Usually, when it comes to stocks with high growth rates, I don’t get to show my full appreciation for the business because the P/E ratio is something obscene (thus obliterating the margin of safety principle and deterring investment) so it sounds like I’m against the company even if I am impressed by its story, profit margins, and future. Facebook’s P/E ratio is 73, and you know what I think about that, but today I’d like to talk about the company’s business developments.
The long-term viability of Facebook is something that I’ve put in my “too hard” pile because I can’t figure out its moat. On one hand, I study the data that shows slight declines in usage among teens and people in their early 20s. About three years ago, Facebook piqued with the young crowd in which 98% of the 18-24 demographic had an active Facebook account. Now, that figure is around 92%. The theory is that Facebook emerged as a “safe space” for teens and twenty-somethings to interact with each other, but the past few years saw it emerge as a place for Grandma Mildred to comment on budding teen romances or school administrators to police student behavior for freewheeling comments that no adolescent would dare say at a public assembly in front of a microphone. This informal censorship leads some users to abandon Facebook in favor of a new space.