Don’t Underestimate the Impact of Diem on Facebook Stock

Everybody hates Facebook (NASDAQ:FB). But it has no impact on FB stock in 2020.

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A group of states led by New York plan to file an antitrust suit as early as next week. As many as four cases may be filed by the end of January.

Facebook is accused of abetting war crimes and a black market in antiquities. It’s accused of complicity with authoritarian regimes, censoring content from their opponents.

But so far this year, FB stock is up 40%. The company, founded in 2004, is now worth more than General Electric (NYSE:GE), Exxon Mobil (NYSE:XOM), Intel (NASDAQ:INTC), AT&T (NYSE:T) and International Business Machines (NYSE:IBM) put together. By about $40 billion, which is more than the value of Slack (NASDAQ:WORK).

Why? It’s because regulators still have no idea what Facebook is.

The World’s Free Phone Company

Facebook is a free, global phone company. Facebook gives people in Asia, Africa, Europe and the Americas the power to connect with the global marketplace for free.

American regulators or academics see Facebook only as a tool of oppression. It is, in fact, the greatest tool for human liberty yet created. Yes, it must deal with local regimes wherever it lives, even oppressive ones. Yes, it can create any kind of market, even illegal ones.

But America’s First Amendment, and its Section 230, are local ordinances. Facebook makes more money in India than it does in the U.S. It makes more in Southeast Asia than it does here. Within a few years it will make more in Africa than it does here.

Billions of people who had no connection to the outside world at the turn of this century now have smartphones, wireless Internet, and Facebook accounts. The power of that, for good and for evil, is almost incalculable.

It’s about to get bigger.

The World’s Free Bank

The reason is that Libra, originally a payments consortium that included banks and processors, is becoming Diem.

Diem will issue a cryptocurrency, technically a stable coin backed by real currency, called the Diem Dollar. It will let users trade goods and services, using this currency, over Facebook’s WhatsApp. Accounts will be held in a “digital wallet” called Novi.

The move is advertised as a way to separate the digital banking unit from Facebook. But it’s no more separate than Ant Financial is from Alibaba Group Holding (NASDAQ:BABA).

Facebook has more control over, and a bigger equity stake in, Diem than it did in Libra. That’s because it doesn’t have those pesky banking partners. Along with Kustomer, a customer service tool it recently bought for $1 billion, it means anyone can use Diem, WhatsApp and Kustomer to create a digital marketplace. Free.

My comparison with Alibaba is deliberate. Until China halted Ant’s IPO last month, Alibaba’s market cap had climbed above that of Facebook, powered by Ant. Facebook is now about $100 billion ahead.

The Bottom Line for FB Stock

Just as regulators don’t understand the significance of Facebook as a phone company, they don’t understand the significance Diem as a bank.

By moving transactions in the form of cryptocurrency, Diem eliminates settlement charges faced by Visa (NYSE:V) and other processors. The difference may not mean much to an American buying a $100 Christmas present at Walmart (NYSE:WMT). It means everything to an Indian farmer who makes 36,000 rupee, about $487, per year.

Winning the business of that Indian farmer may also not sound like much. But there are 150 million of them. There are billions more people, in cities throughout the developing world, who make just as little.

But their financial power, added together, is mighty. Facebook won’t let China and Alibaba take it without a fight. Do you really want to stop them?

At the time of publication, Dana Blankenhorn had long positions in BABA and INTC.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.


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