Re FB margins - it is not uncommon for software to have 80% gross margins. FB is similar, if not better, but because they basically run just server farms, they have less G&A and to some extend R&D expense (because of massive scale) and that is why their operating margins are north of 50%.
It is possible that they venture into hardware and they would certainly have much lower margins, but that revenue would be incremental and not affect the valuation, I think. Also keep in mind, that FB owns Whatsup, which has gained massive scale in Europe and Asia and to some extend the Americas and currently is not monetized at all. I think eventually FB will get more into ancillary business like multiplayer gaming and payments, where networks effects matter.
FB moat in social networks is deep, it much narrower than GOOG for example. I believe FB is under much greater risk than GOOG to get replaced by a better mousetrap, but currently I do not see a credible threat and the possibility is already discounted in the valuation somewhat.
When you crunch the metrics, you will find that FB stock based on fundamental metrics is cheaper than it had ever been, and much much cheaper than established growth stocks like V or MA for example. Of course, if you assume that operating margins will get cut by 60% from current levels, virtually any stock will look bad. |
