Facebook And Tumbling Advertising Rates

0
602

Two little bits about Facebook. Firstly, advertising rates are tumbling as those who wish to sell things realise that not all that many people are hugely interested in buying things at present.

Secondly, lots of people are using more Facebook in order to keep some semblance of a social or family life going.

The interesting, from an investment point of view, question being, well, what’s the net effect of these two upon Facebook’s revenues and future?

We could say that increased traffic brings greater expense, while lower advertising means less revenue. Thus, everyone’s going to go bust. And this is going to be true of news organisations already close to the edge like the one that used to be run by my mate.

The idea that Facebook is going to be brought low by a few months of lower revenues is, of course, preposterous. The company has far too much cash on the balance sheet for that to possibly be true. Not to mention gross profit margins that are wide enough to handle anything short of actual Armaggeddon.

It’s also true that none of us are looking to Facebook stock for an income. Because, you know, it doesn’t pay a dividend and all that. So, some diminution of short-term income isn’t all that much of a worry as long as it’s made up over time.

And what is that second effect? That large numbers of people who did not use Facebook before are doing so now. And some of them will stick with it after this is all over. That is, Facebook may well lose revenues now, but it’s going to expand its own market over the medium term. As neither the company nor we as investors are particularly reliant upon net income in the short term, this should be counted as a positive for the stock overall.

Leave a Reply

avatar
  Subscribe  
Notify of