When Facebook Inc (NASDAQ:FB) first went public in 2012, and investors had to wait over a year for Facebook stock to get back to its $35 per share opening, analysts asked if there was room in the market for the social network.
Now, with Facebook stock at almost $142 per share and powering higher, there are some who believe, like InvestorPlace contributor Vince Martin, that there could be room for several. At least room for Snap Inc (NYSE:SNAP).
My guess is that there isn’t, that there is only one Facebook, and will be only one FB stock. The reason I feel that way can be found on a former corn field near Omaha.
It is the start of a huge new data center — Facebook’s ninth. This particular center will be wind-powered, but more importantly, it will be massive at almost 1 million square feet.
The data center build-out tells me FB stock is about more than social, and more than advertising, more even than itself.
Facebook stock is about cloud, and that is important.
FB Stock: Scale Is About Freedom
Facebook committed itself to building its own data centers in 2010 and it’s an expensive game to play. The company is expected to pour $7 to $7.5 billion into capital expenditures this year, up from $4.5 billion last year.
By pouring so much money into cloud centers, even launching its own Open Compute Project, which contributes code to the field’s advancement, Facebook has freed itself from worrying about the cost of hosting. It’s worried far more about the cost of not hosting. It’s like an airline building a giant plane fleet — just sell, baby.
So Facebook is pushing into bots, it’s pushing into markets like Africa and it’s pushing into mobile video like no one else. It’s creating new types of news feeds and scaling its ads to be the only real competitor to Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Along the way to growth it’s running into trouble. Its users are having their accounts searched for fraud, it’s accidentally hosting live rapes and it’s being threatened with huge fines over fake news.
But these problems, and the company’s modest spending on solutions, are not the points FB stock investors should focus on — scale is the point.
Bottom Line on Facebook Stock
Very few companies can afford to get into the cloud game.
It takes enormous free cash flow to play, with $1 billion a quarter being just an ante into the pot.
Alphabet gets it from search, Microsoft Corporation (NASDAQ:MSFT) from software, Apple Inc. (NASDAQ:AAPL) from devices. Amazon.com, Inc. (NASDAQ:AMZN) gets it from its store.
Meanwhile once-giant companies like Verizon Communications Inc. (NYSE:VZ) and Hewlett Packard Enterprise Co (NYSE:HPE) have been forced out. International Business Machines Corp. (NYSE:IBM) is hanging in by the skin of its teeth.
Cloud is the future of computing. Cloud is the “great game” on the leading edge of technology. Owning cloud, having them funded, means you’re going to be defining computing for the next generation. If you’re not able to build clouds, you’re not going to be playing that game. You’re going to be dependent, on clouds as customers or on clouds as vendors.
Facebook is independent, today and tomorrow. Even if FB traffic falls off a cliff, the company can quickly get into cloud hosting, or it can do other deals that fill its clouds with traffic. One theoretical example: Facebook could buy Netflix, Inc. (NASDAQ:NFLX). Its $62 billion market cap is highly affordable to a company worth $410 billion. You can argue they’re complementary. And wouldn’t Amazon, which presently hosts Netflix, be pissed?
Because Facebook owns its own cloud, FB stock is in another league. Don’t even think of comparing it to Snap. Facebook stock is a cloud play, and a very good one at that.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in FB, GOOGL, AMZN, MSFT and AAPL.
