I’ve been embroiled in an ongoing debate at work about the merits of investing in Facebook. For someone who has had and actively used a Facebook account since 2005, I see it as a no-brainer. And yet, there are still dinosaurs roaming the earth who haven’t been on Facebook before. In most cases, they’re the ones saying Facebook is doomed to failure. Here’s my rebuttal: five reasons to buy stock in a Facebook IPO.
1) Facebook OWNS the Internet. The site currently accounts for 25 percent of EVERY SINGLE page view that’s made on the Internet in the U.S. That’s just a mind-boggling statistic, and it’s made even more mind-boggling by the fact that that’s more than 5 times the number of page views Google controls. Even on Google, four of the Top 10 most-searched keywords in 2010 contained the word “Facebook.”
2) Facebook has barely started dipping its toes in the marketing pool. Even now, when you log onto the site, you’ll likely see just one ad tucked off on the right-hand sidebar of the page. That’s a much different experience than the one you get when you perform a Google search or (shudder) log into MySpace. It seems Facebook is looking not toward banner ads as the path to riches, but rather the development of relationships between people and brands. That approach is already paying dividends as some estimates say the company generated revenue of $2 billion last year.
3) Facebook has yet to tap into its growing network of Web publishers as a marketing tool. Already, more than 2 million websites have integrated Facebook Connect with their login or commenting systems, and all 2 million of those sites could become eventual advertising outlets for Facebook (provided they’d be willing to share their ad revenues with third parties). Even Facebook Like buttons and Fan boxes could serve as outlets for banner ads. This change alone could add some $20 billion in revenue to Facebook’s bottom line.
4) Facebook’s surge in valuation (its quadrupled in two years) isn’t unprecedented. You have to look no further back than 2004 to a time when Google, Inc. (NASDAQ:GOOG) was valued at a mere $50 billion on sales of $3.2 billion. A year later, Google’s revenue had nearly doubled, and the company was valued at $120 billion, according to Bloomberg. Growth by phenomenal leaps and bounds is possible when you have achieved truly global scale.
5) Facebook Credits will start adding up to real cash for the company. The purchase of virtual goods is already mainstream in countries like Japan and China. It’s hard to wrap your mind around if you don’t live and breathe online games, but gamers (even casual gamers) are willing to open up their pocketbooks to buy virtual goodies like body armor for their soldiers, new hairstyles for their avatars, special guitars for their virtual band members, and, well, just about anything else you can think of.
When users buy these credits through Facebook at 10 cents a pop, Facebook skims off 30 percent, then gives the rest to the game developers who made the application. Talk about a great way to make money: no inventory, no overhead, and no actual product.
It seems Facebook isn’t looking to take the easy way out by selling out its users to marketers in exchange for garish banner ads. That’s one of the ways its avoided the fate of MySpace, and it’s one of the reasons the company has a $50 billion valuation. It’s clear that Facebook isn’t in a rush to IPO, but when they do, I for one will be there.