Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 202

Facebook's problem became a great opportunity

Facebook shares recently hit $150. The milestone reminded me of Barron’s cover article in late 2012 predicting a share price of $15. We all make mistakes (I’ve made plenty), but the article provides a great lesson on investing.

Share price on NASDAQ (in US dollars) of Facebook

NASDAQ:FB Facebook

NASDAQ:FB Facebook

Source: Yahoo Finance, 17 May 2017.

Barron's Facebook

One of the best ways to identify mispriced stocks is to go through negative stories to see if they make sense. At the time, Facebook’s story was negative with concerns that users’ shifting to mobile was bad for their advertising business. The irony is that mobile phones have become the number one reason for Facebook’s success.

The good news about negative stories is that a story only needs to become slightly more positive to create an opportunity. It’s a bit like investing in an underdog: nobody expects them to win, but if they do win it provides an outsized payoff.

 

Mobile a plot twist, with a payoff

The story surrounding Facebook was negative on the legitimate concern that small mobile screens would mean less advertising. The story focused on the risks of mobile, but contained no consideration for the potential to increase customer login frequency. Facebook is a major reason why people pick up their mobiles. People check Facebook on the bus or while waiting for coffee. And there’s the payoff: the more you use the app the more Facebook knows about you and the more relevant ads it can serve.

At the time, Facebook was the number one downloaded app on Google Play and number six on Apple iOS, a hint that maybe the shift to mobile could be positive. In fairness to Barron’s, it quotes Mark Zuckerberg: "it's easy to underestimate how fundamentally good mobile is for us. Literally six months ago we didn’t run a single ad on mobile", but his reasons and what potential advertisers thought about their ads weren’t commented on.

Earning results about six months later proved the negative mobile story wrong as daily active users on mobile surpassed desktop and mobile revenue grew to 41% of ad revenue, up from 30% three months earlier. The magazine also reported that ads were shown in 1 in every 20 stories on Facebook and saw no drop in usage. Barron’s did redeem itself, predicting Facebook could rise 20% to $123 August last year.

 

Fake news?

The Facebook story was an extreme example of a story that was supposed to be a negative but instead became a positive as Facebook became the way to reach people on mobile phones.

It should remind us to dig deeper the next time we see a headline. Are the assumptions behind it true? Is it balanced or is it merely an opinion? What are the facts and what views are left out? In this case, it would have been interesting to get a view from major advertisers.

It’s not easy, but there are usually two sides to every story. Some former news reporters have made good fund managers because of this ability to dig deeper and find out what is really going on. Good investing includes seeing a trend like that and jumping aboard before everyone else.

 

Jason Sedawie is Executive Director of Decisive Asset Management. Decisive is a holder of Facebook. The material in this article is for information purposes only and does not consider any person's investment objectives or circumstances.

  •   18 May 2017
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Why Europe is back on the global investor map

Is FOMO overruling investment basics?

Feel the fear and buy anyway

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Shares

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Investment strategies

Making a case for the 40 year mortgage

The housing debate tends to focus on prices, interest rates and deposits. Yet an overlooked feature of the mortgage itself could help buyers enter the market sooner without abandoning prudent lending standards.

SMSF strategies

Red flags to watch out for when considering an SMSF

Thinking about an SMSF? Before you sign anything, learn how to spot the difference between genuine advice and a sales pitch, understand the real costs, and avoid the compliance mistakes that attract ATO attention.

Investment strategies

Not all income is created equal

Market conditions are shifting as familiar yield sources quietly lose momentum. Australian public credit may be the most compelling source of income in today's market but many investors haven't noticed the shift. 

Investment strategies

The market paid for change, not comfort

Reporting season has delivered a clear message: the market is no longer paying simply for quality, resilience or an earnings beat. It is paying for change in earnings expectations and the outlook ahead. 

Investment strategies

Will AI destroy investor capital?

Some of history's most important innovations changed the world while leaving investors much poorer. As trillions pour into AI, a familiar pattern may be emerging, one that rewards society far more generously than capital.

ASX reporting season: Signals, surprises, stock stories

August reporting season delivered strong earnings and bigger-than-expected dividends, but beneath this, a more nuanced story emerged. First Sentier Investors’ David Wilson and Christian Guerra unpack the key trends.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.