Those Millions on Facebook? Some May Not Actually Visit
Comment of the Day

February 08 2012

Commentary by David Fuller

Those Millions on Facebook? Some May Not Actually Visit

This is an informative article by Andrew Ross Sorkin, who has actually read the Facebook prospectus. Published by the NYT and IHT, here is the opening:
On the first page of Facebook's prospectus for its sale of stock to the public, it pegs the number of its "monthly active users" at a whopping 845 million people. The social networking site arrives at an even more astounding number when it comes to "daily active users": 483 million people.

Those are some huge numbers. If it is hard to believe that so many people are clicking on every day, that's because well, they aren't, exactly. Those eye-popping numbers should have an asterisk next to them.
If you managed to wade through to Page 44 of Facebook's prospectus, you'd discover that the company provides a definition of an "active user" - and it is unlikely to be what you expected.

Facebook counts as "active" users who go to its Web site or its mobile site. But it also counts an entire other category of people who don't click as "active users." According to the company, a user is considered active if he or she "took an action to share content or activity with his or her Facebook friends or connections via a third-party Web site that is integrated with Facebook."

Come again?

In other words, every time you press the "Like" button on, for example, you're an "active user" of Facebook. Perhaps you share a Twitter message on your Facebook account? That would make you an active Facebook user, too. Have you ever shared music on Spotify with a friend? You're an active Facebook user. If you've logged into Huffington Post using your Facebook account and left a comment on the site - and your comment was automatically shared on Facebook - you, too, are an "active user" even though you've never actually spent any time

David Fuller's view US brokers report a high interest in Facebook among their clients. The reason most frequently mentioned it that they hope it will be "the next Google."

Could Facebook actually be the next Google? Well, it has siphoned off some of Google's advertising revenue, particularly among low-end retailers. Pre-launch hype has boosted Facebook's valuation which could easily be pushed even higher by public buying once the share is listed, at least for a while.

Personally, I think there is only one Google (weekly & daily). It is a seriously useful site for anyone who owns a computer, iPad, tablet or smart phone. I probably use Google at least 20 times a day. Its search engine was sufficiently good to kill off most competitors. The company has used its financial might and technology to acquire YouTube, while also becoming a major player in smart phones and tablets with Google Android.

Facebook obviously fills a social niche and has both a narcissistic and voyeuristic appeal. Like apes, people are endlessly interested in each other. However, humans are also more likely to become bored due to 'social saturation' and move on. Facebook will need to use its financial strength and technology to grow and diversify, if the company is to remain a tech giant.

I look forward to monitoring Facebook's price action but given the valuations mentioned, I think it will be more of a trading vehicle than buy-and-hold investment.

Back to top