Listen to the Weight of Money Rather Than Opinions

Facebook Inc. [NASDAQ:FB] is one of the most powerful, fastest growing tech companies in the world. It’s becoming ever more dominant as it continues to beat estimates for revenue growth.

But Facebook wasn’t always viewed this way. The company was written off by many investors after listing in May 2012. The IPO was labelled a debacle by many, and early trading in the stock was plagued by technical problems.

The share price got sold down heavily in the first few months of trading, which gave confirmation to all the doubters. Some pundits suggested Facebook wouldn’t last very long.

History suggests CEO Mark Zuckerberg has been misjudged by many, and has pushed beyond what most financial pundits thought possible.

Today Facebook is now one of the most valuable public companies in the world. A billion people log on to Facebook every day. The mass of data that generates on users makes Facebook very attractive to the advertising business, and revenues have more than doubled in two years.

The company has maintained its ascendancy by acquiring competitors that might have taken users away.

It acquired Instagram, a mobile photo sharing service, back in 2012 for $1 billion.

At the time it was regarded as a huge sum. In hindsight analysts now say it was a steal.

Facebook has just started selling ads on Instagram last year, and analysts suggest it has the potential to bring in billions in revenues.

The Instagram purchase was modest compared to the $22 billion it paid for the messaging service WhatsApp back in 2014, which at the time had 450 million users.

The price tag of the acquisition generated a lot of negative press.

Let’s bring up the chart…

Facebook weekly chart

Source: Optuma
Click to enlarge

Many commentators looked on the WhatsApp acquisition with derision, suggesting Mark Zuckerberg had grossly overpaid. Some even questioned Zuckerberg’s decision making ability.

But note what the share price does on all the negative press. It retraces, but then proceeds to find a higher level of support. That told you what you needed to know on the merits of the acquisition.

The weight of money will tell you far more than the opinions of financial pundits.

WhatsApp now boasts 1 billion users and Facebook now control the world’s most popular messaging app, with a greater global reach than any other app. And they have neutralised a potential threat in the process.

Whatsapp has the potential to become a global hub for business services, with Facebook taking a cut on transactions.

The acquisition also gives Facebook access to emerging markets where WhatsApp is widely used.

WhatsApp is dominant in places like India, Brazil and Africa, and, in acquiring the app, Facebook now have a sizable foothold around the globe. This means the company can grab new internet users as they come online.

And as technologies mature across the developing world, it can readily deploy new services for them.

This fits in with Mark Zuckerberg’s plan to implement internet access to the two-thirds of the world not yet online, beaming down the internet from the sky.

But one acquisition of Facebook’s gained little attention. Onavo was acquired back in 2013 for $120 million, and may prove to be the most valuable of Facebook’s purchases. Onavo helps Facebook track apps which are becoming popular. Onavo helped Facebook spot WhatsApp, and gives them the lead in spotting the next big app ahead of the pack.

Facebook still has its doubters, but the chart suggests Facebook is travelling OK.

Facebook and the US Tech companies are growing revenues. This is the sector where prodigious gains are being generated in the US, and will continue to be for years.

Facebooks headquarters is located in Menlo Park, which lies in the heart of Silicon Valley.

The growth of technology industries there is driving housing costs into the stratosphere.

Resident groups in Silicon Valley suburbs are calling for limits to the soaring rents and are organising, collecting signatures to put rent controls before the politicians.

Tech riches have pushed rent prices up about 50% over the last five years according to Zillow, the online real estate pricing service.

You know that has to happen. In the end land price captures all of society’s gains, which is why you must own some.

Cycles, Trends and Forecasts is the only investment service which will teach you that, and how to profit from it.

To understand how to profit from the real estate cycle and to time it all to your advantage, go here.


Terence Duffy,
Lead Researcher, Cycles, Trends and Forecasts

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia