All You Need To Know About Facebook As An Investor [TFC 98]

Ask anyone what’s the most popular form of social media out there and many people will say Facebook without any hesitation. With a staggering 3.2 billion unique active users monthly and $21 billion in revenue in just a quarter, it’s no wonder some people say Facebook can become its own country. What’s intriguing is that most of the things we do on Facebook are seemingly free (creating posts, liking a picture), so how does Facebook actually make money? What distinguishes Facebook from other social media companies? Should retail investors invest in Facebook? Discover more about this social media giant and discover the investment possibilities with Reggie and Thomas in this week’s TFC episode! 

TFC 98 provides a comprehensive analysis into Facebook: the different companies and platforms it owns, how it makes money from them, its growth forecast and more. Learn more about Facebook’s businesses as we dive into related concepts like Facebook worldwide average revenue per user and the interesting auction mechanism Facebook uses for its ad spaces 

As with any investment, we should also be mindful of the headwinds and tailwinds that Facebook faces. With the detailed and well-balanced inputs from Reggie & Thomas in this episode, listeners will be more informed and that will ultimately help them decide whether Facebook is a worthwhile investment.

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podcast Transcript

Reggie: Hey Coconuts! Yes, by now you know I’m taking a break from content for the whole month of July as I recollect other things in my life and sorting out other parts of TFC. We have a lot of great things going, so please continue to share the content with the people that you love. At least share with one person today so that we can get a bigger reach. Share good stuff with your friends, I think they will appreciate it and it helps us to keep growing, so that’s great. 

Today, I’ll be bringing on an episode from TFC Stock Geekout, which is a private podcast at this point in time for our premium paying members. If you want to get more of these, you got to sign up for membership. So yes, go to to sign up to be a member if you want to get more of TFC Stock Geekout. We may release a public version in due time, but as of now, we have already about 10 going 15, 20 episodes about different stocks and all. 

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Today we’re going to bring Thomas Thio in to Geekout together with us and we’re going to talk about Facebook. Facebook is a company that is pretty well talked about out there, but we have a different view on some of these things. Facebook’s overall business is really just advertisements. Advertising at its core, how do they continue to grow? Why are they doing all these other free things that seems like it’s not really making money? Can they continue to monetize in other aspects and all that jazz. If you are considering picking your own stocks or just generally interested to learn more about investing, listen to what we have to share about Facebook. 

I think today will be a very fun episode for all of you so that’s great. Like I said, this is a premium podcast, TFC Stock Geekout at this moment in time. If you want more of this, you got to sign up to be a member, member push. Go to to be a member today. Meanwhile, have fun, enjoy what we have for you today. 

In TFC Stock Geekout, we’re going to explore a company that is so intertwined with our lives that I think we cannot live without it. Every day, we have some form of interaction with one of its apps. But how much do we actually understand its business? Our daily interaction with these apps are empowering it with more data to target us. But the real business side of things are interfaces that many of us may not have explored. 

So joining me today to Geekout on this giant tech company is Thomas Thio, someone that transcends finance and tech. Having worked in a Japanese hedge fund, analyzing single stocks and currently product manager in one of the biggest e-commerce company here in Asia. There are only two, so you can guess. We explored the revenue model of Facebook, the engineering complexity in such a business, the management team and how to understand the leaving of WhatsApp and Instagram’s founders, to broader headwinds of data privacy and the growth possibilities of this giant. Yes, giants can grow bigger. 

For the sake of reference, this episode was recorded on 8 May 2021 and released early to our community members. Our discussion today is solely for education and entertainment purposes only. It does not serve as any form of advice or recommendations. Thank you for loving what we do and empowering us financially to do more for you. So Coconuts, let’s Geekout.

We’re here today to spend time to talk about Facebook, this mammoth in the space of tech. Can you even call it tech anymore? At this moment in time, everything is tech. 

Thomas: Actually it’s funny that you say that because some of the tech stocks that you see in the ETF (Exchange-Traded Fund) they’re going to be classified under communications instead.

Reggie: That is the change, right? If you think about it. So I think as we go along, more of these companies around, they all have to adopt tech, like it or not. Tech companies are no longer in this like small little bubble… “oh, we are tech companies.” No, you’re just an entertainment company doing streaming, you’re just a communication platform on socials. I think that’s what we are seeing a lot in the market. 

Thomas: Maybe 10 years ago, they were unique because they were the first to do this kind of infrastructure, they were the first to provide these kinds of services, they have their advantages. But nowadays software is becoming cheaper and cheaper. You can get the same type of capabilities or maybe a factor for the cost. Yeah, it’s just pervasive. 

Reggie: Maybe you don’t need to be a coder anymore… a story for another day. You don’t need to… maybe there’s a whole different landscape out there that is happening.

I think Facebook definitely has changed a lot over the years. They have acquired a lot of people, all the big names that everyone knows and probably you have all the apps. I think that one… no doubt you have all their apps on your phone. So I just want to guide our audience through, share with us a little bit about what is involved in Facebook.

Thomas: Look, Facebook is like you said, the gigantic monster. But let’s try to break them into different parts and the things that we commonly use and how they are related to Facebook. So you view Facebook as just a website. This is your social media platform, you connect with your friends and family, and you have like pages and stuff. So that’s the Facebook that we have known, where we are used to. 

There’s also messaging platforms that Facebook owns. Maybe you’re using WhatsApp. WhatsApp wasn’t under Facebook last time. It got bought over and then now basically they are under the same company. You’re basically using Facebook with their backbone. There’s also Facebook Messenger. Maybe this one is not so popular amongst some people, but elsewhere in the world this is actually widely used. So these are the messaging applications. 

Then we talk about other kinds of things like social sharing platforms. Maybe you want to share your videos and your photos and stuff like that, there’s Instagram. And again, Instagram wasn’t by Facebook, it got bought over. You’re still using the same services and this is all shared under the gigantic infra of Facebook. Which covers the rest of their business model. There’s a reason why they bought it, there’s a reason why you’re using it till today, even though there’s maybe other competitors.

There’s this big giant going around gobbling up other smaller companies, but making it a very core part of their strategy. Maybe one more which is not so familiar to some people is Oculus Rift. That’s the VR (Virtual Reality), AR (Augmented Reality) kind of angle that Facebook is going. So yeah, augmented reality, virtual reality…

Reggie: The hardware game.

Thomas: That one is still in R&D (Research & Development) stage, but basically where they want to go is have this kind of immersive experience where you never ever leave the platform. 

Reggie: Oh, that sounds damn morbid. 

Thomas: I mean, like in this case of Coronavirus… you stay at home, there’s nothing else to do. You’re on Instagram, you’re on Facebook. Okay, maybe on Tik Tok. But you are still within these kinds of service, you never actually left. What if you had some kind of like gaming system, let’s say like PlayStation, you also will be on it for hours. So instead of a Sony PlayStation, instead you’re in an Oculus Rift by Facebook. It is just a swap, it is just a different brand. 

Reggie: Sounds like Ready Player One. 

