Facebook owns four of the six largest social networks in the world,1 enabling it to capture an estimated 20% share of the global digital advertising market as of 2019.2 Excluding China, where Facebook properties are essentially banned, Facebook has a 27% global market share. As opposed to an absolute good where prices are driven down through innovation and competition, advertising is a relative good where businesses seek to outspend their competitors to maintain mind share. As such, the advertising industry is one of the few industries that has maintained its share of GDP over time. As a result of Facebook’s virtually unrivaled network of users, publishers, and advertisers, we believe the company is in a great position to benefit from both growth in the global advertising market and the secular trend toward digital advertising, which currently only accounts for 50% of total spend. Moreover, because network value rises exponentially as new participants join a network, we believe Facebook is likely to maintain or even increase its pricing power over time.
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