Facebook-Libra: No immediate change

We recommend that new investors wait for a wider margin of safety before allocating capital to this wide-moat and high uncertainty brand

Ali Mogharabi 24 June, 2019 | 1:38AM
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Facebook announced that with various investors, a new cryptocurrency, Libra, will be launched in 2020. The company will also make its own digital wallet, Calibra, available in 2020. While these announcements may strengthen the wide-moat firm’s network-effect moat source because Facebook’s 2.4 billion users, and apps such as WhatsApp and Messenger, could be more effectively monetized, in our view neither the cryptocurrency nor the digital wallet will drive the firm’s top- or bottom-line meaningfully during the next few years. We are maintaining our US$200 per share fair value estimate and recommend that new investors wait for a wider margin of safety before allocating capital to this wide-moat and high uncertainty brand. The stock is up 44% this year and trading at only a 6% discount to our fair value estimate.

Libra will be the digital currency that Facebook and other members of the Libra Association (which will monitor the development of Libra, and technically align and maintain nodes and open-source platforms) launch early in 2020. According to the white paper published by the association, the currency is likely to be less volatile than other cryptocurrencies such as Bitcoin, because Libra will be backed by bank deposits and short-term government securities held in the Libra Reserve, and which will be managed by the association. While the association currently has 28 “founding members”, this is likely to rise to 100 by early 2020. Investments made by the 28 founding members include at least US$10 million each and some may become node operators for the currency’s blockchain. In addition, each member is limited to one vote or 1% of total votes. Current members include MasterCard, Visa, Uber, Lyft, Spotify, Andreessen Horowitz, Coinbase, Booking Holdings, Women’s World Banking, and more. Facebook also hopes its digital wallet Calibra will be able to be used anywhere and also by non-Facebook users.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Facebook Inc A324.61 USD-5.05Rating

About Author

Ali Mogharabi

Ali Mogharabi  Ali Mogharabi is a senior equity analyst for Morningstar.

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