FANG

There was the nifty 50 on the 1970s and 1980s. There was the tech boom in the 1990s. There was a tulip mania in the previous centuries (1637) , and now there is the "mooning" of the cryptocurrency in contemporary times.

And now we come to the FANG, a group of US technology companies which share value has appreciated tremendously in recent years.

Facebook
Apple
Netflix
Google

Unlike Peter lynch or Warren Buffet, I don't have a strong opinion about whether technology companies are worth their salt or not. Both talked about buying simple business that even a idiot can run, a balance sheet that is clean and relatively debt free, capable management, investments moat and that can generate good returns with low capex,  and whether it is within your circle of competence.

For facebook, it is a different ball game altogether. Facebook is very management driven and led by leaders with strong vision and personalities to make things happen.
Granted strong management can give the company a very strong direction and vision, wandering into unventured territory is not easy feat. Nonetheless, the acquisition of instagram has boosted it's dominance on the social media sector and it is one of the few social media companies which actually succeeded in profitability from its products and services.

From a financial standpoint,
Although revenue growth is pretty impressive, it is highly dependent on growth of manly active users. With this metric, advertising and marketing companies will then feel confident to buy facebook products and services.

To launch election and advertising campaigns.
To use their collected personal data from personal users for marketing research.
And to launch targeted advertising through personalised facebook feeds.

Nonetheless, with the crackdown by the US authorities on data privacy and possible tightened regulation on the social media industry, there may be sharp increase on operational costs and possibly fines which are not yet accounted for. Future profit margin may dramatically decrease and the growth of monthly active users may be adversely affected.

One of the financial bloggers I respect a lot (Aswath Damodaran) has done a piece on Facebook. Although there might be a risk of being precisely wrong and there might not be insufficient margin of safety in his analysis, it presents a very through analysis on how technology companies can be valued. I might be doing a reversed DCF model to check if Facebook is indeed deeply mis-priced. I will revisit Facebook (the company, not just the feeds) in due course.

https://en.m.wikipedia.org/wiki/Nifty_Fifty

http://aswathdamodaran.blogspot.in/2018/04/the-facebook-feeding-frenzy.html?m=0#links

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