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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (60653)	4/5/2018 6:05:31 AM
From: bruwin	Read Replies (1) \| Respond to of 78751

" FB margins - it is not uncommon for software to have 80% gross margins" No, it isn't, and that's the beauty of running a business that is primarily based on the internet that can rake in advertising revenue or a company that primarily provides the market with desired information, etc, etc.. If one looks at FB's last Annual, .... .... apart from a very healthy annual increase in Top Line Revenue, one sees a Very Large EBITDA/Revenue of over 58%. One won't see that sort of number in the more traditional industrial type companies. Not unexpectedly one sees a very low CoS/Rev of only ~13% and SG&A/Rev of only ~17%. However, the fact that FB only had a tax rate of 10.3% possibly raises some "questions". No doubt there are some smart "tax advisors" on Zuckerberg's payroll taking any advantage they can of any US tax loopholes. If FB was paying closer to the previous 35% tax rate that would have cut about $5 billion more off his Bottom Line (Would be interesting to know how they calculate their tax obligation). Probably not a "train smash" seeing as FB had a Net Income of close to $16 billion and hadn't paid a dividend !

To: Spekulatius who wrote (60653)	4/5/2018 7:02:43 AM
From: Graham Osborn	Read Replies (1) \| Respond to of 78751

Great points, thanks. I definitely agree that on a relative basis (looking more at the operating statements than the balance sheet) it looks cheaper than most things out there - although that may say more about the latter than the former. Real growth is hard to find these days. I always try to remember that a lot of Gorillas grew quickly up until Y2K and then fell off for some reason. Part of it was the self-reenforcing cycles of price-vs-SBC and price-vs-acquisitions (I haven’t delved deeply enough to know whether any reflexive processes are currently in effect). But the top line was affected too - it was almost like there was a discrete hypergrowth phase in the growth of the Internet and then once those new supply chains were formed it entered a new, slower-growth phase. That’s why I give FB 20X earnings - I don’t know how long the hypergrowth period will last, but I imagine social networks (which turned out to be almost as important as the internet) will probably consolidate around a new “supply chain” and enter a slower-growth phase. I agree that FB’s moat seems weaker than Google’s, and so I need to be more conservative on the multiple relative to the current growth rate.