Thomas: Oh yes. 

Reggie: This whole thing that they are building, from hardware to messaging to socials. All these are actually the front facing part of the business where more people… people understand this part because we interact with it. As much as we may not understand like why certain features are changing and how the algorithms work and all this kind of stuff, maybe you want to share with us a little bit about the things that people don’t see in Facebook? Like the software at the back, the things that they actually make money from. I think that’s the interesting part. 

Thomas: So how does actually Facebook make money from these kinds of platforms? They serve a lot of different users and all that. 

Reggie: It’s all free! 

Thomas: Yeah. It’s definitely not free. It cannot be some computers in the garage that’s powering the servers. No way… maybe when they started out. But now with a very big infra, you need to see how they actually make money, and that’s through ads basically. Most tech companies, a vast majority of them actually make their money through advertisements. This is from working with different kinds of advertising networks so they can sell the space on their platform. Or they can sell the service to marketers who want to target specific kinds of users. 

So let’s unpack that a little bit. For businesses, let’s say you are a cafe and you want to reach out to a certain kind of target millennials… those with spending power on the weekends, doesn’t mind paying for coffee that’s $8 to $9. Where can you find these people? So you want to go to the kind of platforms that can give you this kind of data, then basically your advertising budget is well spent. 

We have Facebook Pages, we have Facebook Groups, we also have Facebook Profiles. So in each of these, there’s user information that Facebook has. It’s got your profile, it’s got your demographic data, like your age, maybe some of the locations that you have been to in the past. 

Reggie: Every time you tag, they know. 

Thomas: So tagging makes it accurate, but it doesn’t mean that they can’t get your location through Messenger and WhatsApp also. This is the hidden thing, it’s not just that… I must log into Facebook, then only it will get the data. No, because you use their other services like Messenger or Instagram or WhatsApp, for example, it’s able to get your data from your phone. Basically if your phone setting is like. I don’t mind, just give location access wherever I go and it doesn’t matter whether I open app or not. So Facebook has that information wherever you go. 

The key thing is that, now you have this information, the marketers are better able to target you. But they don’t know whether you’re active or not. They don’t know whether you are actually going to buy something. So what is the pattern that allows marketers to realize that, not just that you are in the area, but you’re actually looking for a place to really just sit down and buy coffee? That’s the step where you are actually going to spend your money.

There’s even to a precise level, like if you’re messaging your friend… “hey, want to get a coffee?” You already know that particular group of people is going to get coffee in that particular area, well done. And if this is a pattern every week, week in, week out you’re buying $8, $9 coffees, right? This is the kind of information that Facebook can sell to the marketers as a service. 

Reggie: And that’s why I get very targeted ads. Certain times of the day, I will get certain weird ads that pop out of nowhere. I was like… what?! So those things that are prevalent, it’s crazy. I think the crudest way that advertising is going these days is the moment you log into some sort of e-commerce platform, and then you search for that thing, and then you browse for that product for a while… that same thing that you were searching for will just follow you all over the internet. It’s a little bit scary that way.

Thomas: All these is done through machine learning, but at end of the day, all these information or data also can be sold back and forth between the advertising network. So this is a very useful customer profile data, and this is how tech companies actually make their money. 

Reggie: Essentially what I’m hearing is the better they are at targeting you, the more bang for the buck for the advertisers. So the more the advertisers will come to the platform and target you to them, because they can give you very accurate conversion numbers, very good results.

Thomas: So you can take a very shotgun approach, right? Spend, let’s say $500,000, I just want to get my brand out there. But well, it’s achieving that target where you get your demographic, seeing your brand, but they are not taking action. So maybe the initiative of why you took that marketing campaign in the first place was just for branding.

But if you want to really sell something… is a conversion. For every dollar spent, you want to get a dollar back and more. If this ratio is very high, you can actually charge much higher compared to other kinds of platforms which aren’t converting as well. So it’s not just about price, but it’s also that kind of conversion rate which you are selling.

Reggie: That’s interesting. Is it why recently there’s a lot of like hoo-ha with the whole iOS thing? And you know, like how people are trying to pull back their data and not share with these kind of app platforms? 

Thomas: Yeah, that’s a really good point. The technical term is I think Apple’s IDFA (Identifier for Advertisers). Basically that is able to get some kind of cookie… in a very crude term, the cookie that is stored on your phone, Apple’s not going to let it slip. They’re just going to hold on to the data. they’re not going to sell it either, unless you go through some convoluted way. Basically they want to ring fence that data around the whole Apple ecosystem, starting with the iPhone. So basically for the other third party advertising platforms, they’re like “oh my gosh, we’re not going to get Apple data anymore. Oh no, there goes like 50%, 60% of our advertising data. What are we going to do?” There’s a lot of convoluted way to try and get the Android sorry, the iPhone data. But of course it’s not of the same quality. 

Reggie: Essentially, that will affect their fundamental strategy of advertising and essentially will potentially affect their revenue. That’s why a lot of people are getting very jittery about it. What are other revenue models that Facebook is working with? 

Thomas: We talked a bit about the ad space as well. It is still advertisements, but in this case instead of building… sorry, providing the target segments, like audiences, you provide spaces. So it’s still ads, but wherever the ads can be displayed and you want that kind of time period where your billboard, for example, your banner is being displayed for one week at a time, two weeks at a time, then you pay for them. It’s just like you were buying a newspaper ad space or on the MRT, you see these big billboard.

Reggie: That’s why SPH (Singapore Press Holdings) die already.

Thomas: That one has been a long time… 

Reggie: Long in the making, long in the making. So how many percent of Facebook businesses are in ads? I know that they’re trying to do other business solutions, and how is that coming along?

Thomas: A very big bulk of the revenue of Facebook comes from ads. Although they are trying different ways. For example, the Oculus Rift… 

Reggie: 90 over percent. It was 95% or 90%, it’s as good as ads. That’s why everybody only care about the ads portion. 

Thomas: It’s a very big portion of it, the rest is negligible. But the rest is still rather important because that affects them in the long-term. They want to have other kinds of growth plans and looking at the 10% matters, because if let’s say there’s another social media platform which captures much more attention than Facebook, and the conversion rate is much higher, like TikTok. All you need is one, and then a few quarters down, the revenue is not growing as fast anymore. Facebook doesn’t get back its groove again. That 10% matters because they need to diversify away from just purely ads. 

Reggie: So what is this 10%? What is within the Facebook innovation, trying to make other money kinda initiatives? 

Thomas: There is the Oculus Rift, the AR/VR play. This can be from selling of the units to having its own kind of ecosystem like digital payments. Closest example would be the Apple ecosystem. When you buy anything from the Apple store, basically they are digital purchases. You buy a paid app, Apple takes 30% of the cut. Digital purchases also, let’s say you play a game inside the iOS app, you pay for digital purchases. Let’s say you buy some gun or you buy some like special costume or whichever. All these also goes through the same kind of payments platform within the Apple ecosystem… same thing that Facebook can do with Oculus Rift as well. 

