The Polar Cap tech team's take on Facebook hype

Leading global technology managers Nick Evans and Ben Rogoff believe a successful Facebook floatation will depend on monetising existing users on the site and ensuring they continue to innovate to grow to fight off competitors.

Evans and Rogoff are two of the most respected managers in the technology sector. They manage the Polar Capital Global Technology fund, which has returned 105% over three years to 3 February 2012 against the 72.6% benchmark.

While some commentators have argued that Facebook's growth is slowing, with the current number of 845 million users being its peak. Monthly growth in users has dropped from 13.33% in April 2009 to 3.73% in September 2011.

However, Rogoff and Evans feel the company can continue its fast-paced rise, arguing that high growth rates will be sustainable as the monetisation of users remains largely untapped. Evans and Rogoff said 'one interesting way to look at the opportunity is the $3.8 billion revenue in 2011 divided by 483 million daily active users which suggests they are currently only capturing $7.86 per user, per annum.'

The pair did caution that the fourth quarter of 2011 revealed a significant slowdown in year-on-year revenue growth, slipping from 100% plus in the previous four quarters to just 55%. 'We will be watching reported Q1 growth closely to ensure we understand the extent to which this is influenced by increased mobile usage and how quickly the mobile opportunity can be monetised,' Rogoff and Evans said.

Evans and Rogoff argue that the key for Facebook is to continue innovating in order to maintain its position. Facebook have eliminated Google +, MySpace, Bebo and Friends Reunited, so it is clear the company will remain resilient, they point out.  

The pair also believe companies like LinkedIn and Chinese firm Sina will be decent competitors that can benefit from Facebook's IPO.

Evans and Rogoff said: 'Once trading as a public company, will form the reference point for all other stocks in the space. With that in mind, we would expect a successful IPO to act as a positive catalyst for many other social media related stocks.'

'We believe technology valuations are generally very compelling and the sector looks well placed to outperform in 2012. However, to date, we have taken a conservative approach regarding social media - largely because the number of social media related IPO’s has been limited and the free float in each has been constrained to ensure the floatation’s are successful.

'That said, we currently have small positions in both LinkedIn and Sina and we would expect both to benefit from a re-rating around a successful Facebook IPO.'