We fielded more inquiries and observed more anxiety about Facebook, Inc. (NASDAQ:FB) than about any company we can remember since Amazon.com in the early 2000's. Facebook's highly anticipated (can we say overhyped?) IPO was hardly what investors had expected, as a poorly handled roadshow, Nasdaq's execution snafus, and media's intense focus on daily (and sometimes hourly) stock price fluctuations have conspired to derail the offering.The company's transition to mobile, which has lower monetization, resulted in reduced growth expectations in the short term, which further undermined whatever investor confidence remained.
Facebook is the largest global social network in the world with almost one BILLION active users. The company has all the characteristics we look for in a business – uniqueness, strong and, in our opinion, sustainable competitive advantages, innovative management, fast growing and highly profitable revenue streams and significant positive optionality; except for one – margin of safety. Given what we believe is the early stage of the company's growth and life cycles, it is difficult to estimate Facebook's intrinsic value. After much internal debate, we decided to buy a small position for the Fund (1%), based on our belief that Facebook could one day become the most valuable company on earth.