Facebook in the Balance
On Monday, a reader said: “What you need to ask about FB is 1) Can it keep growing revenue and earnings? 2) If it is broken up, are the parts worth more or less than the whole?”
First things first…
“If Facebook were to be broken up,” says an article at The Washington Post, “it would be incredibly rare and would probably take many years and long legal battles.”
Example? The last time the government tried to break up a monopoly 20 years ago — Microsoft — the case dragged on so long a later court reversed the original decision.
Assuming Facebook were to be broken up, Bloomberg reports: “A less innovative Facebook is still likely to reap years of revenue growth from riding the secular trend in digital advertising growth.”
But unwinding Instagram and WhatsApp? That’s not exactly something Facebook can accomplish with the flip of a switch…
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Your Rundown for Wednesday, Dec. 16, 2020…
“What to the public appear as distinct products [is] one giant social network on the back end,” The Washington Post says. “Facebook has spent years integrating Instagram and WhatsApp: weaving their ad systems, user profiles, databases and other technology with Facebook.”
According to former Facebook and Instagram engineer Dmitry Borodenko “Instagram is no longer viable outside of Facebook infrastructure. [Facebook] spent six years moving things over.”
On the other hand, technically speaking, unwinding WhatsApp — “far less intertwined with Facebook” — might take as few as six months. However, the legal ramifications might prolong that process given the app handles one billion calls and 100 billion messages per day.
But for investors, “Facebook shareholders would get shares in the separated entities: the main social network referred to as Facebook Blue, as well as Instagram and/or Whatsapp,” Bloomberg says.
“If it were split off from the rest of the company, [Facebook Blue] could institute a dividend and focus on cash generation and stock buybacks.
“With interest rates as low as they are,” Bloomberg continues, “the company could even borrow tens of billions of dollars at cheap interest rates to opportunistically buy back more shares, similar to what Apple has done in recent years.
“So while a breakup of the company – however likely that might be – would be humiliating for chief executive officer Mark Zuckerberg and strip him of power, it could be a value-creating event for shareholders similar to the split of eBay and PayPal,” Bloomberg concludes.
Market Rundown for Wednesday, Dec. 16, 2020
S&P 500 futures are barely in the green at 3,696.
Oil is up almost 1% to $47.21 for a barrel of WTI.
Gold’s hanging out at $1,855.80 per ounce.
Bitcoin’s on a mad tear: up almost 7% to $20,683.
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We’ll circle back Friday… Take care.
For the Rundown,