One month ago, I took a close look at Facebook Inc (NASDAQ:FB) stock and asked readers whether the stock had finally topped out.
Since then, it seems to have done just that — in the near term, anyway. FB stock has drifted sideways in a narrow range, from a Sept. 25 low below $163 per share to a recent high of over $174 per share. It opened for trade today at $172.61 per share.
The public image of the company has taken a decided turn for the worse. The fact that it let Russia influence the last election with ads seems a given. Formerly hands-off governments are taking a serious look at content regulation. Facebook Live, its video streaming service, looks like a fail as a marketing engine.
CEO and founder Mark Zuckerberg is King of all Media at an age (33) when his peers haven’t yet paid off their student loans.
It’s good to be the king… except when the peasants come with pitchforks.
Going for the Crown
The turning point for the company, and perhaps for Silicon Valley itself, was last month’s cancellation of a FB stock split meant to maintain Zuckerberg’s control, as he prepares to start donating the world’s fifth-largest fortune to good works.
The cancellation was a shock, given that companies from Alphabet Inc. (NASDAQ:GOOG,GOOGL) to Under Armour Inc. (NYSE:UAA) had made similar moves without complaint. Since then, the knives have come out, as ably described by our James Brumley.
The halo around Zuckerberg has become a devil’s tail at his back and he seems deaf to it, evidenced by his ill-advised “virtual reality tour” of Puerto Rico, for which he was forced to apologize. The “tour” was meant to boost the Oculus Rift VR headset, which is also looking like a failure.
No. Here’s Why
The Facebook Cloud
Facebook has a physical presence most of its rivals and would-be rivals lack. Facebook has its own cloud.
Zuckerberg’s decision to build-out infrastructure with an open source approach meant to keep costs down, means Facebook’s real rivals can be listed on the fingers of one hand — Alphabet, Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd. (NASDAQ:BABA).
The content failures of Microsoft Corp. (NASDAQ:MSFT), going back decades, mean its Azure cloud is staying out. For now.
The Facebook cloud gives the company the financial power today, and the incentive tomorrow, to buy out the biggest cloud content companies — be they Netflix Inc. (NASDAQ:NFLX) or Snap Inc. (NASDAQ:SNAP) or any old media company — in order to fill that cloud with content.
There is a second key asset, the Facebook Audience Network, the most powerful mobile monetization system ever created. Facebook today has the second-largest ad revenue in the world, behind only Alphabet, and is light years ahead of any “old media” company.
The Future of FB Stock
It’s true that Zuckerberg needs to grow up. It’s true that his crown hangs heavy today. But if you go for the king you better kill him — and no one can.
Facebook’s cloud and ad network make FB stock a long-term play, and while it may fall in the near-term, it can buy whatever assets it needs to keep that cloud and ad network full.
Facebook is still immature, but it has a long life ahead of it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB, MSFT, BABA and AMZN.