Mark Zuckerberg successfully transformed Facebook (NASDAQ:FB) from a dorm room idea into the large publicly traded company that it is today. This took more than just luck. It took sophisticated technical skills, knowledge, strong leadership, visionary thinking, and persistence to pull off. Zuckerberg said this in January 2014 when he was reflecting back when the first version of Facebook was launched:
“I remember really vividly, you know, having pizza with my friends a day or two after — I opened up the first version of Facebook at the time I thought, You know, someone needs to build a service like this for the world. But I just never thought that we’d be the ones to help do it. And I think a lot of what it comes down to is we just cared more.”
That quote says a lot about Zuckerberg’s vision and his work ethic. He had the vision to see that Facebook could be used throughout the world and he had the skills and work ethic to persevere enough to make that a reality. Facebook’s ability to thrive as a growing company going forward will depend on how well Zuckerberg uses his skills, vision, and leadership to drive increased revenue and earnings for the company.
In addition to gauging Zuckerberg for his efforts to make Facebook a profitable company with over $11 billion in revenue and $2.75 billion in net income (for the past twelve months), we can also look at the decisions he made to grow the company. The decision to acquire Instagram, WhatsApp, Oculus VR, and PrivateCore is an example of Zuckerberg’s vision to allow Facebook to grow and evolve as a company.
The acquisitions of Instagram and WhatsApp act both to increase Facebook’s moat for its core business and to allow the company to grow additional revenue for the future. Oculus VR marked a foray into the world of virtual reality. Turning Oculus into a new revenue source may take some time to materialize, but the acquisition shows that Zuckerberg sees things beyond the core business of social media. Seeking Alpha author, Michael Slattery, did a great job of explaining the details of the potential for Oculus. Slattery shows that there are billions of potential revenue sources for Facebook through the Oculus technology. These acquisitions show that Zuckerberg has the vision to expand and grow the company and that he fully understands the potential for the Oculus technology. The Oculus acquisition also shows that Zuckerberg has a long-term time horizon as it may take a few years for the technology to produce revenue.
The acquisition of PrivateCore is to integrate its security technology into Facebook’s server stack to better protect its own servers and customers. PrivateCore’s technology will help protect Facebook from malware, unauthorized access, and other security threats. So, this acquisition will make Facebook more secure which is also likely to give its users more confidence in using the service. This move is a statement by Zuckerberg that shows that he is serious about the security of the site and also the security of its customers and users.
Advice from Steve Jobs
Zuckerberg stated that he was previously given advice from Steve Jobs. He said that Jobs advised him on how to sharpen his company’s focus and how to build the right management team. Jobs felt that it was his responsibility to give advice to up-and-coming technology executives before he passed away. However, it was Zuckerberg who sought the advice. Zuckerberg is likely to be considered another Steve Jobs or a Bill Gates. These are leaders that started a business from scratch, built them up to become world leaders in the technology industry, and had the vision and perseverance to allow the company to evolve and grow over decades. Zuckerberg demonstrates that he is in Facebook for the long haul. This is evident in his actions to build the company to where it is today and through the acquisitions that were made thus far. Zuckerberg also has a high degree of technical knowledge and skills which are traits that Steve Jobs and Bill Gates also demonstrated. Since Zuckerberg has some of the same traits as his technology predecessors, I think that he will lead Facebook to grow and thrive for decades.
The Bearish Argument for Facebook
Critics of Facebook are quick to point out that the company is just a fad. They point out that MySpace was once the leading social network site. The critics say that another website could come in and become more popular than Facebook. It is true that MySpace was the leading social network, up until April 2008, when Facebook replaced it as the site with the most unique worldwide visitors. However, I don’t think that this argument has much merit. MySpace was built on building an audience based on music and entertainment, while Facebook constantly launched new features that captivated a wider network of users. Facebook’s strategy goes back to how the business was led and managed. It was Zuckerberg who had the better understanding of what captivates users. MySpace also became slower and more difficult to use as it added more ads to its website. Zuckerberg, on the other hand led his team to introduce advertising to its site without causing too much disruption for its users. In a nutshell, Facebook gave users what they wanted in the form of a simple, easy-to-use platform, while MySpace tended to frustrate users.
All told, I think that Zuckerberg’s technical knowledge, vision, and leadership led to the success of Facebook as the leading social network site. If those who managed MySpace had the same overall characteristics, MySpace could have emerged as the leader. Facebook has accomplished more than MySpace ever did. MySpace never reached $1 billion in revenue, while Facebook is on track for over $12 billion in revenue for 2014 and $17 billion for 2015 according to analysts’ estimates.
Currently, there are no major threats in the form of competition for Facebook. Although it is possible for such a competitor to emerge, it would be rare for the leader of that competitor to match the vision, technical knowledge, perseverance, and leadership skills of Zuckerberg. As Facebook continues its success, it will be building up more cash. This will allow the company to make new acquisitions for new potential competitors.
While it can be useful to look at numbers to assess a company’s valuation and growth, it is also important to evaluate a company’s leadership. From what I’ve seen, Zuckerberg has what it takes to lead Facebook along a long-term evolutionary path of growth. Maybe another Zuckerberg will emerge in the future, but until then, Facebook is the leader in social networking and I will maintain my positive outlook for the company. All told, an investment in Facebook is an investment in advertising growth for over 864 million daily active users. The investment is also putting your trust into one of the greatest leaders of our time. With that in mind, I think that there is plenty of above average growth remaining for Facebook.