Facebook Becomes Emerging-Markets Play as User Base Shiftsby and
Two-thirds now from outside U.S., Canada, Europe; up from 40%
EM funds buy shares amid shrinking dependence on U.S., Europe
With Facebook Inc.’s user growth in developing countries soaring, mutual funds focused on emerging economies are increasing investments in the Menlo Park, California-based company.
Six years ago, 60 percent of the social platform’s 482 million monthly active users lived in the U.S., Canada and Europe and the rest were from elsewhere. Now two-thirds of its 1.7 billion users are from outside of the heart of the developing world. Researcher eMarketer estimates India will surpass the U.S. next year as the country with the most Facebook users. It also ranks India, Indonesia, Mexico and the Philippines as the top four countries to see the fastest Facebook user growth until 2020.
“From a monetization perspective it’s still dominantly the U.S. but from a long-term opportunity perspective it’s definitely emerging-markets,” Charlie Wilson, the Santa Fe, New Mexico-based managing director at Thornburg Investment Management Inc., said in an interview in New York. He has steadily added Facebook shares to the Thornburg Developing World Fund, and they now account for 3 percent of the $1.2 billion portfolio.
While the general trend backs Wilson’s thesis, it may be years before Facebook’s geographic revenue mix catches up with the shift in its user-base. Three quarters of its revenue still comes from the U.S., Canada and Europe, down from 88 percent six years ago.
The Thornburg fund’s flexible mandate allows Wilson to allocate as much as 20 percent of capital to stocks whose issuers are not domiciled in emerging markets. Thornburg now holds the second-largest position in Facebook among 20 emerging-market funds with exposure to it. In all, those funds own $249 million in Facebook shares, up from $24 million three years ago but still just 0.07 percent of its market capitalization.
“This is probably one of the most unappreciated platforms even though it’s really well-known and it’s a large market cap,” he said. “The fact that it’s de-rating while they’re still beating earnings by 5 or 15 percent every quarter is pretty interesting to me,” he added, referring to analysts’ moves to lower their ratings on the stock.
“From a global investors perspective you are trying to gain access to some of these long-term penetration and market share opportunities that exist in emerging-markets, that allow you to compound faster than a traditional developed-markets portfolio,” Wilson said. “At the end of the day does the person really care where the company is domiciled as long as it gives them the access to the opportunity?”