Thursday, July 24, 2014

The Facebook Money Machine

This article explains why Facebook's stock price is booming.  It is a cash machine that will enable it to purchase promising tech firms.  Facebook, is like other businesses that make money by selling ad space, but it is different in important ways.  Facebook has an operating margin of 42%; it costs them very little to provide the services that make its product available to advertisers.  Unlike other ad platforms which have to pay for expensive content and produce a physical product, Facebook's clients provide the content which is delivered over the Internet.  Moreover, it commands 22% of the rapidly growing mobile ad market.  This should not be surprising given the huge number of regular visits to Facebook by hundreds of millions of users across the globe.  Facebook also provides advertisers with user profiles that allow them to target ads to the most promising prospects for their products.  In this way, they are also like google, which has also used its cash hoard to purchase promising start ups.

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