Facebook (NASDAQ: FB) has officially become a value investment for a very simple reason. It is making a lot of money – in fact the company is so profitable that it might be justifying the $166.68 (€139.20) share price listed on August 28, 2017.
The most astounding number at Facebook was the cash and short-term investments which grew to $35.45 billion (€29.60 billion) on June 30, 2017. That number actually exceeded the revenues of $33.17 billion (€27.70 billion), FB reported on the same day.
Growth of cash and short-term investments at Facebook has been incredible. The company’s cash supply grew by $12.16 billion (€10.49 billion) during the 12 months that ended on June 30, 2017. The Social Network reported cash and short-term investments of $23.29 billion (€19.45 billion) in June 2016 and $35.45 billion (€29.60 billion) a year later.
If that was not enough, Facebook has been adding around $3 billion (€2.51 billion) to its bank accounts every quarter, or stashing about $1 billion (€840 million) in the bank every month. For the record, the company reported $26.14 billion (€21.83 billion) in cash and short-term investments in September 2016; $29.45 billion (€24.59 billion) in cash in December 2016; $32.31 billion (€26.98 billion) in liquid assets in March 2017, and $35.45 billion (€29.60 billion) in cash at the end of Second Quarter 2017.
What will Facebook do with all that Cash?
The $35.45 billion (€29.60 billion) question is what will Facebook do with all that cash? An obvious use; that value investors would love, is to issue a dividend. If that happened Facebook would become a widows and orphans stock, a cash-rich company – that pays good dividends.
Another obvious use is acquisition which raises all sorts of questions such as what Facebook will buy next. A fascinating target would be Twitter (NYSE: TWTR) which would raise fears of monopoly. Other possible buys include Telegram and entertainment production organizations.
An interesting possibility is that Facebook will try buying a TV network or even a movie studio. A dark-horse acquisition is Netflix (NASDAQ: NFLX) which is growing like crazy but losing money at an incredible rate. Netflix would help Facebook become a major video entertainment player.
Facebook is a Money Making Machine
One eventuality is clear; Facebook is going to generate even more cash. Its network and money-making capacity are growing at a fearsome rate.
Some examples of Facebook’s capacity for generating vast amounts of money include:
Revenues of $33.17 billion (€27.70 billion) that grew by $11.01 billion (€9.19 billion) in the year that ended on June 30, 2017. Facebook reported $22.16 billion (€8.51 billion) in revenues at the end of second quarter 2016 and $33.17 billion (€27.70 billion) a year later.
Assets of $73.84 billion (€61.66 billion) that grew by $18.10 billion (€15.12 billion) during the last recorded year. FB reported assets of $55.74 billion (€46.55 billion) for second quarter 2016, and $73.84 billion(€61.66 billion) a year later.
$19.38 billion (€16.18 billion) in cash from operations on June 30, 2017, this number increased by $5.45 billion (€4.55 billion) over the last-recorded year. Facebook reported $13.88 billion (€11.59 billion) cash from operations in June 2016.
A free cash flow of $3.916 billion (€3.27 billion) on June 30, 2017.
A quarterly profit margin of 41.78% for Second Quarter 2017.
A market capitalization of $484.07 billion (€404.25 billion) on August 28, 2017.
An enterprise value of $447.57 billion (€373.77 billion) on August 28, 2017.
The obvious conclusion here is that Facebook is going to make a lot more money. Even if it is overpriced, this stock’s owners are going to make a lot more money. Shareholders were rewarded with a return on equity of 23.28% on June 30, 2017.
The other big takeaway here is that social media can be worth a lot of money if it is done right. The problem is that Facebook seems to be the only company that knows how to do that.
Facebook’s Growing Social Media Assets
Even though Facebook’s cash is astounding, it might possess a far more valuable asset in terms of its’ social media footprint.
An incredible example of this is WhatsApp; the messaging solution that Zuckerberg purchased for $19 billion (€15.87 billion) back in 2014. Although it is largely unknown in North America, the size of WhatApp’s ecosystem is staggering.
There were 1.3 billion WhatsApp users worldwide in July 2017, Statista estimated. That number was up from 1.2 billion in January 2017 and one billion in February 2016, if these figures are accurate WhatsApp is adding 100 million users every six months.
What is more interesting is WhatsApp’s capacity for long term growth. Back in April 2013 it had just 200 million users, so the service has gained 1.1 billion users in a little over four years.
Facebook has the World’s Largest Social Media Footprint
Owning WhatsApp alone would give Facebook the world’s largest social media footprint but there’s actually more.
Facebook itself had two billion users and Facebook Messenger had 1.2 billion users in June 2017, TechCrunch calculated. To add icing to the cake, another Facebook owned solution; Instagram, had 700 million users in June 2017.
The only social media solution that rivals Facebook’s stable of powerhouses is Alphabet’s (NASDAQ: GOOG) and I am not sure that video function is social media, TechCrunch’s data indicates. Twitter, in contrast only had 238 million users in April 2017 and Wall Street darling Snapchat (NYSE: SNAP) had just 255 million users in May 2017.
Mark Zuckerberg is the Greatest Media Baron in History
This makes Facebook the largest media empire in history, and Mark Zuckerberg the greatest media baron of all time. Past media tycoons such as Rupert P. Murdoch, Ted Turner, Joseph Pulitzer, Viscount Northcliffe and William Randolph Hearst look like small potatoes when compared with Zuckerberg.
At their height those giants were only able to influence a few million people in a few countries. Theoretically, Zuckerberg has the power to influence; and potentially mobilize, hundreds of millions or billions of people all over the globe.
The potential for disruption here is incredible; just look how Donald J. Trump was able to influence the U.S. presidential election with a simple Twitter account. Zuckerberg might be able carry out a similar propaganda campaign – on a global scale.
This will undoubtedly lead to calls for antirust action against Facebook. Another probable development might be demands for global antitrust action or some sort of United Nations agency to regulate social media across borders.
Facebook has become the world’s first truly worldwide media empire and Mark Zuckerberg the first global media czar. There are many potential dangers here, but all this makes Facebook a great investment and a tremendous moneymaker.
A slightly different version of this piece previously appeared at Market Mad House.