Reggie: Okay, so the main bulk of the business is in ads and they’re trying to do the payments ecosystem. And they’re also trying to explore the whole like Oculus IRVR, similar to an Apple ecosystem kind of thing.

Thomas: If I can track 1 billion users in the virtual platform and I can get them buying and selling stuff, digital stuff…

Reggie: That’s like Ready Player One. Very scary. 

Thomas: And then slap on a cryptocurrency on top of it. 

Reggie: That’s the whole plan, you can see right? That’s what Facebook is trying to do. That’s interesting. So that is like the whole new business vertical kind of thing. But are we seeing the ads business slow down? What is their growth rate currently and what are we seeing into the future for, the ads business? 

Thomas: Actually not really slowing, I mean the size of the total revenues is increasing. But the percentage terms are cumulative is still rather constant, so this is actually quite good. Long-term wise, if they managed to get these ecosystems up and running, it’s actually a very good boost for their ads revenue system. Because like… not joking, you trap 1 billion people on the digital platform. They have nowhere else to look. They are wearing the headset already, then basically there’s just free eyeballs. You can display whichever ad that you want and it’s a captive audience. You want to have some kind of paywall where you subscribe to just $10 a month and then it’s an ad free experience. That’s $10 times 1 billion. 

Reggie: That’s crazy shit, crazy shit.

But then, how do I evaluate a social media platform then? If most of them are on ads… because payments is a little bit simpler as long as there’s transactions. of course the complexity comes in the whole ecosystem of payments that we’ll talk about in another podcast. But just for today, I think we’ve recognized that the main thing is still very much the whole ad revenue and the whole social platform that is dominant within the Facebook ecosystem. What are some like major metrices to evaluate a social media company? 

Thomas: I think there is two main ones. One has to do with the users, another is to do with the revenue. Then there’s different variations of two of these based on… let’s say time element. One of them will be your daily active users. These are the number of users that is being actively engaged on Facebook or different platforms in Facebook. You can look at these daily active users for Instagram, specifically, or WhatsApp or Facebook and so on. The different time element for this is that you can look at it on a weekly basis or a monthly basis, and you can see if it’s consistently growing and stuff like that.

So what this tells you is that… it’s basically what is the size of the global active user community? How many real users are there? What’s the possible things that I can do with this number of users? Then if you look at each of these platforms, we confirm inside your company you have some dashboards which should help you to see… okay, they’re active in what way?

Let’s say spending $8, $9 on coffee every week. This is already the kind of segment which is automatically classified. If you have this information, that’s very good as an investor, but it’s definitely hard to get. If you want to model this yourself, it’s very hard, unless you’re inside Facebook. So we can only look at the daily active users. 

Reggie: But I do encourage people that want to invest to play around with the ad mechanism on Facebook. Don’t just buy because DAU (Daily Active Users) very high or monthly active users a lot. Because there are a lot of platforms that have a lot of daily active users and a lot of monthly active users, but they’re not very optimized in the app portion… in the way of, it’s not very intuitive to set up a lot of ads and the conversions are not high. So play around with the whole ad mechanism. 

Everybody can do it, you can do it from your computer, set up a Facebook Page, you can start advertising already. So it’s not about trying to create like an e-commerce business, but if you want to invest in Facebook, I really think you need to go and play around with the ad ecosystem of Facebook and its competitors, like Twitter, Google, all the other guys and just get a feel of how all these work. Because these are the products that you don’t interact with, but actually making money for the platform. So I think that’s the part. What is the other metrics, other than daily active users? 

Thomas: The other one will be just revenue. But again, depending on how you want to look at it and can be on a daily, monthly basis. But also in terms of let’s say a group of products. some of the statements will use a distant family. It’s a family, basically it’s a portfolio under Facebook. So all the revenue under Instagram plus WhatsApp plus Messenger plus all the other different platforms, that consists a family. They may drill down further to let’s say just messaging. Messaging would be Messenger plus WhatsApp. Social media, then it’s Instagram and just the Facebook web. Then Oculus Rifts is maybe the R&D side. So they may split into things like this, which is helpful to see the split of revenue. Where is the money actually coming from? You want to buy ads on Instagram, versus buying ads on Facebook, where’s the money actually coming from.

Reggie: Are they showing the numbers now at this moment in time? 

Thomas: Not Facebook specifically, but you can get some kind of proxy from third party sources. 

Reggie: Third party sources, okay… nice. Do you have some insights that you can share with us? What are we seeing… the revenue split? 

These third party sources is not anything like clandestine. What I mean is these are the advertising networks, because they deal with Facebook.

It’s not dark money guys. It’s just like YouTube revenue was never given out until the recent one, the recent Google release. Facebook is doing the same thing with all these other platforms, specifically Instagram, which is like madly popular still, but they’re not showing the kind of ad revenue. So third parties, you have to take third party info. It’s not a syndicate, we’re not like selling some informasi. 

Could you help us break down the revenue? 

Thomas: Revenue first or just the users? 

Reggie: Users and revenue. 

Thomas: Okay, so users first for some perspective. Basically on a monthly basis for all the platforms that Facebook has… Facebook, Instagram, WhatsApp, plus Messenger. One month, there is 3.2 billion active people.

Reggie: Unique individuals?

Thomas: Unique individuals. 

Reggie: What the fuck, that’s like half the world I think. 

Thomas: It’s not a joke when Facebook can become its own country. It’s got that many digital citizens. 

Reggie: Oh my God, that’s crazy. 

Thomas: If they wanted to buy a country and then yeah…

Reggie: Greenland! Cooler.

Thomas: So 3.2, let that number sink in. It is ridiculous! So how many people log into Facebook daily? Just Facebook, daily active users is 1.8 billion. That’s a little bit more than half. It’s just using Facebook alone. So for data collection wise, that’s a lot coming from Facebook. Other kinds of platforms are the ones that is supporting it to make the data more… higher value.

Reggie: More info, more targeted. 

Thomas: And for revenues, let’s say I’ve got the numbers here for Q3 2020. It is at $21 billion, $21 billion in revenue for Q3. So that’s one quarter, right? This is a bit much. I don’t know how many servers you need to buy with that, but this is a lot of cash. 

Reggie: I think people need to recognize that ads is a very pure cash business, and you can make a lot of miracles out of this amount of cash. Which is why every big country is trying to tax them and milk them and trying very hard to climb down on digital taxes.

Thomas: So when we look at these numbers… Well, okay, 21 billion, correct or not. So is it actually something that is feasible? You divide by the number of active users. We have the number, 21 billion in revenue. We’ve got on a monthly basis, let’s say we round it down, round it down to 3 billion people. That’s $7 per person. This number when you boil it down there’s a metric for it also. They call it the Facebook worldwide average revenue per user. All you have to do is that number, that revenue number just for Facebook or whichever platform divided by the number of active users. And you’ll see, $7 per user, very cheap, are you sure? You times the number of users. So this is what they’re banking on. The more users that they have, even though it’s a flat $7, incrementally they’re adding $7 more in revenue. 

