For the past two years, Facebook (NASDAQ:FB) has outperformed the S&P 500 with a near 100% rise in its stock price. As a member of the FANG’s (Facebook, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) & Alphabet Inc-C (NASDAQ:GOOG), the world’s leading social network became a favorite equity holding for technology bulls. With consistently increasing mobile revenue, a large and highly engaged user base and two of the most widely used mobile applications (Instagram & WhatsApp), investors may be tempted to purchase more Facebook shares. Long-term investors should, in fact, stay away from owning Facebook.
Cost Of Facebook Ownership
On March 11th, 2016, Facebook had a market capitalization of $310 Billion. Investors purchasing shares of a stock essentially purchase a portion of the underlying business. An individual seeking a long term investment can choose between buying shares of Facebook and buying shares of other companies or collections of companies.
For instance, to understand the opportunity cost, look at Facebook’s market cap and see how that compares with a lot of other investment options, albeit not in a similar space. What does $310 Billion (Facebook’s market cap) buy?
$310 Billion will buy an investor all of Facebook giving them the world’s largest social network and two leading mobile applications (InstaGram and WhatsApp). $310 Billion will also buy an investor the largest grocer in the U.S. Kroger (NYSE:KR), two leading consumer products companies Kimberly-Clark (NYSE:KMB) & Clorox (NYSE:CLX), a top asset manager T. Rowe Price (NASDAQ:TROW), the second largest US automaker Ford Motor (NYSE:F), an investment bank Goldman Sachs (NYSE:GS), an energy company that Warren Buffet has recently purchased a stake in, Phillips 66 (NYSE:PSX), an agriculture machine manufacturer Deere & Co. (NYSE:DE) and $1 billion left over in cash.
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