The greatest investing story of the next decade?

Understanding its almost indescribable potential could be incredibly valuable

a woman

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Apple (Nasdaq: AAPL) was arguably the greatest investing story of the past 10 years. During that period, its market cap grew from US$8.7 billion to roughly US$545 billion today. And the world witnessed the introduction of the iPod, iPhone, and iPad — products that have changed many of our lives in remarkable ways.

What will be the biggest story of the next 10 years? I believe Facebook might be the greatest company of the next decade and that its growth potential is similar to that of the outstanding companies in recent history at similar stages of their development. Understanding its almost indescribable potential could be incredibly valuable to investors.

A messianic quest to change the world

John Battelle, executive of Federated Media Publishing, recently told Wired that Facebook — just like Google (Nasdaq: GOOG) , Microsoft (Nasdaq: MSFT) , and Apple — wants to be the "place where we engage and store all of our data, and use it to do just about anything." He also feels that the most notably successful companies in recent years have all been "guided by the supreme arrogance of their founders' long-term vision. It's almost a messianic quest to change the world."

I think there's a very strong case to be made that Facebook is in the very early stages of its quest. It currently has 845 million monthly users, a number that is almost three times the entire population of the United States. It makes its money primarily through advertising, though it also has a growing payments revenue stream from its platform developers. Its total revenue in 2011 increased 88% to US$3.7 billion with roughly 85% coming from advertising. Zynga (Nasdaq: ZNGA), which provides online social games, accounted for 12% of its revenue. In future quarters, Facebook will be looking to expand the number of its users, while also increasing its revenue per user. Battelle believes the company knows how to "turn those dials" in order to create a profitable advertising engine.

Yes, but is it worth $100 billion?

The key question on everyone's minds, of course, is whether this business is worth US$100 billion — which is a possible valuation for the company after its IPO. Motley Fool CEO Tom Gardner feels that "earnings will now accelerate" and that investors shouldn't "lazily accept jokes about the IPO valuation." Fortune's Adam Lashinsky thinks "Facebook's growth potential is massive." He sees the company growing revenues from advertising and payments, while also pursuing new opportunities in mobile advertising. Battelle has said that "Facebook is an existential threat to Google."

I've heard concerns from commentators who feel that Facebook might be another Groupon(Nasdaq: GRPN) , which is down almost 35% since its IPO. Others have raised concerns that advertising doesn't work very well on Facebook, which will result in smaller revenue streams than analysts are anticipating.

I can understand those concerns, though I don't share them. Facebook is in another class altogether from Groupon, and I believe it will continue to improve its advertising engine. The number that most intrigues me is 845 million, which is the number of monthly users worldwide. The possibilities that such a number raises is almost beyond belief. For a lot of people I know, Facebook isn't just an Internet company. It is the Internet. Just because we can't precisely forecast all of the future revenue streams on our spreadsheets doesn't mean the cash flows won't be astonishing. They will be. There's no way they can't be when you are talking about a network this large.

My biggest concern about Facebook is whether it will continue to be the dominant social site on the Internet. Clearly, Google+ isn't much of a threat at the moment, but I wonder if more and more competitors will increasingly chip away at the amount of time people spend in the Facebook universe. When I look at how much time my 13-year-old and his friends spend on Facebook, I'm amazed by its power and dominance. But things can change fast in the online world. Remaining relevant will be the No. 1 challenge for Facebook over the very long term.

The social era
Facebook has had some serious doubters throughout the course of its history. When the company was valued at US$15 billion in 2007, the Techdirt blog said, "it tips the scales in terms of totally ridiculous valuations." I've even ranted myself about the lunacy of folks buying virtual cattle during a Great Recession.

Despite all that, Facebook keeps on growing. Will I be buying on day one? Probably not, though I'm very interested in the company, and feel it has tremendous growth ahead of it. I'll be watching closely and may consider buying shares in the months after it goes public. I'm not quite sure it will be the greatest investing story of the next decade. But I'm not sure it won't be either.

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