This has been a hard week for Facebook Inc (NASDAQ:FB) and FB stock. Its self-selecting “news” feeds are being blamed for Donald Trump. But the company’s problems go well beyond Trump.
Governments around the world are balkanizing the internet, telling websites, and users, what they can read, write and think.
From Europe’s “right to be forgotten” to China’s “great firewall,” from Africa to Turkey, governments are seeing communication between people as something that can, must and will be tamed.
This is very bad for any company which, like Facebook, grew up on the premise of openly communicating across personal and physical borders.
If Facebook is to continue to grow — the FB stock price action on Nov. 10 (a crash of nearly $10 per share, then a slow recovery of half that) indicates real skepticism on that point — then the key will be new technology and emerging markets.
The company has some apps for that.
FB Stock and Emerging Markets
CEO Mark Zuckerberg, who transformed FB from a fast-growing “social network” four years ago into the hyper-growth “mobile network” form of today, is focused on delivering services not just on the hardware and networking schemes people may want, but on those that they have.
Its new Snapchat competitor, Flash, was built specifically for markets where WiFi is scarce and connectivity is weak. It does represent an upgrade for consumers in places like Brazil, who are still using text messaging but will eventually communicate by pictures taken on smartphone cameras. But it’s not as network, storage or compute heavy as its larger rival, and in those markets, that is important.
Facebook stock is also finding challenges in Africa, where growth is slowing due to poor-quality networks. Its Free Basics service, where it works with local operators to deliver free bits in 53 countries, is said to have brought 25 million new people online, although it’s controversial by making FB services the basic internet people see. It has been banned in Egypt and refused in India.
Express Wi-Fi is supposed to help small entrepreneurs bring communities online, and Aquila could be a fleet of planes beaming internet signals from the sky. But the explosion of SpaceX’s Falcon 9 rocket in September, which destroyed Facebook’s Amos 9 internet satellite, was a huge blow to those network extension hopes.
FB Is Becoming a Tech Company
In the U.S., FB is becoming a genuine tech company, not just a big company that uses tech.
Facebook’s Open Compute Project, which it first launched to help build its own data centers, is now getting contributions from other big companies, like Microsoft Corporation (NASDAQ:MSFT), creating a do-it-yourself culture among the biggest Internet companies, who built their original centers on low-cost computers with their own racks.
FB is working on millimeter wave technology that can deliver multi-gigabit speeds without wires. Reach is limited with such high-frequency waves, but Facebook engineers have tossed them across 13 miles, and supplemented them with line-of-sight optical links to run 20 GBits using frequencies as high as 2 GHz, delivering almost 10 bits per second for each Hertz of bandwidth, to be used as backhaul for local Open Cellular access and the Aquila planes.
FB has also introduced Backpack, a modular switch that can transfer data at 100 Gbps inside a data center. This could create serious competition for Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR), being much faster than what they offer.
It’s also open source. As huge customers take control of their own basic technology, vendors may get squeezed out, but the customers will see lower costs allowing them to build more such centers and gain more power.
Bottom Line on Facebook Stock
Since I seldom use Facebook, and I resisted buying FB stock until recently. I’m underwater on the investment.
Despite the company’s moves into new technologies and new niches, this is an investment game where the numbers don’t matter for Facebook stock. Bringing almost 25% of $7.011 billion in revenue to the bottom line, as it did in the third quarter, won’t matter to FB stock bears who see the content challenges rather than the technology opportunities.
Facebook stock will be a big victim of the American election; therefore, those who believe in the technology should get in now before the FB stock price rises again.
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 MSFT.
