I am constantly amazed at how few people understand Facebook (NASDAQ:FB), which blew it out of the park with yesterday’s earnings release. More on that in a moment.
Critics harp on its software. They see it as a collection of services. Facebook is hardware, a set of hyperscale data centers that move any type of file across a country or around the world.
Facebook is the world’s free phone company. But any file is now a phone file. A video is a phone file. A purchase is a phone file. This story is a phone file. If you act on this story, buying or selling stock, that’s a phone file. too.
Facebook moves all this for free, in the most remote corners of the world, in exchange for ad revenue. It’s looking to collect more, from commerce and finance.
But the bottom line is this: Facebook is free. For the developing world, that means Facebook is freedom.
FB Critics Don’t Get It
Back to those results. For the quarter ending in March, Facebook reported 48% more revenue than a year ago. Mark Zuckerberg and friends beat the estimate by about $2.5 billion, coming in at $26.2 billion.
Earnings per share? That number was $3.30 versus $1.71 a year ago; estimates were for $2.34 a share.
As is usually the case, over 25% of that revenue will hit the net income line.
This means more cash flow than ever before, and even more cash on the books. Facebook had $62 billion of cash in December, despite spending $15 billion on capital goods during the year, mainly new data centers and upgrades.
Unlike “old style” phone companies like AT&T (NYSE:T), Facebook could write a check tomorrow, covering all its debts, and have lots of cash left over.
This means Facebook can continue to expand its data centers, most of them in the U.S. When it opened the first phase of its Georgia data center last year, the company announced it would soon add three more buildings. It’s also building new centers in Tennessee and outside Chicago.
This means Facebook can support increasingly sophisticated files, limited only by client devices. It expects to sell 10 million virtual reality headsets in the next few years.
About the Apple “Feud”
Reporters remain obsessed over Facebook’s “feud” with Apple (NASDAQ:AAPL). But there is no feud. There’s just a difference in business models.
Apple wants people to pay for data. Facebook is happy to give it away. Facebook reported 2.85 billion monthly active users in its most recent quarter. That’s almost 10 times more people than there are in the U.S.
To give data away profitably in the developing world, Facebook needs to know who is using it. This is called a “privacy violation” by Apple and many First World critics. It’s data in lieu of payment. Apple wants the payment. Facebook will take the data.
If a government tells Facebook to remove something from its servers, Facebook will do it. If there’s opportunity in moving digital money, or in creating markets around content, Facebook will seek it.
Critics lay nearly all of society’s ills at Facebook’s feet. Facebook is said to be the most vulnerable of the Cloud Czars. Scott Galloway has compared it to Saudi Arabia.
The Bottom Line
Facebook is about expanding access to information around the world. Right now, that’s monetized mainly through advertising. But commerce and commercial services are expanding. As people in the developing world keep trying to make money, Facebook will help them do it.
Facebook’s critics see data as property. Facebook sees data as a means for acquiring property. That model remains more popular for the same reason the internet is more popular than the telephone. It’s free.
Facebook, in other words, is the free internet. Apple is the walled garden. Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) also see the internet in this way, as bits they should charge for.
But the free internet is still winning. Facebook is still winning.
At the time of publication, Dana Blankenhorn directly owned shares in FB, AAPL, MSFT, T and AMZN.
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 newsletter.
