Facebook is the largest social network in the world, attracting more than 2.5 billion monthly active users. Mogharabi believes that the growth in users and user engagement, along with the valuable data that they generate, makes Facebook attractive to advertisers over both the short and long term. Mogharabi also highlights Facebook’s continued innovation that helps the business increase its user base and engagement. This innovation has taken the shape of additional features and apps to keep users engaged within the Facebook ecosystem. With more Facebook user interaction among friends and family members, sharing of videos and pictures, and the continuing expansion of the social graph, we believe the firm compiles more data, which Facebook and its advertising clients then use to launch online advertising campaigns targeting specific users.
Mogharabi also sees further economic tailwinds for the company as it is expected to benefit from an increased allocation of marketing and advertising dollars toward online advertising—more specifically to social network and video ads where Facebook is especially well positioned. The firm is also taking more steps to monetize its app portfolio while utilizing AI and virtual and augmented reality to drive further user engagement. This overall strength is driven by an ever-expanding social graph that helps the firm compile more data, which is used by Facebook and its advertising clients to launch targeted online advertising campaigns.
We believe Facebook merits a wide moat rating based on network effects around its massive user base and intangible assets consisting of a vast collection of data that users have shared on its various sites and apps. Facebook is a textbook example of how network effects can form an economic moat. It is worth noting that all the firm’s applications become more valuable to its users as people both join the networks and use these services. These network effects serve to both create barriers to success for new social network upstarts (as demonstrated by the firm’s success against Snap) as well as barriers to exit for existing users who might leave behind friends, contacts, pictures, memories, and more by departing to alternative platforms.
Mogharabi highlights the firm’s intangible assets as an economic moat source. These intangible assets are related to how much information the company has about its user base. Unlike any other online platform in the world, Facebook has accumulated data about everyone with a Facebook and/or an Instagram account. Facebook has its users’ demographic information. It knows what and who they like and dislike. It knows what topics and/or news events are of interest to them. With access to such data, Facebook is able to enhance the social network by offering even more relevant content to its users. This virtuous cycle further increases the value of its data asset, which only Facebook and its advertising partners can monetize.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.