Reggie: I want to add a little bit of texture here about users. I think everybody knows Friendster, which was the… back then it was a thing and it died so badly. One of the problems Friendster faced was very low value user, relative to what Facebook has. Low value user in the sense that majority of their users are in the Southeast Asian region at a point in time when Friendster was a thing. Investors in the US were not interested in the users here, because back then the users here didn’t have spending power. So while we divide it as a mean, to say that per user we’re spending $7, but actually is a lot more lopsided in a sense that a lot more of the ad dollars are being targeted within the US. And also I think there’s a little bit of discussion in the market saying that “oh Facebook, end of Facebook and nobody using Facebook these days, everybody on Instagram” blah, blah, blah. 

Okay, whatever. Whether you’re Instagram, TikTok, whatever, all those kinds of things… let me just give you a little bit of color. Some of the biggest brands that are still doing very well using traditional broadcast are some of the older brands, like all the health brands, magnetic mattress, whatever those kinds of things that they target the old people.

They literally have a dominance in this space. So their ad channel is very powerful on broadcasting. In Facebook, Facebook’s… majority of Facebook’s audience at this moment in time are in the bracket of millennials and north of millennials. These people are in the prime of their earning career, they are supposedly the prime earners. In every time era, there’s always this bunch of people from 35 to 45, which are prime earners which are extremely difficult to target and Facebook has captured all of them. If you have not realized that advertisers… because we are in the advertising space, so we know advertisers are desperate to look for this. Where to target this bunch of people? They are the prime spenders. I think a lot of people forget and think… “Facebook, nobody uses Facebook”. But hey, hello… these guys are the real money makers. 

Thomas: I think that’s a really good point. Doesn’t matter which target segment, it might seem like… Okay it’s not my generation, but it is still pretty substantial. There’s still the whole worldwide population in terms of percentages, it’s a pretty big amount. 

Reggie: Yes, which is why the whole rise of TikTok. A lot of people feel “TikTok is going to kill Facebook”, but I think that will bring back to the revenue in itself. How well is TikTok’s engineering its revenue model? Are they capturing the audience that advertisers want? What kind of advertisers can afford to spend and all those kinds of things? 

Thomas: TikTok is taking a very fundamentally different approach. Infrastructure wise also different, but I think we can discuss it another time, the pretty big one. 

Reggie: Yes, definitely. 

Thomas: But going back to your point, different parts of the world, yes… so geographically, you can also see these numbers split by different continents. Let’s say for US and Europe and APAC (Asia Pacific), these numbers for average revenue per active user will differ. The average is really an average across all the whole wide world. But it doesn’t mean that it is very neatly distributed. Some places maybe say $3, another place will be like… crazy, $27, $30 per user. This Facebook platform is much more popular or the users are highly active on there in certain parts of the world, more so than others. Also with the spending power, people don’t mind spending more on certain countries or basically the ads just work better in certain countries. Ultimately, it’s back to your audience, they prefer to be engaged on Facebook in the US as compared to APAC. Maybe APAC side, Instagram is better. 

Reggie: So what is Facebook share in the market and what is the kind of projected growth that we are looking at with Facebook? Because it’s no longer a small guy, right? Like we’re not expecting massive growth, but from its perspective, what are we pricing in? What is the kind of growth rates that we’re looking at? 

Thomas: So the expected growth of let’s say your total media ad spend. In 2018, USD $283 billion, $283 billion. In 2023, two years from now, it’s going to be $517 billion. 

Reggie: Wow, it’s going to double! 

Thomas: Yeah, this is ridiculous! 

Reggie: Yeah! So it is essentially eating into traditional media. 

Thomas: It is, it is at the same time the pie is expanding also. 

Reggie: In what sense? Like why is the pie expanding? 

Thomas: There’s different ways to look at it. One is population growth. The second thing is that basically ad spend, when you look at it, it’s an interesting number to say the least. The more platforms there are and the more ways that marketers can reach out to the audiences, this number actually increases. 

Reggie: Tell me more! 

Thomas: Because it’s more ways to reach out to your audience. Let’s say take newspapers, for example. There’s only one newspaper, no one else has been innovative or entrepreneurial enough to start another newspaper. The only available ad space is that one newspaper. Then your total media ad spend doesn’t increase, unless the newspaper itself, that sole newspaper raises the price. Or somehow magically creates small pages, then you get like yellow pages or something then endless…

But that’s the thing. They evolve and then they find out that okay, we’re just putting more and more ads but we are losing our user’s engagement. Now someone innovative or entrepreneurial comes along and say, “Hey, I don’t like this format. My friends tell me that perhaps another format is better. Why not I introduce swiping ads instead, like a digital platform?” And I’m like okay. So when the analysts look at it, this has potentially like four or five times the output of media ads in terms of spending compared to the traditional ones. Your total pie actually increases. Now, why? Because the old one, the old business also has a chance to innovate up to the level of the new guy.

That’s up to them, that’s up to them. But the total media amount that can be spent now is split between two platforms. The size in relation to that also increases because there is more eyeballs. Unless the eyeballs are actually decreasing, then that’s a separate thing. That means you create new platform also the person doesn’t want to see, then that’s a different story altogether. 

Reggie: But what I’m hearing is… the more media players in the game that are doing very well in whatever they’re doing like TikTok, Snapchat, Twitter, New York Times and all these guys, the more there are, the net ad spend across all of them, like as a collective will become bigger. Is that what I’m hearing? 

Thomas: Yes.

Reggie: Oh, that’s interesting, I didn’t know that. I always thought it was like a duopoly or oligopoly where winners take all kinds of things. I didn’t realize that when there were more players, more advertising assets and platforms in the space, the net net actually gets bigger. So the market share actually grows along. Is there a reason why to that, other than the whole, the more possibility and all that. Is it something to do with how marketers look at spending or is it how companies are looking at that whole sales process now? Is it changing that way?

Thomas: It is a little bit to do with like demand and supply and inflation actually. So why these terms are also involved in advertising? So let’s say… now take the example of TikTok versus Instagram. Last time, Instagram used to just dominate the whole millennials attention. Then along came TikTok with a very different way of presenting content and it’s user generated. And it’s also having very different ways to show ads. At the same time inside, they have embedded ways of influencers to show their own content or to show their own ads or their promotions and all that.

All this is just a plus and a times and a plus and a times, incrementally this increases. So where the inflation comes in is that when marketers see that there is a shift of attention from one platform to another, this total amount increases slightly because there’s more that you can spend inside TikTok as compared to Instagram. There’s just more tools. But the second thing is the inflation part. What if the same group were using both Instagram and TikTok at the same time? They were not actually complete substitutes of each other, but they were using both at the same time. And they spend on something else, maybe they stopped going out.

Suddenly everyone has two hours free in their free time because they don’t need to travel anymore. Where’s that two hours going to go? it’s going to go into Instagram and onto TikTok. You’ve got more eyeballs that increase on both platforms. Wherever it is, if you are a brand that just nice, that target segment is in between Instagram and TikTok, spend on both.

