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.


Leave a Comment:



Best-in-class, ‘pure-play’ companies give clearer focus

Single-period measures do not work for great growth companies

Why it's a frothy market but not a bubble


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.


Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.