- Facebook is investing heavily in Internet.org, a program aimed at providing internet access to people who aren’t online yet.
- Facebook wants to be a part of the “free & basic” internet access provided to every internet capable device even with no active data plan.
- Chinese minister visited Facebook’s campus. Is Facebook wooing China?
Facebook (FB) has, in its recent moves, focused on the functionality and user experience of its web properties. In our recent post on Mark Zuckerberg’s vision for Facebook, we had highlighted how he wants Facebook to become like a utility service for its large user base. It has the vision and desire to grow, even though Facebook owns some of the largest web properties in terms of reach and user experience. This strong desire for growth has reflected in Facebook’s financial performance in the last two years. Facebook’s can continue to grow either by increasing the Internet user base or by entering China. It seems to be doing both.
The company has grown revenues at an average rate of 63% in the first three quarters of 2014, while Net Income has grown 130% year on year, in the same time period.
Source: Facebook revenue data by Amigobulls
Internet.org: A future growth driver of Facebook’s target market
A company operating at the highest penetration level amongst internet users has probably one easy growth driver; to increase the internet user base itself.
Facebook being the web property with the highest penetration level among the internet users, incremental penetration could be a slow and painful process. The result with be a slowdown in user growth. The alternative approach could be to expand the pool of target users itself.
Zuckerberg’s dream of connectivity for all, which is the aim of the internet.org program, will help expand the total addressable market for web properties in general. A brief reading of the details makes it clear that Facebook will benefit to an even greater degree. Facebook will be among the “basic” internet content which will be provided free of cost to all mobile devices with internet connection capabilities. The idea is to provide basic internet content to all users who possess a capable phone, while access to other content from the internet will require users to subscribe to a data plan.
The plan of providing internet for all and Facebook as a basic feature available free of cost could ensure long term growth of Facebook’s user base as the number of people accessing the internet will continue to grow.
Since our last coverage of Facebook, the company has seen some major positives over the last few days.
A recently published study found that Facebook could help in tackling campus emergencies. The amount of time students spend on Social networks (Facebook in particular) and the availability of seamless mobile connectivity could make Facebook a primary channel of communication, even compared to campus radio and TV channels. The constant connection of students to Facebook, in the form of notification checks, could be leveraged to warn against emergencies, making sure timely action is taken.
More findings like these could increase Facebook’s popularity as an official channel of communication for campuses and institutions, aided by the fact that communication through social media is not too costly either.
A long standing thorn in Facebook’s flesh has been a ban of the platform in China. The Chinese government banned Facebook along with Twitter and The New York times in 2009, following riots in Urumqi. In what could be seen as a positive for Facebook, Chinese Minister for Cyberspace administration, Lu Wei visited the Facebook campus and met with Facebook founder Zuckerberg. While there isn’t any change of stance on the part of Chinese authorities, the meeting could be interpreted as a positive in light of recent developments of Instagram being banned in China following protests in Hong kong.
Facebook currently trades at not so cheap valuation multiples.
Facebook valuations are steep and it will require Facebook to sustain its current growth in revenue and earnings in order to justify its current valuation multiples. While Facebook could be an attractive stock for the growth investor, it will appeal lesser to a value investor.
In conclusion, Facebook’s internet.org program could turn out to be a long term driver of Facebook user growth while monetization improvements will drive Facebook’s revenues in the short term. Facebook’s ban in China has been a sore spot, with Facebook being inaccessible to 600 million Chinese internet users. The visit of Lu Wei to Facebook headquarters is a positive move and it will be interesting to see the Chinese government’s stance on Facebook and Instagram in the coming months. While Facebook continues to trade at steep valuation, the rapid topline growth and expanding profit margins make Facebook an attractive investment for the growth investor.