Now, basically you are having your brand exposed to both platforms. Whoever and whenever that user actually opens up their phone is either Instagram or TikTok, your brand is there, your ad is there. Something is going to convert at the end of the day. 

Reggie: Nice. I know that in the ad space… not unique to Facebook, across in the market, there’s an auction mechanism that is in advertising. You want to share with us a little bit about that part? 

Thomas: Auction mechanism, I think this was popularized by Google first by their keyword bidding search. But the mechanism is the same in that we see how auctions work is that there is always a base price. This base price is usually set by the advertising platform. Google has their own advertising platform. So AdWords, AdSense that kind of stuff, they set a base price based off the demand for that keyword. If you have… if you substitute the keyword for let’s say an ads space, you know that this particular series of videos, always have a lot of eyeballs, always convert.

You would want to price it higher first and you will not accept any other prices below that amount. No one wants to take, keep it empty, then it’s your loss right? Only the next highest bidder wins. So what happens is that when this auction mechanism is introduced into different platforms, the price is only ever going to go up. It’s never going to go down unless the bidding system is different. Of course there’s other different kinds of auction mechanisms, take the second best bid or something like that. But let’s standardize it as this way of auction. Yeah, it’s going to go up.

Reggie: We will talk about the whole bidding mechanism when we go into other ad platform play, maybe like TTD (The Trade Desk Inc.), like Trade Desk or you know… the whole game is that they play the whole thing. But I think from a Facebook standpoint, all the little things are just really adding to having more engagement and more targeted advertisements so that more revenue grow… a bit like a mammoth kind of thing. 

Would you want to run us through quickly… what are the financials looking like? What is the health of the company, like how much money are they having and all this kind of stuff? I think a lot of people need to also recognize the value of cash that comes in through these kinds of businesses.

You can make magic. Cash today is much bigger than cash tomorrow. I think a lot of people don’t… they need to see that it’s not just about revenue growth. Give us some idea about what is their financials in Facebook. 

Thomas: Basically you talked about the revenue versus the cost. The revenues are growing as fast, if not slightly slower than costs most of the time. They are still spending some stuff on the R&D, the expenditures and all that. But if they just decide to not spend as much, they’re already profitable actually. So what are they actually spending on is basically making it more scalable. They are spending on marketing and things like that. Raw numbers, basically for revenue and just ads only because it’s 90% of the revenue. That’s a big one. Anything else, it’s not much impact already. 

Reggie: Anything else is the growth potential, right? It does not have significant impact on the balance sheet at this moment in time. 

Thomas: Now we are in 2021, but we have the numbers from December 2020. December 2020 was $27.1 billion. And then $20.7 in the previous December, that’s 2019. It’s a 31% difference, quarter on quarter change based on a yearly basis. This is quite big, 30%. 

Reggie: For a mammoth is big, just saying. For someone like Facebook is considered big. Most big companies probably don’t grow like that.

Thomas: Unless look at their cost. Same case, time basis, as well as the comparison metric, it’s 28 versus 21. So this has increased also by 33%. That difference of 2% between the revenue and the cost… yeah, the cost is rising faster than the revenues. But actually anytime they can just reduce the cost, do some cost cutting method, make the platform more scalable and stuff like that. Or revenue… suddenly they unlock the Oculus Rift and it becomes profitable straight away.

They are actually making money on a net basis. If you look at it on a yearly basis rather than just the current quarter.. sometimes the quarters they may dip down, sometimes the quarters may increase. This is definitely based off their own roadmap of the company. But if you’re talking about health, quite healthy. 

For margins, you want to see what is the kind of profit that they are making. Let’s say like operating margins, we look at operating margin, it’s at least like 46%. The lowest it has been for the last year was 42%. This is super fat. 

Reggie: Give everybody some context in the other sectors, what are we looking at? Oil and gas, F&B, those kind of guys. 

Thomas: So F&B, it’s very good if you can make more than say 20%. I think this is one of the most outstanding restaurants, maybe like HaiDiLao or something like that, but they have a very unique structure and the way they operate also allows them to get quite pretty high margins. But on an average basis then it’s much, much lower than 20%. Actually it’s not easy as F&B. If you compare to Facebook, this is totally different dynamics. But if you want to compare, what type of business that you want to start, or what kind and type of businesses to invest, why certain people invest in software companies? It’s because of this. 

Maybe your initial upfront cost is expensive because you build your infrastructure at one shot. But once you’ve built it well and you scale it well, then you can get margins because it’s a one-time cost. The rest is just… you’re using the same infra and then scaling it up. Maybe a few instances…

Reggie: Exactly. So I think a lot of people need to recognize the software business also in the content business are very similar in the sense that once you build something, the fixed cost is there. It’s the same fixed cost. Unless you keep innovating, which most of them do, they keep innovating and keeping themselves relevant. But there is no incremental costs per good sold to another person. So I think a lot of people need to recognize this, you don’t actually pay more to produce more because you already produced it. 

And for every more impression, which is why Netflix is amazing, YouTube even more amazing, all those we can talk another time. But the kind of idea where after you produce a content, more people can watch, it does not matter. The more people that watch, the more the scale you get and the more money you can make out of it. So limited incremental cost and that is the beauty of a lot of tech and content kind of business. A lot of people start to see why there’s always a premium paid to tech companies. Yeah, that’s where it is. But like we’ve said in the beginning, the tech companies are no longer that tech anymore and things are changing and people are reclassifying a lot of them. 

What about the whole… how much cash does Facebook have? How much debt does it have? How crazy can things get here? 

Thomas: It can be its own country. So here’s how much cash they have, $60.3 billion, it’s just sitting there. If you’re thinking how did they get that kind of growth without borrowing any money? So how much did they borrow in total? Net net, it’s 11 billion. If they wanted to pay off the debt. Anytime, no problem. Like 60.3 billion, here you go. But I’m not going to do it, I can pay it off anytime, my cashflows are healthy, please lend me more money to grow faster. That’s very healthy, very fat.

Reggie: Nice, big fat business. So essentially when you are buying into the company, you’re buying cash at some level, if you think about it. 

Thomas: Yes. 

Reggie: It’s not a very debt heavy kind of business. So that’s one of the beauties and I think a lot of people need to start to imagine a little bit like with 60 billion, what can you do? You can buy out all your competitors if you really wanted to do that shit. You could totally rift into another space which is why a lot of the big tech giants or the guys that had very big businesses that were making a lot of cash. They expanded over time through a lot of acquisitions. And you know, for a period of time, it was the insurance guys. Then there was the media guys, and then now it’s like the tech boys. So just kind of look at how things are changing over time and who is making the very big cash margins. And if they play well, my goodness, they can dominate for a period of time, and that is quite wild. 

Thomas: So having that cash really just give you a lot of options. 

