Facebook (NASDAQ: FB) CEO Mark Zuckerberg was back on Capitol Hill this week, looking very uncomfortable. A day earlier COO Sheryl Sandberg was grilled in Los Angeles. As they spoke, FB stock rose to more than $185 per share. That’s a market cap of $531 billion, on $62 billion of revenue for the last four reporting periods. That’s almost twice the value of AT&T (NYSE:T).
Facebook is worth twice what AT&T is worth because what was once dubbed just “the social network” now has a fast-growing network of cloud data centers that extend its services around the whole world. True, most of the questions faced by the executives centered on Libra, Facebook’s transaction scheme. They were both grilled about fake news and encryption, about a host of issues of interest to U.S. analysts, media people, and policymakers.
Yet the differences between the world that Zuckerberg and Sandberg are facing and the one that politicians and critics see is increasingly stark.
What do investors know that policymakers don’t?
It’s a Global Internet
Facebook is not really a U.S. company.
Most of its traffic happens in the developing world. There, it replaced a host of local regulators. In the 20th century they handed out connectivity with an eye dropper, at enormous prices. They kept their nations from joining the internet.
Cellular technology helped open that door. Facebook ran through it. Nearly all Facebook users, 96%, access it through mobile devices.
A Facebook message takes less bandwidth than any phone conversation. With smartphones becoming ubiquitous, it means anyone can now be part of the world market. A billion people have been raised out of poverty this century. Most use Facebook (or an owned-app) routinely.
Facebook is the greatest anti-poverty program, and the biggest medium, America has ever seen.
China is Winning
I watched the Zuckerberg hearing.
Each representative on the panel brought their own agenda. One opposed cryptocurrency because of terrorism. Another opposed anonymity because of child porn. But cryptocurrency works where local currencies don’t, like Venezuela and Zimbabwe. Anonymity is as important to Kurdish freedom fighters and Hong Kong’s demonstrators as to sexual deviants.
The U.S. Constitution is a local ordinance. The Federal Reserve is a local regulator. But on the internet, our ideals and currency must compete with China.
Right now, China is winning the internet. Beijing doesn’t worry about these questions. They just advance and punish opponents who don’t toe the party line. It’s bottom-up regulation of speech and commerce. Ours runs from the top-down.
The alternatives to Facebook are Tencent’s (OTCMKTS:TCEHY) WeChat and Alibaba’s (NASDAQ:BABA) Alipay. WeChat provides low-cost global connectivity. Alipay provides a low-cost, global financial transaction network.
These services have an enormous head start. Facebook is the only American company trying to compete. They’re being hobbled.
American policymakers want to extend the reach of U.S. law around the world, and the U.S. dollar. But Facebook can’t afford to care about that. Visa (NYSE:V) has dropped out of Libra, fearful of the policy blowback. But the Libra Association is based in Switzerland. Facebook could easily base it in the Cayman Islands.
That’s where Alibaba is based.
The Bottom Line on FB Stock
Investors are ignoring the noise. While Zuckerberg spoke, FB stock rose 2%. Zuckerberg’s personal fortune rose by over $1 billion.
But there was a snake hiding under the table when the internet was created in the 1970s.
How can you have a network for global communication when people can’t agree on what can, and can’t be, communicated? How can we beat China in that market, when they have scaled services to take around this new world and we only have Facebook?
The future of the world won’t be decided in a Congressional hearing room. It won’t be decided at a Federal Reserve committee room.
It will be decided online. Before hobbling Facebook, policymakers need to think about that.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA.