“AE” Is Taking the Tech World by Storm
“AE” or “Algorithm Economy” is the new buzzword on everyone’s lips. The phrase may ring a bell if you have a penchant for emerging tech, because computer algorithms underpin virtually all forms of technology today. But “Algorithm Economy” is a more narrow term. I’ll explain it shortly. Some of the most renowned technology heavyweights are pioneering it, one of which is Facebook, Inc. (NASDAQ:FB). Stay with me as I reveal why FB stock is my prime stock pick in AE.
What Is Algorithm Economy?
Ever wondered how Google seems to know what you need, sometimes even before you realize it? Just when you’re casually browsing the web, an ad will show up on the side, reminding you that you have a depleting pantry to replenish, or a new pair of shoes to buy for work, or a summer vacation to plan.
Google is another tech giant that has forged this so-called Algorithm Economy. Let me give you an idea of how it works.
Every search, every click, every little move you make on the search engine is logged somewhere in its database. It’s like you’re leaving behind your footprints for it to follow. What Google does is use artificially intelligent computer algorithms to find patterns in your digital behavior. That’s how the raw data (your footprints) is turned into actionable information. This information is in turn used to direct ads at you.
What this whole process creates is a digital economy of sorts where algorithms generate value for businesses, thus giving us what we call the Algorithm Economy—which, in my view, is an amalgamation of Artificial Intelligence (AI) and Big Data, the two other popular tech buzzwords of yesteryear.
This Is the Top Company to Consider in Algorithm Economy
My top pick, however, is not Google. It’s Facebook—a company that holds an even bigger control over our lives today than Google.
Think about it; is there a more potent force in this world today than social media? Social media is literally driving the world economy and politics today. Even in third-world countries where technology moves at a snail’s pace, ubiquitous smartphones have led to rapid social media adoption.
More than two billion people around the world are now active users on the world’s largest social media platform, Facebook. The platform is adding thousands of new users every day! Its relatively new “Marketplace” feature is seeing more than 700 million active buyers and sellers every month in 30 countries across the world.
In short, all of us jointly make up Facebook’s algorithm economy—a digital ecosystem where Facebook’s artificially intelligent algorithm reads through our likes, shares, and comments to curate content for us. Our lives are now open books on Facebook.
This algorithm has allowed Facebook to become one of the top two choices to businesses for digital advertising—the other being Google.
The reason is obvious. Facebook delivers high conversion rates. What this simply means is that people who see the ads actually go ahead and buy the product or service shown in the ad.
To give you an idea, Facebook’s mobile advertising, which accounts for more than 90% of its revenue, achieved a 69% conversion rate on Black Friday and 64% on Cyber Monday in 2017. In other words, more than two-thirds of the ads rolled out were on target.
Smartphone users are turning out to be Facebook’s largest cash cows. Facebook’s total revenue in the most recent quarter across all platforms came out to be almost $13.0 billion, almost all of which was generated through advertising. Of this, $11.5 billion was generated through mobile ads alone. (Source: “Facebook Reports Fourth Quarter and Full Year 2017 Results,” Facebook, Inc., January 31, 2018.)
By the way, the world’s second-largest, most influential social media platform is likewise owned by Facebook. Instagram, which currently hosts 800 million users, is expected to hit the one billion mark this year.
Facebook’s Instagram platform also boasts more than two million active advertisers now, and like Facebook, uses sophisticated algorithms to increase market reach for businesses.
Why Now Is the Best Time to Consider Facebook Stock
While I’ve always been bullish on Facebook and have called it the best technology stock on numerous occasions before, there’s a particular reason why I’m pitching FB stock today. The stock price has just taken a major dip.
In the past one week alone, the stock has shed more than 12% in value. For a stock that has steadily ascended for years, the big price drop presents a golden opportunity for new investors.
Chart courtesy of TradingView.com
In case you missed the drama going on, I’ll give you a quick recap. Facebook is once again entangled in a political mess. This new controversy is turning out to be much bigger than last year’s fake news scandal.
Here’s what’s happened. A loophole in Facebook’s API allowed a third party to breach the private data of 50 million Facebook users. Political consulting firm Cambridge Analytica, which worked on the Trump election campaign, is cited as the main culprit. It is believed that the stolen data may have allowed the perpetrators to manipulate the U.S. presidential elections of 2016.
The privacy breach has forced the U.S. Federal Trade Commission (FTC), which holds responsibility for consumer protection, to enter the picture. This is why the market is going bananas. Obviously, it’s no small deal that the FTC is now probing the matter.
In my view, however, this is just a mini speed bump for Facebook. Once Facebook gets itself out of this mess, the stock will be resuming its northward stride.
The Algorithm Economy is revolutionizing the way businesses target and interact with their consumers. The pioneers of this growing ecosystem are the two top digital advertisers of today, which are serving to bridge the gap between businesses and people.
Facebook takes the lead in my book since it is deeply intertwined in our lives now. And at the price it’s selling for right now, Facebook stock is a steal for investors looking to bet on the algorithm economy.