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Subject:  Re: fb call Date:  7/31/2018  8:46 AM
Author:  MarkMarcellus Number:  2862 of 3782

I'm not in a position yet to dig deep on these issues, but at a high level I think you have to divide the concerns into two buckets:

The first bucket is the near certainty of substantially increased costs over the near and medium term as they ramp up their privacy, security and AI capabilities, coupled with the leveling off of growth in their core Facebook product, and migration of their customer base towards lower margin Instagram and (so far) no margin Snapchat. As a long-term FB investor, none of this would concern me. To paraphrase the article linked above, the increased costs can just as easily be referred to as "moat expansion" and there is no reason to believe that FB will be any less successful in figuring out how to monetize their new products than they have been historically in monetizing their old products.

The second bucket is legal and regulatory uncertainty, and here the jury is still out. In a world where a 5 Billion fine for an internet company is little more than a one day story, this would also seem to be a non-issue for the long term, but I think there are clear dangers for FB in the future. Here, what is going on in the UK is of the most interest. I'm not so much talking about the penalties for failing to protect user information, though that is a concern, but rather the recommendation from Parliament that companies like Facebook and Twitter be held liable for "harmful and illegal" content on their site. It is not hard to imagine something like this coming to pass in the UK in particular and the EU more generally. And even in the USA, the degree to which Facebook is protected (if at all) by Section 230 of the Communications Decency Act is very much an open question. It's one that I can't answer, though I would be very much be interested in hearing from anyone with expertise in this matter.

One theory out there for that somewhat bizarre call is that FB was deliberately downplaying the strength of their business in a jujitsu move designed to defuse some of the pressure. I don't buy that. It probably wouldn't work anyway, and even if it would I don't think they would be capable of doing it. They're very smart, but they have drunk too much of the company Kool-Aid to deliberately disparage themselves in that way. They truly believe they are the good guys, and to be fair they have many times been a positive force in society. But they have some major blind spots, and it's not clear that they really understand that even now. FB desparately needs to hire an outsider at a high level and to give that person real authority to make changes to the culture. If I see that happen, and this person is credible, I would be inclined to buy at almost any price within shouting distance of current levels. Failing that, I want a bigger margin of safety at least until I have a better handle on the long term.
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