Why I Bought Facebook

I just bought 580 shares in FB for an average of $172.56 each.  Here's why:

Strength of Competitive Moat 10/10
Level of Debt 10/10
Quality of Management 9/10
Price 8/10

Competitive Moat

Facebook has enormous network effects - people join the social network that their friends and family are on, and *everyone* is on Facebook to some degree.  And after the age of 25 people don't change their habits much - Facebook is *sticky*. This moat has protected it against front-on assaults like Google Plus and is likely to still be effective in 20 years.

Plenty of Cash

Facebook has about $35 billion in cash. It would be nice if it could be paid out as dividends, but with current US tax law and Facebook's need to acquire competitors, I'm not counting on it.

Good Management

Management seems pretty good - Mark Zuckerberg and Cheryl Sandberg are smart and focused on the right things.  Facebook overpaid for WhatsApp but vastly underpaid for Instagram.  (Seems that Instagram is now Facebook for girls aged 12-25).  Facebook/Instagram has successfully fought off a Snapchat assault.

Good Price

Current EPS is $4.61 so price/earnings ratio is 37.5.  My estimate of Facebook's future EPS growth is:
Years 1 & 2: 50%; Year 3: 30%;Years 4 & 5: 20%; Thereafter 15%.  That would mean EPS in 10 years is around $39.  Assuming P/E of 20 at Year 10 that gives a price of 780, ie. an annual return of 16.3% per annum.  Not bad.

Anecdotal Evidence

1. In Myanmar, Facebook is the internet.
2. Seems Facebook is beating Google at their own game: "Facebook has really improved their ad platform. They offer pretty much unparalleled user targeting features, coupled with some clever tools like product ads that are much easier to use and integrate than Google's."
3. I'm thinking about buying a Macbook Pro, and have come close to pulling the trigger a few times over the past 6 months.  So close that I've put it in the shopping cart on Apple's website.  Yet I haven't seen a single Apple ad on Facebook, Youtube or Twitter.  So there is clearly plenty of room boost ad revenues for targeted online ads.
4. India is growing nicely for Facebook - in total users and revenue per user.