Facebook The Business (Not The Stock)

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.

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The Long-Term Threat To Visa, Mastercard, Discover, And American Express

After I recently discussed a college friend that is currently focusing on making large share purchases in the four major credit card companies each month, a reader asked me why I wouldn’t do that considering my awareness of the superior returns generated by credit companies. In short, I think there is a tendency to underestimate the technology disruption that can exist in the payment industry.

Generally speaking, there are two types of companies that make good candidates for investment. One is companies with specific products—Nestle chocolate bars, Colgate toothbrushes, Procter & Gamble’s Gillette razors immediately come to mind. People desire those things specifically, pay money to acquire them, and shareholders tend to grow wealthy with each passing decade. The other category, of course, refers to companies that act as hosts to facilitate people getting to the product they want. Wal-Mart is the classic example of this. No one goes specifically to Wal-Mart because they want Wal-Mart goods; rather, they go to Wal-Mart because it is a host to other goods at an attractive price.

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Blendle: The Reason Some Online Articles Will Start Costing $0.20 Each

As a small fish in the publishing industry, I understand why it can be difficult to develop a business model that is sustainable for the long term, especially when you use the old profit expectations of the 1870s through early 1990ss as a reference point. Even as someone aware of the hardship that faces the industry, I am still amazed at the deterioration in the industry over the past two decades. To get a feel for it, remember that the Taylor sold The Boston Globe (technically a publicly traded stock known as Affiliated Publications) to the New York Times for $1.1 billion in 1993. In 2013, John Henry (of Boston Red Sox ownership fame) bought The Boston Globe for $73 million. Talk about the tyranny of reverse compounding—over 90% of the newspaper’s value was lost over a recent twenty-year period.

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The Big Picture Issues With Wal-Mart Stock Right Now

I saw the recent news release that Wal-Mart is shaking up its top management positions in an effort to spur growth, with the latest strategy involving small neighborhood stores and more organic, healthy grocery items lining the front area of the store. With back-to-back dividend increases in the 2% range, people have been wondering what issues currently exist at Wal-Mart that are worthy of an investor’s examination. The deep issue is this: It is difficult for a company that generates $487 billion in annual sales to grow at a fast rate. Shareholder wealth creation largely consists of buybacks, dividends, and efficiencies at that point rather than robust top-line revenue growth.

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