Reggie: A lot of leverage, a lot of crazy things that you can do. But what about the team then? I know that at Facebook, a lot of the guys that they acquired, their founders have left. So WhatsApp, Instagram, the founders have all left. So I think Facebook for a period of time may have gone through some internal management challenges. Of course a PR campaign will make it sound very swee (Hokkien, beautiful). Oh, we leave… always sound beautiful. That’s what PR they do, that’s their job. But if big guys, big product hits, it’s actually they are the product founder. So they are like the biggest hit and they leave. How does that affect like Facebook in that sense? Or do you feel it even affects Facebook? 

Thomas: Actually not much. Reason why is because for any M&A, merger and acquisition, it is common for the founder or the CEO of that acquired company, the target company to leave. There’s reasons for it. One is that he already lose control. But depending on the contract between him and the acquirer, certain financial rewards are also there once they finish up, let’s say two years or three years. Once they fulfil it, they cash in on the options, or they get paid out already, then just leave… unless they really like the culture. 

There are some cases where they stay, but in either case leave or not leave, operationally wise it should not affect because the M&A, the whole due diligence process has accounted for integrating their whole entire products, their technology, their stack.

And sometimes the acquisition is to do with equity hiring. They’re rehiring certain people for that amount of time and transferring the knowledge from their hits to Facebook’s hits. Once it’s done, up to you to stay or not, but you’re just going to be an engineer, sorry. 

M&As are… one person is going to get a good deal, another person is not going to get a good deal. That is always the general case. But how they want to present it to the public is that, yes… this acquisition occurred, this amount of cash has exchanged hands or is it… It’s not exactly cash all the time also. Sometimes it’s just a stock transfer, sometimes it’s just like a promise to pay in the future. But whichever, the number is easy to digest when it’s released to the public. 

But in any case, it doesn’t mean that a product founder leaving, actually has impact on the running of the business. If the due diligence has been done well, there’s such a thing also as the tech due diligence. The transfer will be quite smooth. Unless there’s very high dependency on all those engineers that you hire when you acqui-hired, they are the only ones who know how to operate the technology. That’s not a very safe position to be if you are buying. You wouldn’t want to have that kind of thing. 

Reggie: And I’m expecting the team at Facebook to do very good due diligence. Because we all have friends in the tech space and they make money, they built their own startup and all, and sometimes you look at some startups, you’ll be like, why the hell is this thing acquired? And why the hell is this other thing not acquired when it looks like it’s amazing. But actually a lot of people don’t realize that the back end is in a mess. Then the front end looks amazing, interface very nice, everything, but behind hell lot of manual work and a lot of engineering that’s been built up. Which means like a lot of patchwork and the software is not done well. Which is why a lot of these big guys they, they don’t buy these seemingly good companies or seemingly nice companies. We can have a discussion about Grab another time. There’s a lot of engineering debt in Grab, we can talk about that in another discussion. 

But what is your view of the management at Facebook? Who are they, who are the major guys and, what do you think, how’s their job done so far? How do you evaluate them? 

Thomas: I think Facebook is in very good hands. Firstly, the CEO is also the first founder, that’s Mark Zuckerberg. Never mind the academics, but look at his work ethic, look at his consistency in delivering certain output. Him being someone that is founding this company, he was able to transform it… of course with the help of the advisors, VCs and his other partners, into the company it is today. That takes a lot of grit and consistency. He’s not like “I already IPO (Initial Public Offering), I exit”. He’s been there for a very long time. Facebook was founded 2004, now it’s 2021. That’s a pretty long time, that’s one generation. 

Reggie: Yeah, man! You can have a kid and the kid now going to graduate already. It’s pretty wild. I think like what you said, a lot of people don’t realize the transformation from a startup founder to as a startup scale, when you start hiring big bunch of people and then you don’t have big VCs coming in, and then they want to have a say, and then you go for listing, and then you have to manage the bigger community of investors out there and how this whole process change. It’s not easy for the person to grind through, which is also why the talk about founder. Because I think founder led companies have that difference in a sense that… not all founders can keep transforming, that is one thing, that’s true. But I think at some point in time, only the founder will have the reason and the grit to really grind through it that much in my view.

Because a lot of people think it’s about making money, but honestly, at some point in time, these guys have so much money, they don’t need to do it already. So if they don’t have a bigger reason to do it, it’s pretty challenging. So I’m very big on founder led companies also.

Thomas: And him having been through the whole 17 years, he knows all the different problems. Rather than you have multiple transitions or CEOs and CXOs all that, they only come in a few terms at a time, but they only know part of the problem. So every company has its challenges, but being right there from an inception, he knows very well, his users, he knows very well how to improve the revenues and basically bringing it step-by-step to what you see today. 

I think CEO, pretty stable, pretty awesome. Although there might be some question about his ethics and all that. So I think that’s another discussion to do with regulations in the US and things like that. But from a business point of view and a management point of view, I think it’s quite good.

Reggie: Nice, who else is on his team? 

Thomas: There is the CEO. So she is Sheryl Sandberg. Previously, she was a VP for online sales and ops at Google, and then chief of staff at United States Treasury Department under President Clinton. So okay wow, quite impressive. 

Reggie: She was supposedly the big girl that was brought in to try to make Facebook a thing rather than a startup. That was supposedly the idea behind it when they try to push her in to management. But how has she performed so far then on Facebook? 

Thomas: Quite well. So from what I read elsewhere is that she really brings in the operational experience to scale it from a small startup into something that is very scalable throughout the rest of the world. I mean, you can look at her experiences, it’s just a long running list. But she has a lot of that kind of practical experience to solve different kinds of problems operationally, especially when you want to scale things up very wide. You can’t run things in a startup way when your company is 10,000 people. Your infrastructure is all over the place and that kind of stuff. You really need to get that in order. I think she has that kind of skill set. She stayed on for quite some time. That kind of varied experience or ops role is very helpful. 

Reggie: I think people don’t realize the challenges of ops. Nice. Other than the big two in the team… you’ll always see these two guys, they’re always representing Facebook. As a tech company, who are the other important people that we should know in Facebook? 

Thomas: For sure it would be the CTO. So as a tech company you do need a tech person inside. I don’t think I’m going to pronounce his name right, Mike Schroepfer, I’m so sorry. His background is quite well-established also. Last time he was at Mozilla corporation. So Mozilla is a corporation, is the one that created your Firefox browser and other kinds of products. Basically he led the engineering and product development there. 

Reggie: By the way for all of you who didn’t know, actually, if you go and check your data uploading and downloading speed, right? Mozilla is actually more efficient than Chrome. For all of you that didn’t know this thing, I only recently found out, I was like, oh wow. That’s why a lot of my engineer friends they actually use Mozilla Firefox. I was like, who the hell use Firefox? They were like “你不懂 (Chinese, You don’t know)”. I was like, oh, wow. Okay, that’s cool.

Thomas: Geeking out over here. Google product managers are going to rage.

Reggie: Yes, yes, yes. Which essentially shows that this guy has the ability to create more efficient products. Because I think Google is extremely powerful on the front end. But I think the back end is the big question mark that a lot of people don’t know how to manage those things. It’s not even, I know. But it’s just like my engineering friend was telling me that everyone use Firefox because it’s more efficient. And I was like, oh, okay, like that also can. 

