Is Facebook an emerging markets play? Or put it another way is investing in Facebook a good way to gain exposure to emerging markets? In my view, Facebook is not an emerging markets play.
Here is an excerpt from a recent Bloomberg article on this topic:
With Facebook Inc.’s user growth in developing countries soaring, mutual funds focused on emerging economies are increasing investments in the Menlo Park, California-based company.
Six years ago, 60 per cent of the social platform’s 482 million monthly active users lived in the U.S., Canada and Europe and the rest were from elsewhere. Now two-thirds of its 1.7 billion users are from outside of the heart of the developing world. Researcher eMarketer estimates India will surpass the U.S. next year as the country with the most Facebook users. It also ranks India, Indonesia, Mexico and the Philippines as the top four countries to see the fastest Facebook user growth until 2020.
“From a monetization perspective it’s still dominantly the U.S. but from a long-term opportunity perspective it’s definitely emerging markets,” Charlie Wilson, the Santa Fe, New Mexico-based managing director at Thornburg Investment Management Inc., said in an interview in New York. He has steadily added Facebook shares to the Thornburg Developing World Fund, and they now account for 3 per cent of the US$1.2 billion portfolio.
Source: Facebook Becomes Emerging-Markets Play as User Base Shifts, Bloomberg
Facebook(FB) has soared in the past few years with the stock price more than doubling in the past three years. Currently it has a market cap over $295 billion and the P/E ratio is over 60. As a tech growth-oriented social media company, Facebook does not pay a dividend. The primary source of earnings for the company is ads.
The problem with investing in tech companies such as Facebook for the long-term is that technology changes quickly and other competitors can emerge and make Facebook obsolete like mySpace, Geocities and others before. Just because Facebook is the king of social media today and users from developed and emerging markets are spending most of their online time there does not mean it will remain that way in the future. Moreover the site is spammed with too many ads already that some users are starting to reduce their daily Facebook time.
There are better ways to invest in emerging markets than by Facebook…
Disclosure; No positions