goals.

By that measure, Facebook stock is doing fine. FB stock is no longer a trade, it’s an investment. Buy Facebook stock now and in five years, it will be worth more than it is now, maybe a lot more.

It’s still a buy.

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in FB and GOOGL.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/facebook-inc-fb-stock-you-hate-money/.

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