Thomas: And really browsers, they seem pretty simple, but it’s not easy to build. There’s a lot of moving parts to that. Mike Schroepfer… he goes even more technical than that. He was an engineer at Sun Microsystems. Sun Microsystems is basically like in between the hardware and software layer. He’s got quite a deep tech. 

Reggie: Shit, this guy is cool. 

Thomas: And he’s got some patents also. 

Reggie: Serious! This guy is a geek, nice, I like that. I like that tech company has a geek and a serious geek. Like what you just said, right? He has experience in… I don’t know him. But he has experience in the whole like in-between of hardware and software. And that is the part that is extremely difficult for a company like Facebook or accompany like Zoom or like YouTube, which has a lot of data, a lot of content sitting around and people don’t realize how difficult is it to manage the things at the back where there’s so much data and which is why AWS dominate this whole thing.

Thomas: Facebook has their own data centers also. 

Reggie: Yes.

Thomas: So it’s really end to end. It’s not just Facebook browser, software only. It’s a lot. 

Reggie: No, they’re not relying on other people, end-to-end. 

Thomas: So one thing you might try, if you go onto any browser on your handphone, your mobile phone, go onto Facebook and then try to get to press any link that goes outside of Facebook. Then it will tell you like… Are you going to use your mobile data or something like that? It’s actually optimized to your platform that you’re using to try and reduce the file size or try to improve the speed so that you use Facebook more, little things like that. 

Reggie: Crazy. Crazy. Crazy. Cool guy. And I’m sure there are a lot of other people in the board and in their management. Is there anybody that catches your eyes and someone that you think we should talk about? 

Thomas: There’s many, maybe just two more. The CFO, his name is David Wehner. Basically he was in Facebook for a long time. But also, previously he was Corporate Finance and Business Planning in Facebook, the VP. Before that, he was a CFO at Zynga. Zynga is… maybe you are familiar with the Poker App. 

Reggie: Facebook game? 

Thomas: Yeah, the Facebook game and stuff like that. There’s reasons why they were popular on Facebook also. But monetization or getting these payments out from digital platforms and really making sure that the finances are healthy, this is the guy. So a very good… 

Reggie: Loot box. Talk about that another time. When we talk about gaming guys, we can have an endless discussion how they try to milk money out of you and to have a gamer in the team, that’s pretty wild. 

Thomas: Something interesting about his academy background. He actually studied chemistry and applied physics. This is a finance person. At the end of the day is math.

Reggie: Yes, cool. 

Thomas: And one more person will be Chris Cox. He’s Chief Product Officer since 2005, but he’s not a product manager from the start. He was a software engineer initially at Facebook and then he grew into the Chief Product Officer position where he is today. So he was a software engineer, he built up some Facebook features like Newsfeed.

And then Briefstein, he was a director of HR, that’s a bit random. But then after that he became a Vice President of Product, then he’s in product management all after. What is interesting to note is that he or she studied Symbolic Systems at Stanford University. Why? This is like a random thing, right? So one of the VCs, Andreessen Horowitz, if I’m not wrong Marc Andreessen, he also studied Symbolic Systems. So there is this kind of connection where, what you study or where you’ve been and all that, you bring in certain kind of investors, or you have that kind of special relationship. And that really helps in having strong bonds from a long time ago. 

Reggie: Nice, relationship go a long way. So I think essentially what we’re hearing is Facebook has like a bunch of talent… also have a lot of money and they have a big vision and they know what they’re trying to do. You know, you see a lot of products that will line up. That will attract good, crazy guys that really want to make things work when you’re on a big ride. 

So what are then some of the modes of the company? Why are they so strong and why can they continue?I think we talk about a lot of these things as we go along. Let us sum up to talk a little bit about the modes of the company, why is it so strong and why will it continue to stay strong in that sense? And a little bit about the headwinds and tailwinds of the company. 

Thomas: So for modes, I think the common ones that we might hear is the network effect. The Social Network movie and stuff is always talking about this. So what is it actually? We see the bigger the network, the more powerful your product or your business also, because it just becomes more valuable. So say for example, Friendster. If it’s only you and your best friend, then how often are you going to use the platform. But if it’s you, your best friend plus the rest of your classmates, and then plus the rest of your school, then it becomes more interesting. There’s more dynamic kinds of communities for you. They like your stuff and then you start having… “oh, you would like the other person’s testimonial, you never like mine”. So there’s that kind of that competitiveness. 

Reggie: We all went through that stage. 

Thomas: That’s actually engagement. It’s a really good point. That actually drives the traffic throughout the rest of Facebook, also because people want to use the platform and more users want to come on board also to be part of this and it’s hard for them to leave. Your whole community is there, your whole village is there already. And your experiences will be much better because everyone else is involved. It’s all about validation. Let’s say now on Instagram, you post something… I ate at a five-star restaurant. Only one person like it. Don’t like that… then start to think why my other friends never like. Then you start to share the posts on Telegram or WhatsApp to tell them “I went to this place, you never see is it?” 

You want them to be involved in your life. That is the kind of generation or the thinking that we have today, which is actually like a fly view in creating more usage and definitely more users will come on board also.

Reggie: I think the network effect is definitely a big thing when it comes to these kinds of big ecosystem kind of player, from socials to payments, to like internet, those kind of guys. The bigger the network, the more value it is. And I think a lot of people can kind of let your imagination run wild a little bit into like what are the other businesses that can happen because of the big network that has already gathered so far.

Nobody else has the network like Facebook at this moment in time. So that’s something interesting to note. 

Thomas: Then another mode will be technological. I won’t go into too in-depth technical but you basically think of an infrastructure that powers the whole entire platform under Facebook not just for web, but for your Instagram, for your WhatsApp. How come you can perhaps send your message and then the person can receive instantaneously? How come you can delete and the other person can… the message will disappear? All these are incremental features, now it’s very common. But when it was released last time, it’s a pretty big thing. 

We also look at the number of… let’s say like servers. You need to go and support that amount of usage and scale. So ultimately, if there’s a new user, it’s going to take up this amount of space or this amount of resource. It’s doing that automatically instead of last time… oh, I need to go and order more servers manually, for example. This is all automatically done, rather than needing someone in the back to go and configure this.

All that upfront cost is paying back lots and lots of dividends now. This is a mode because the infra has already been built. Anyone else who tries to do that, they have to spend that much in order to get to that point also, before even acquiring the users. 

Reggie: That is some real technical difficulties a lot of people don’t realize. Cool. So I think that’s pretty much those two. Is there any other things about modes? 

Thomas: It will be like the marketing spend. So this is the platform where you have a lot of attention, where you have a lot of eyeballs and the marketers know that. They need to spend here if not they’re going to lose out. Let’s say you have a marketer in charge of one company, for example Adidas and Nike. Adidas is there, Nike is not there. Something is wrong. Why? Wherever my competing brands are, I need to be there to compete back. 

