The subject line of the e-mail from a former colleague read: "Facebook hits $38." Inside, it said: "Nice call. As a reader, I have enjoyed your ride on this stock. I doubt it was quite as much fun for you."
Well said. I seem to have become one of Canada's leading Facebook bulls, thanks to a series of columns that detailed how I set aside my initial skepticism about the stock and bought in at the $38 (U.S.) initial public offering price. I suspect the columns were enjoyable for my friend and other readers because for a long while, as Facebook's shares slid lower and lower, I've looked kind of stupid on this issue.
Despite a lot of second thoughts in recent months, I've held on to my stock. And, now, after a blowout second quarter, Facebook has made me whole on my initial purchase. It's tempting to lock in the recent gains and move on, but I think I'm going to hang around for at least few more quarters.
First, a couple of notes about the shares, which hit a 52-week high Monday. I hope that if you were like me, and believed in Facebook at $38, you bought some more as it declined sharply after its May 2012 IPO. After buying 50 shares at $38, I doubled down with another 50 at just under $24.
Facebook investors who followed a similar strategy might have been back in the money once the company announced its earnings on July 24 and the shares zoomed above $34. Or even earlier, depending on how much they bought as the stock fell below $18, at its worst point.
Before we Facebook shareholders get too excited about our recent gains, however, it's worth noting the Standard & Poor's 500 is up more than 35 per cent since the day of the Facebook IPO. If I had simply put all my Facebook money into an S&P 500 exchange-traded fund, I would be ahead of where I am today, even with the averaging down that I did.
What's past is past, however. The real issue is what Facebook's future looks like now. Is it really that much better than before?
The answer seems to be, in short, yes. Let's go all the way back to my skeptical pre-IPO column. The big issue wasn't site traffic – at the end of 2011, Facebook had 845 million "monthly active users," people who used the site at least once a month. And they combined to spend 9.7 billion minutes a day on the site in that year's fourth quarter.
The problem was, as we say, monetization – turning all those minutes into cash. At the time, I calculated it took Facebook almost 800 minutes of user time, more than 13 hours, to get one dollar in revenue. The company would have to do a whole lot better than that, I said.
Well, it has. When I looked back at my investment last November, while I was still well underwater, I said I was underwhelmed by Facebook's money-making initiatives. I remained so for much of this year. Sponsored posts. Gift-buying buttons. I wasn't using any of this stuff. It didn't seem as if my friends were, either.
Somebody is, though. Facebook doesn't divulge minutes-on-site in its financial reports any more, probably because there are now real-dollar statistics to report in the form of average revenue per user, or ARPU. Ever since Facebook got serious about raising revenue, the numbers have jumped.
The company's ARPU leaped 25 per cent in the second quarter, compared with 2012's second quarter. It zoomed ahead in every region of the world.
Here's the most intriguing part: ARPU is still just $1.60, company wide – but it's $4.32 in the U.S. and Canada, Facebook's more-developed markets. It's $1.87 in Europe, and less than $1 in the rest of the world. That suggests the social networking giant has a lot of room to grow its revenue.
And all of those friends of mine bitching about the ads and the user experience and blah blah blah? For the most part, they're still on Facebook as much as before, contrary to their threats about leaving the newly commercialized environment. Indeed, the number of monthly active users hit 1.15 billion in the second quarter, a 20.9-per-cent gain from the prior year. Much of the growth came in emerging markets, but users grew 6.5 per cent year-over-year in the U.S. and Canada.
It's almost as if Facebook said, "Okay, it's time to start making money," and, as if flipping a switch, did so. It's pretty amazing. And it suggests Facebook shareholders may start making some money, too.
Facebook (FB)
David Milstead