Should we be worried about Facebook?

Henry Biddlecombe from Anchor Global Technology Fund explains why he is still ‘very bullish’ on the company.’

SIMON BROWN: I’m chatting now with Henry Biddlecombe. He is of course with Anchor Global Technology Fund, and my stand-in when I go off to the beach. Henry, I appreciate your time this morning.

We’re chatting Facebook. I got you to kind of unpack whether we should be perhaps more worried or less worried. Certainly the news around Facebook, whenever it comes out these days, seems to be bad. We’ve got the whistle-blower [incident] more recently, particularly that focusing around Instagram and the like. Is there some cause for concern, or is the concern perhaps that when you’ve got half the world on your platform, where do you go next?

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HENRY BIDDLECOMBE: Morning, Simon. I think sometimes stock prices are driven by near-term narrative, and that’s what’s happening with Facebook right now. I think the two primary issues acting on Facebook’s share price are, [one] yes, the two former data scientists who’ve testified that Facebook prioritises profits over the safety and wellbeing of children and national security. The other issue is the statistics we are seeing that suggest that Apple’s new privacy measures are having a negative operational impact on the performance of Facebook’s advertising business – at least on the iPhone.

SIMON BROWN: Yeah. That’s simply the ability to attract. On that first one and around Instagram, the one thing, I’m fairly sure that probably 50 years ago when TV came out and when computer games came out in the eighties, they were all ‘bad for children’. What’s good for children is probably climbing trees and eating dirt. Is Facebook being perhaps unfairly tarnished just simply because of its size?

HENRY BIDDLECOMBE: Look, I think so. The issues that are being cited have been issues with the media for decades already. It’s just that the nature and the format of media has changed and Facebook right now is the tallest tree, so it’s catching the most wind. Coldly speaking, do I think that this means Facebook is a poor or a bad business? No, I still think it’s a great business. I think they’ve got the ability to deal with these issues. They’ve now got a team of around 40 000 people who are trying to monitor and influence the quality of information on the platform. They’re also trying to prevent sort of harmful behaviour on the parts of users and bad actors, so I think they’ll get better at this. They’ll have to comply with, I’m sure, some legislation that regulators will come out with. But I think that the business will survive – probably.

SIMON BROWN: And regulation – usually in this sort of space, when you’re as big as Facebook, regulation is probably going to hurt, and perhaps quite a chunk of it, but you can manage it. You can go and employ 40 000 people. You can lobby Congress and at the end of the day, regulation is probably a good thing and Facebook is probably saying ‘we don’t mind some regulation; give us some guidelines’ in a sense.

HENRY BIDDLECOMBE: At the end of the day this is still the world’s most efficient advertising business. No other platform can target users like Facebook. At the same time they’re at a pretty critical juncture in terms of the e-commerce business. I think this might be the first quarter that they start to disclose the gross merchandise value that they’re processing through their platform for Facebook shops in partnership with Shopify.

If you compare it to Amazon’s third-party marketplace business, we’ve done some rough maths which suggests that that side of the business could add around 50% to their market cap. So at this level I’m actually very bullish on Facebook.

SIMON BROWN: I take your point on that. There’s lots we can disparage them about. At the end of the day, half the planet is on one of their properties. If I’m an advertiser I’m on Facebook. It’s just an absolute no-brainer, and my ability to target – I know because I’ve used it as a product before – is absolutely unrivalled in the history of advertising.

HENRY BIDDLECOMBE: Yeah. Look, there’s a very popular narrative at the moment that Facebook is losing relevance. We don’t see that if you look at the app download statistics in any region, the Facebook suite – if you want to call it that. WhatsApp, Instagram and Facebook feature in the top five or the top 10 in almost every country. The recent Facebook outage I think demonstrated just how aligned people are on the Facebook suite, and the engagement statistics also suggest that it’s still probably the most relevant advertising platform in the world and it could become one of the most relevant e-commerce platforms in the world.

SIMON BROWN: At the end of the day, if we wrap this up, yes, there’s a lot of noise, and much of it bad, swirling around Facebook. But I take your point around that tallest tree.

The reality is this is going to come and go from time to time, but as an investment case there’s still a strong case for holding Facebook. If anything, this recent sell-off of $60-odd dollars from $380 and change is opportunity.

HENRY BIDDLECOMBE: Yes, and from an evaluation perspective I think it’s looking very attractive. It’s currently trading at around $320, maybe a little less.

My fair valuation ranges between $500 and $750 for the stock, so I think there’s material upside from here. And once the narrative shifts and the news cycle turns positive, the share can go up very quickly.

SIMON BROWN: And the media will find something else to hate, and Facebook can carry on being Facebook.

We’ll leave it there. Henry Biddlecombe from Anchor Global Technology Fund is very bullish on Facebook.

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Facebook has given great returns since 2012.

But the company is basically 3 apps (Facebook, instagram and whatsapp).

I’m old enough to remember myspace, bbm and mxit.

Facebook has faced boycotts and is universally hated. They’ve also understated the amount of fake accounts. Also young people, have moved to Tiktok.

There’s huge risks in Facebook, but it’s considered a blue chip share.

I do agree that from a business perspective that if you have shares of facebook you have very little to worry about, whatever is going to happen will take some years and even then people will still remain glued to this platform. I don’t do FB myself but there are those addicted keyboard warriors that will carry on banging away on FB regardless of the bad publicity.

I however disagree that FB is just the tallest tree and that is why they are getting some stick. They are having their tobacco moment for good reason, according to their own research and the whistleblower they know what they are doing is causing harm but haver carried on doing it and that is why they are getting it not just because they are the tallest tree.

My biggest concern with Facebook is the degree to which they invade everything with irritating advertising.

I know what risks they pose and their risks are not very dissimilar from what are posed by Google.

They track everything that you do – even when you aren’t logged into your account and even when you don’t even have an account – for the purposes of passing it on to marketing companies to make money off advertising.

The amount of information these companies know about you is staggering.

How you look, what you like, where you go, what you buy, what you chat about, what you talk about, etc. And then they know the same about all of your friends and their friends and who is friends with whom.

I would only worry about FB if I owned shares …

We might see some 4th of July Fireworks tonight or sometime this week.

Most crashes have happened in this week.

RED OCTOBER

A business that adds (almost) no value to society and depends on stupid consumers being advertising products.

The most basic test : what would people pay per month to be on the various platforms?

My bet : they go for even $5pm and the active user count crashes.

End of comments.

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