He proceeded to say, “We think that people are underestimating the mobility opportunity that exists in Facebook…we think ultimately they could achieve a market cap comparable to a Google Inc (NASDAQ:GOOG), which would make the stock very, very rewarding.”
Theoretically speaking, if Facebook Inc (NASDAQ:FB) did reach the same market cap as Google Inc (NASDAQ:GOOG), there would be 350% upside for the social network. The catalyst for such appreciation, according to Cooperman, is that Facebook’s increased performance from advertising and mobile isn’t reflected in the current stock price. He says, “we think that’s coming…the numbers are starting to ramp up.”
There’s no doubt that Facebook Inc (NASDAQ:FB) is considered the pioneer of the social networking market, having amassed a user base of over 1 billion individuals. There is also a large untapped future user base in emerging markets, including Southeast Asia, Latin America and Africa.
The other big revenue driver will be Facebook Inc (NASDAQ:FB)’s potential to capitalize on the increase in online advertising spending. GroupM suggests that global digital ad spending is expected to increase approximately 14% year- over-year in 2013, which will be 21% of all advertisement spending. Facebook’s ability to track personal data and details will only help its position in the advertising market, as this ability will help advertisers display relevant ads to target audiences.
Unfortunately, in the display ad market, Facebook Inc (NASDAQ:FB) lost its top spot to Google Inc (NASDAQ:GOOG) in 2012. eMarketer expects Google to lead the market for the next three years through 2015. Google is expected to be the fastest growing platform over the next few years, taking 21% of the market by 2014. By then, Facebook is expected to have 16% of the market. Google’s dominant position should be spurred by mobile display ads from Youtube and DoubleClick.
Google continues to dominate the search market, holding some 67% of U.S. market share according to ComScore. Google is also the dominant search engine in Canada, Latin America, and most Asian countries. In Europe, Google has a leading market share of over 90% in the U.K., France, Germany and Spain.
Google’s big investors include Joho Capital, which has a whopping 26% of its total public equity portfolio invested in the stock (see Joho’s top picks).
Another major social network, LinkedIn Corp (NYSE:LNKD), managed to report 1Q EPS results of $0.22, above the consensus. Revenues were up 72.3% from the year-ago quarter, while also witnessing strong performance across all its business segments. Revenues from talent solutions were up 80% year-over-year, from marketing solutions up 56%, and from premium subscriptions up 73% from the year-ago period.
Among LinkedIn Corp (NYSE:LNKD)’s major segments is its marketing solution line, which offers customized solutions to corporate clients. These services are useful to companies’ corporate customers, which help them connect with the right professionals by leveraging the LinkedIn platform, which helps to reduce the costs of candidate selection and recruitment.
The interesting thing about LinkedIn is that it has some of the lowest hedge fund interest, with its top hedge fund managers being little-known. The top fund owner at the end of 2012 was Columbus Circle Investors. In second place was Conatus Capital Management (see all of LinkedIn’s hedge fund owners).
By the numbers
On the surface (from a forward P/E perspective) LinkedIn Corp (NYSE:LNKD) appears to be the most expensive stock of the three, trading at 85 times forward earnings, compared to Facebook’s 35 times and Google’s 16 times. However, when accounting for the respective companies’ future growth expectations, LinkedIn is impressive. Analysts expect LinkedIn to grow EPS at an annualized 58%, compared to Facebook’s 29%.
Of course Cooperman makes the case that it is quite possible that analysts and investors are not fully appreciating the growth that mobile will bring to Facebook’s earnings. Even still, it’s hard to ignore the fact that LinkedIn has a return on equity of 4.5%, nine-fold Facebook’s 0.5%.
Don’t be fooled
Although I can agree with billionaire Leon Cooperman’s Facebook Inc (NASDAQ:FB) thesis, I also think it is worthwhile to take a look at LinkedIn. LinkedIn appears to have a first-mover advantage in its respective social network niche. Google, although its current presence in the social network space with Google+ is still minimal, does has a stronghold on the search market. As a result, it would be worthwhile to take a look at this search giant, which also has stakes in mobile OS (Android) and tech hardware (Motorola, Google Glass, etc.). Google trades well below the other stocks listed and has a solid 15% annualized expected EPS growth rate over the next five years according to analysts.
Meanwhile, although LinkedIn appears to be more expensive, the fact that LinkedIn is expected to grow nicely is encouraging. I believe that LinkedIn has the ability to retain and engage users, compared to Facebook Inc (NASDAQ:FB), and will better reward investors over the long-term.
The article Billionaire Leon Cooperman: Facebook Is a Value Play originally appeared on Fool.com and is written by Marshall Hargrave.
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