Like It or Not, Facebook is Here to Stay

NEW YORK (TheStreet) -- When it comes to discussing the future of social media giant Facebook (FB), there is no shortage of experts ready and willing to offer an opinion -- including yours truly.

However, it seems when something positive is said about Facebook it draws "righteous anger" out of investors burnt by its initial public offering.

My recent article suggesting that one day the company's stock might reach $600 per share was not appreciated.

The premise was simple. Not only are there two sides to the story, but there are two distinctive viewpoints -- one from the investor perspective, the other from the user.

As beaten up as the company might be among investors, evidence shows Facebook's popularity among users continues to grow. This is an indisputable fact.

Investors may argue that the company's stock continues to drop. That might also be a fact, but we need to ask which of the two is most important at this point.

Whether you like it or hate it, Facebook is not going anywhere. I think this is a reality with which the world must deal. What's more, all of the "doom and gloom" that now surrounds the company's future is more or less a good thing, extinguishing all of the larger-than-life expectations surrounding its IPO.

That analysts have started to revise their outlooks downward is also a good sign the company will soon be given more reachable metrics for which to shoot. Although Facebook reported broadly respectable numbers in its most recent earnings report, compared to chief rival Google ( GOOG) the revenue numbers were not that impressive and actually showed signs of slowing down despite rising 32% from a year ago.

It's just the beginning. Yet, investors assume the company might not be able to grow at all.

Understanding how Facebook makes money will go a long way towards answering that all-important question: How much is social media worth, particularly in an ad-driven model?

Facebook's primary revenue stream comes from third-party royalties as well as advertisements displayed on its Web site. Though its main challenge will be its ability to monetize mobile, it has yet to effectively figure out ways to get its 955 million users to spend money. But it will.

From the standpoint of average revenue per user, Facebook's metric of $1.38 lags behind Google, which generates a significantly higher number at $9.16 per user. For that matter, Facebook is also behind Microsoft ( MSFT) in that category. But all that means is Facebook has plenty of room to grow from the $1.18 billion it recently reported in revenue. Investors forget the company actually beat analysts' expectations of $1.16 billion.

However, Facebook is far from thinking it is comfortable. In light of its challenges it understands it needs additional streams of revenue. Sponsored stories is one possibility as are new advertisement formats.

What's more, the investor community continues to discount Facebook's ability to strategically enter the world of network enterprises, a potential gold mine for the company as well as investors.

From that standpoint, one can look at Microsoft's recent acquisition of Yammer and safely assume Facebook can present the same advantages to enterprises, if not more. Microsoft, which also owns a pretty significant chunk of Facebook stock, may find it mutually beneficial to help Facebook enhance its enterprise presence by incorporating Microsoft's Office collaborative features such as email and calendar into Facebook's platform.

Consider this: If Facebook is able to adopt the enterprise benefits of Yammer by allowing employees to chat, share information and contact each other via private directories, how hard would it be to then access any company's internal job posting, including cover letters and resumes? The opportunities are endless. Facebook's new corporate presence would then immediately rival that of LinkedIn ( LNKD).

Facebook is in the midst of a pretty significant transition. As its user base draws near the one billion mark, the company is trying to reconfigure its approach. I think it is important for investors to start doing the same.

What's more, with the adoption of Facebook into Apple's ( AAPL) mobile IOS and the aforementioned investments made by Microsoft, there are powerful allies in Facebook's corner to make sure the company will be around for many years to come.

Like it or hate it, it's a fact that must be dealt with.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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