So I’m going to have to spend dollars there. I’m going to have to set aside a budget. It’s a much higher return on the marketing budget compared to anywhere else, other than TikTok, which is a new entrant. We see Facebook so far, it’s one of the best. So that’s where most of the budget is going to for all marketers, whichever company you are, that’s the best way to reach out to your audience. That in itself already is a mode because for any other tech company that needs to get these kind of engagement levels up to that point, you need to have that kind of conversion ratio that we talked about earlier. 

How do you reach to that point? Your everything has to be seamless, right? Your number of users, the data that you collect, how people click, how people engage your website, all that kind of stuff. You could say it’s like technologically and all that, but it’s marketers perception of your brand and of Facebook as an advertiser’s platform, is really solid. We must do Facebook, that’s the number one thing.

Reggie: Nice. I didn’t recognize that. I didn’t recognize that Facebook in itself is also like a brand kind of thing, like you have to use it. So, okay that’s interesting. To sum up today, can you run us through what are the headwinds and tailwinds that the companies are facing in your view?

Thomas: I think the big one would be more regulation from the US and maybe also from other countries. I think it was actually some time ago, but let’s say the Trump era where it was this storming of the Capitol Hill, I think that was pretty big. It was a combination of social media platforms that could have done something, but Facebook had a pretty big responsibility in that also.

Why… is because the way that they do their targeted advertising and the way they collect the data and serve it back to you in the form of ads or what you want to see, is very ethically, a very fine line. This is a constant back and forth between Facebook’s legal or CEO and then the regulatory bodies. At any point in time, this could be a risk. Any point in time, this could be a very material risk because it can say… oh no, if someone, if a country just says like “Facebook’s not going to operate in our country because you have refused to comply with so and so”. And then just Facebook just cancel out of the market entirely.

An example of that, other than regulation in this sense, because of the ethics… You see TikTok, they’re just totally blocked out of US and India. They just don’t have that growth in those countries anymore. So same thing for Facebook, it could happen for any other country as well. And within the US maybe it won’t be so crazy to say “oh no, Facebook stops operating in US”. But the way they operate may have to change. 

So you see perhaps more costs involved in restructuring the way that he serve US users. And then you have this complication, like why Facebook users in US is going to be treated differently from other countries. And then they will have got two different sets of operations.

So that incurs more costs. That also may impact their revenues because then certain ways that you collect the data may not be available anymore. It might not be so good for the advertisers because it’s no longer so accurate. To bring some context, basically you scroll through your Facebook feed, and you ask your friend to scroll through the Facebook feed as well. What is going to happen very likely is that what you scroll and your friend scrolling is going to be very different. 

Reggie: Very, very different. I’ve had that kind of experience while I was using my friend’s phone or tablet, it’s not just a Facebook thing. Netflix, YouTube everything, a lot of the tech platforms they do that… so algorithmically targeted at your preferences and what you like. 

Sometimes I log into the… I have multiple YouTube accounts because of work. And I’ll be like, why all the video I don’t want to watch? You know that kind of thing, it’s already a thing.  

Thomas: So put it to the extreme. Now let’s say for the storming on Capitol Hill, you have certain members of the population that is quite extreme. Sometimes also they want to just find something that coincides with their beliefs. What Facebook does, whether I won’t say it’s on purpose, but it’s just the way that algorithm was designed. It reinforces what you want to see and that’s why it keeps you getting hooked on Facebook, but it fits very silo mindset and you have very big differences between groups. 

So we can see people are just fighting on Twitter, people are fighting on Facebook for no reason. You get that kind of social effect and that is a very big dilemma for countries, especially to go and handle. That is also a very big way of how Facebook can collect your data because basically what you engage with on the feed reinforces the algorithm to show you more of it. If that is being affected, then basically the data collection is going to get affected and downstream your revenues is also going to get affected. 

Reggie: I think today we had a pretty good discussion, and pretty balanced in the sense of you know, we’re not like “oh Facebook everything, is like yeah”. I think fundamentally, Facebook is very powerful and they’ve done a great job in getting to where they are. But what you’ve pointed out, at this moment in time, there’s a lot of moral dilemma and a lot of countries are looking at big moves to try to work through this process of what the social media can share and what it can talk about. 

Are they going to become broadcast platforms because they have actually algorithms and involve them? All those things are headlines news that for a lot of people, if you’re interested in investing in Facebook, you got to look out for it because it seems like just a little bit of change, but it’s going to change a lot of the processes involved. Don’t be over frightened by it in a sense that, most good companies and good teams, they will work with whatever systems that is in place.

I think in a short, medium term, maybe there’s a little bit of turmoil, but if you have good faith in the team, then maybe the team can just steer you through the same, more challenges in that sense. 

Thomas: There’s the underside things also. Facebook has been pretty involved in politics also. So that’s something that you may want to check out. 

Reggie: Important, I think a lot of big companies, they have lobbying arms and so a lot of people don’t recognize. They’re not lobbying alone, they are lobbying with Apple, with Google, with Amazon. They are banding together to lobby in the US and the US does set a lot of the parameters of the world. So that’s an interesting part. 

Thanks for sharing today, I think we learnt a lot. We can continue to have discussion as we go along with a lot of the companies. Is there any other thing you want to add as we end off today? 

Thomas: Always do the due diligence. Like I think, I hope we covered some of the important areas of Facebook, but also some of the major trends in the world. It really affects us as a society. So it’s interesting to look at it as a company, but also how it’s affecting the rest of the world and basically how it’s also impacting… how new competitors are rising to respond to Facebook now that it is in this situation. It is very dynamic, I think this is pretty interesting. 

Reggie: Cool, okay, thank you. See you, bye. 

Thomas: Thanks Reggie.

Reggie: I hope you learnt something useful today, definitely recognize that investing is a personal decision. We’re not giving you recommendations here, but we are always happy to Geekout with you about different, interesting companies and trends for the future. This series definitely has a lot more depth and terms, so please head over to TFC Stock Geekout topics tab on your members’ back end to have a great discussion about this company. 

Share your opinions, disagree, debate an idea to strengthen your investment thesis and become a better investor on this journey with us. If you have any other interesting companies you would love us to explore, drop ideas under feedback and suggestions or through our socials. Meanwhile, remember to stay invested.

Okay, thanks for tuning in and continuously tuning in, especially for a lot of you guys that have been listening to all our other content. You may be really listening to this on the main feed again. So great stuff. If you have not heard all these other content, maybe because we have all these other feeds there, and we’re trying to keep the feed lean so that it does not become too messy.

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Thank you for supporting the podcast so far, but in order to continue to grow the network and make it a serious big content player, we’ll need to pass the mic. So Andrew is going to take over and I’ll be freeing my capacity to do other things in our content network. So yes, all that jazz, pretty good. He is a professional. He’s been doing this for years, doing DJ hosting, it’s going to be fun with him. He has the same vibe, similar vibes as me, also siao siao, a bit of dad jokes here and there. So great, you will continue to be hosted while with him on Chills with TFC and all these new content that we’re doing.

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