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There is a lot of disruption happening in the media world. Netflix has revolutionized the way we watch TV but another company is having a massive impact on media and that's Facebook. Facebook is new media it's a brilliant business model that doesn’t pay for shows you produce the content. It's like having your own reality TV show.

Facebook doesn’t pay you any money for your posts. They actually make money from your content by placing advertising within your posts. On average ads are shown once in every 20 posts or a 5% rate. In the past 12 months global average revenue per user was $10.47 (see below.) Australia is not broken out but you would think we would be near the US average of $34 per user. Some users are more valuable than others depending on usage, location and demographics. Typically females are worth more than males. You can figure out your worth to Facebook by downloading AVG's privacy fix tool.

According to Nielsen the average Australian spends 1.7 hours a day on Facebook. 1 in 5 minutes of time spent on apps is on Facebook and Instagram. Facebook now has 1 billion daily active users. The COO Sheryl Sandberg is fond of saying Facebook has a Superbowl audience on mobile every day. After some early concerns around mobile Facebook is now the biggest beneficiary with 4  billion video views a day. It's not just the big advertisers either 1 million small businesses have uploaded an ad there is no way they would contemplate TV spend but Facebook is leveling the playing field.

The average gross margin (sales minus costs of good sold) for an S&P500 company is 33%. Because of Facebook’s unique business model their gross margin is 83% no content costs help. Facebook's cost to acquire you as a customer are low. It doesn't need to use money to advertise to new users. Again users help Facebook grow for free as users send links to sign up friends.The majority of expenses are employees spending time on research and developing new services such as Instagram, instant messaging with WhatsApp and virtual reality with Occulus Rift. It’s a new age media company that doesn’t pay for content that’s just good business.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Facebook (FB).The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.