By Matthew Weinschenk of Wall Street Daily
Now that Facebook has filed for the largest internet IPO in history, all
anyone can talk about is what valuation the social networking giant
deserves.
With the IPO months away, I'll take a different tact
for today… and that is, "What do suppliers and Facebook partners stand
to gain the most from the behemoth's extra $5 billion in cash?"
After all, IPOs are ostensibly a way to raise money to invest in growth.
So where exactly is Facebook's future growth and who will get paid to
make that growth happen?
According to the S-1 filing, Facebook doesn't have specific investments planned:
"We intend to use the net proceeds to us from our initial public
offering for working capital and other general corporate purposes;
however we do not have any specific uses of the net proceeds planned… We
may use a portion of the proceeds to us for acquisitions of
complementary businesses, technologies, or other assets."
Of course, there's an entire economy of companies trying to make money off of Facebook's boom.
But they aren't trying to earn checks from Facebook itself. Rather,
they're trying to extract money from its users. And Facebook – let's be
clear – isn't going to spend a dime of its cash to attract users.
Facebook already has users. Lots of users. What it needs is innovative ways to handle users efficiently.
Such a reality leads us to the one place where Facebook will no doubt be investing: efficient data handling.
Powerful Gains
Storing conversations… puppy pictures… "likes"… interests… and the
private details of all those friends amounts to a massive data load.
Facebook data consumes at least 60,000 servers and over 50 million
operations per second. The company presently spends about $30 million
per year leasing data operations from Digital Realty Trust (NYSE: DLR).
But after years of leasing facilities, Facebook started running the
network from its own $210 million datacenter in Prineville, Oregon in
April 2011.
Months later, it started building a second datacenter at the same
facility. And according to the IPO filing, "We are investing in
additional Facebook-owned datacenters in the United States and Europe."
At $200 million-a-pop, that's at least $1 billion in spending.
The Prineville facility built by Fusion-io, Facebook's preferred
datacenter builder, Fusion-io (NYSE: FIO), is a wonder of engineering.
But its most astounding advances come from power management.
Even though it uses more electricity than 10,000 households, Prineville is the most efficient datacenter to date.
The average datacenter runs at a 1.7 power usage effective rate. But
Facebook's facility runs near 1.05 – close to the perfect ratio of
1-to-1. Such metrics allow Facebook to save 38% on energy costs, which
amounts to millions added to the bottom line.
So who's the genius behind this incredible efficiency? California-based Power-One (Nasdaq: PWER).
Stellar Fundamentals
Power-One earns 31% of its revenue from power sources like the one it
makes for Facebook. The rest comes from its Renewable Energy Division,
which manufactures power inverters for solar energy. As a result, the
stock trades mostly in lockstep with the solar market – making it
mouthwateringly cheap.
For a few years now, I've seen shares of power-inverter manufacturers
for solar unfairly dumped by investors – the result of falling solar
cell prices. If anything, cheap solar cells should increase the
installation of inverters, which haven't dropped in price.
When you consider that the solar-inverter market is estimated to grow
from $5 billion to $7.5 billion over the next three years, the
turnaround story almost writes itself.
Over the last two years, Power-One has increased sales by 145% and grown
its patent portfolio to over 116 patents. It also started a lucrative
licensing program to supplement manufacturing.
The company's return on equity is 49%. And 20% of shares are held by insiders.
Despite such strong fundamentals, however, the stock is ripe for the
picking at only 4.4 times trailing earnings and 1.28 times book value.
What a value play!
While Facebook partner, Zynga (Nasdaq: ZNGA), jumped 22% on the day of
the IPO filing, Power-One has yet to see a price surge from its Facebook
connection.
Bottom line: The high-profile custom power supply, along with Facebook's
plan to continue expanding datacenters, suggests that Power-One's
shares will trade well north of its current $4.50 per share price.
