Facebook (NASDAQ:FB) has become a primary scapegoat for the Capitol Hill insurrection. But is a buying opportunity in disguise for Facebook stock
Both sides of the political aisle are now gunning for the service. The right attacks it for silencing Trump. The left attacks it for enabling him. It’s a global phenomenon. European regulators want Facebook treated as a publisher, responsible for what anyone posts on it. Turkey is investigating its effort to collect user data from WhatsApp.
The noise is even coming from inside the house. Facebook has taken down Ugandan accounts in advance of that country’s election. It is trying to remove “spammy” content from its news feed.
What Facebook Is
As I have written here many times, Facebook is not what its critics think it is.
Facebook is seen as a social network or a source of news. In fact, it’s a free global phone system, handling any type of communication – voice, video, text, software. Facebook’s cloud lets anyone be part of the global discussion, and the global market.
Because Facebook owns its cloud it pays no rent. Facebook doesn’t pay for the content on its cloud, either. Everything is built on cash flow from advertising. As a result, Facebook had just $10 billion in debt at the end of September, and almost $56 billion of cash and short-term investments.
Facebook doesn’t just own data centers. Facebook is building an undersea cable around Africa, the length of the Earth’s circumference. It is investing in new technology to drive down these costs. For about 10 years Facebook has been leading the Open Compute Project, dedicated to driving down cloud costs with open source and shared solutions.
Facebook isn’t just a platform for words and pictures. It can host any type of data, or software. It can be a marketplace, and it can run the market. That’s what its Diem aims to do, drive down the costs of commerce with a “stablecoin,” tied to real currency, that can move money without the costs of settlement.
Facebook is thus the biggest liberating force for people on the planet. That makes it a threat to government and all incumbent businesses.
A Facebook Peace
Content doesn’t matter to Facebook. If governments want to regulate what people may post on it, Facebook can deal with it. As with a river, what matters is that the data flows.
At the center of this year’s regulatory war in the U.S. will be Section 230 of the Communications Decency Act. This holds Facebook harmless from what users post, just as AT&T (NYSE:T) can’t be punished if you use the phone to plot a crime.
The regulatory regime matters less than the cost of policing that to Facebook. Facebook already employs thousands of content monitors, many of whom have suffered post traumatic stress trying to police it. How many more will be required and, more important, who will pay for them? Those are the key questions going forward.
The Bottom Line for Facebook Stock
Facebook stock opened for trade Jan. 11 at $261/share. That’s a market cap of $762 billion, a price-earnings ratio of 30.5. It’s almost 10 times Facebook’s estimated 2020 revenue of $84 billion. Yes, about one-third of its revenue hits the net income line.
So long as Facebook’s costs aren’t increased beyond its ability to provide free service, Facebook will be fine. A regulatory regime will become a moat keeping competitors out. American policymakers will tread carefully because, right now, it’s an American moat.
Facebook has been careful to site data centers in the U.S. and compatible countries, in Europe and in Singapore. That means only the U.S. government can seriously hurt it, and that would be at enormous cost to American interests. After all, do we really want China’s regulators running our global communications network?
Expect a negotiated settlement.
On the date of publication, Dana Blankenhorn held a long position in T.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
