Since I last wrote about Facebook (NASDAQ:FB), and its second act as the world’s free common carrier, enormous numbers of bits have been spent looking at its past.
The prospect of a record-setting fine from the Federal Trade Commission along with additional oversight over Facebook’s handling of user data have made predictions of doom from last year seem prescient.
The company’s first quarter results were held down by preparations for paying its fine. Its F8 developer conference was overshadowed by the political pile-on.
That pile-on misses the point. Facebook has moved on. Yes, Facebook broke things, it’s paying (something) for them, but it’s bigger than ever and its ambitions remain untamed.
Facebook Stock, Today and Tomorrow
At its opening price of about $188 per share, Facebook is selling for roughly 10 times last year’s $55 billion in revenue. But it’s so profitable, the price to earnings multiple remains under 30. It has $45 billion of cash and securities to build new cloud data centers.
The challenge has always been filling those centers. In the past, conference plans have gone astray, but it has always managed to draw traffic. That traffic generated data it continues to monetize at an accelerated rate. While this year’s F8 announcements focused on privacy, this remains the business model.
Even if the Facebook service is losing steam, Instagram is more popular than ever. Facebook’s future is more closely tied to Messenger and Whatsapp. Instead of posting to the world, Facebook is focused on one-to-one and one-to-many communication of all sorts. This doesn’t mean there won’t be ads, or that the ads won’t be based on personal data.
Facebook claims “artificial intelligence” can clean up broadcast posts. But if the future is private, who will know if terror cells are organizing inside the system? The platform may be unbiased, but every user of it is biased. If Facebook is to become a global common carrier, it’s going to face common carrier regulation. This includes court orders to give user records to governments around the world who want to stop speech, or thought, they consider (each in their own way) to be a threat.
That’s why Facebook wants to diversify even beyond personal communications, into business communication , e-commerce, entertainment products, and even product design.
The main Facebook product itself is going back to its community roots, away from global discussions into local organizing. This won’t take the government heat off, but $3.4 million in lobbyist spending during a quarter is chump change. If the resulting regulation creates barriers to entry not just against companies like Snap (NASDAQ:SNAP), but cloud czars like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), which has already closed its social network, so much the better.
The Bottom Line for FB Stock
Unlike the other cloud czars — Google, Microsoft (NASDAQ:MSFT), Amazon.Com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) — Facebook remains the exclusive user of its own cloud, and dedicated to free service on a global scale.
The real news from F8 was that this isn’t changing. The nature of services will change. You won’t be able to link to most of it, the way you could a public Facebook page. But the iceberg of data will continue to grow, and Facebook will still control all the data inside it.
The challenge is to minimize how many people Facebook must hire to police this private traffic. Its lobbyists must keep bureaucrats out of the global data sausage factory, focused on the sweet, sweet profit product it produces instead. In buying Facebook stock today, you’re betting the sausage tastes better to global governments, creating more growth, than the data factory’s pollution costs.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now 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 MSFT, AMZN and AAPL.
