With Cloud Investment Facebook Inc. (NASDAQ:FB) Is Unstoppable
Facebook Inc. (NASDAQ:FB) is more than a collection of apps, more than an income statement and balance sheet.
Facebook is infrastructure.
CEO Mark Zuckerberg wisely copied the move of Alphabet Inc. (NASDAQ:GOOGL) in building out his own cloud infrastructure early this decade, when he barely had the cash flow to sustain it. Now he is going beyond that and in so doing making the company’s dominance permanent.
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Source: Via Facebook
Facebook is adding communications to the mix, recently completing a 4,000 mile long transatlantic cable with Microsoft Corp. (NASDAQ:MSFT) to make the service even more independent from carriers like AT&T Inc. (NYSE:T).
As the Internet becomes increasingly Balkanized, with Europeans demanding that their personal data stay on the continent, those with Facebook accounts will be able to keep collaborating as though the walls weren’t there. The cable allows instant communication of data back-and-forth.
This is, of course, also true for Microsoft’s LinkedIn, and for users of both companies’ apps. Both companies are making themselves independent of Internet infrastructure, with huge implications for the future.
Facebook and the Cloud Internet
Along with Alphabet, Facebook, Microsoft, Apple Inc. (NASDAQ:AAPL) and Amazon.com Inc. (NASDAQ:AMZN) are the new Cloud Czars, dominating a faster, better “Cloud Internet” built atop existing structure, like interstates are built on top of existing road systems.
Each of these companies now has a permanent advantage over other potential competitors, an infrastructure moat it will take billions of dollars of investment for any other company to cross. In Facebook’s case, it’s a permanent advantage over Snap inc. (NASDAQ:SNAP) or any other consumer service.
This independence has been an obsession with Zuckerberg for years. He created Internet.org to bring Internet service to the developing world at minimal cost, just as the Open Compute Project minimizes his data center costs. The company is working on laser-based projects for communicating in the developing world and, while things like drones may or may not work, that’s a risk the company is willing to run.
Declaration of Independence
Wall Street boards might see this work as a waste of money and might one day seek to rein management in, as seen in the recent rejection of a dual-class stock strategy meant to solidify, and make permanent, Zuckerberg’s control over the company.
But that, too, winds up only increasing the size of Facebook’s moat, its relative advantage over potential competitors, because they won’t be able to copy Zuckerberg’s strategy over shareholder opposition.
For now, Zuckerberg’s control is based on the fact that Facebook remains one of the greatest money-making machines of all time, with 45% of its $9.3 billion in revenue last quarter hitting the net income line, and that revenue growing at 50% per year. You don’t argue with success, with $10 billion of operating cash flow every quarter.
The Bottom Line for Facebook
The communication networks of the last century were all built with substantial government involvement, because capital was scarce. In this century we have multiple companies replicating the Internet’s computing and communication infrastructure on their own dimes, creating a new class of company. Between them, Apple, Google, Microsoft, Facebook and Amazon are worth roughly $3 Trillion, more than the 2017 GDP of all but four countries.
Facebook is both the youngest and most aggressive of this elite. That, more than any app, is why an investor needs to own the stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB, MSFT and AMZN.
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