 Good day, fellow investors. Facebook released earnings yesterday evening and it is a company that I want to cover publicly and I have been doing that for the last year. You have heard about my purchases, two purchases of Facebook when they were done why and now after earnings I have reassessed the situation a little bit. The position is up 48% in my model portfolio so it is time to look again at the risk, at the reward and then compare it to the other things that I have in my portfolio and then make a decision whether to hold, buy more or sell. I have made a portfolio transaction regarding Facebook and at the end of this video I'll tell you which one. I'll first explain why, what I'm doing, how it feels for me, what's my perspective and then you'll understand my decision better. Let's start. So earnings, very good earnings. If we look at the number of daily active users that is going up, thus business is okay but if you look at the number of users in the US that's pretty stable, Europe pretty stable, numbers of users is really growing especially in countries like India, Indonesia, Malaysia, so Vietnam and I see a lot of fake accounts on my Facebook group but that's something we'll discuss later. Revenue more important than users also grew significantly and it grew especially in the United States which means that there are more ads, more spending, all good. However, expenses as a percentage of revenue exploded. This is because it includes the 3 billion and 2 billion FTC settlement charge for the probing and the scandals they had last year but even without those charges still expenses have increased 33% which is a little bit higher than revenue at 28% but Facebook has increased regulatory security spending which can be good or bad. We don't know whether the era of unregulated growth is over or this is just normal increases that will be not significant thanks to the continuous growth. Income is consequently down due to the 5 billion charge but if we remove the one-off events, the one-off charges even if there is more investigation so there might be more bills to pay, more fines to pay in the future, earnings quarterly would be around 6.6 billion which is still significantly higher than quarter 2018 that is adjusted earnings but not that much higher so the growth in earnings has slowed down and given what's going on with Facebook I expect it to still slow down. So what do we have there? We have earnings of 6 billion, 6 billion, 6 billion per quarter, 8 billion let's say in Q4 which is the Christmas quarter, high advertisements. So that's about 25, let's say 25 billion to take it conservatively. On those 25 billion compared to the market cap of 577 billion we are at a price-earning ratio of 23 and the growth which is the main reason why I held Facebook is starting to slow down and there are also some other issues that might plague the company or slow down growth in the future. Number one a recession less advertising less spending might be better for Facebook if the ads are really that quality but ad cost has fallen 4% which means okay there is not really much competition for ads Facebook is just expanding the ad platform there is not an increase in quality there is not an increase in fighting for those auction like the spend on the ads that is something I have received from the conference call and something very important because of the following things. There are many privacy scrutiny issues costs going up as I said in Q2 the average price per ad decreased 4% and the number of ad impressions served across services increased 33% so a lot of more impressions which can be fake or not I wasn't that convinced on Facebook advertising when I tested it a few times but there are a lot of other things we have Mark Zuckerberg's Ponzi scheme where just adding up the numbers from Facebook's reports you see that they have added 10 billion accounts in the last 10 years and 8 billion have been closed so 2 billion people are now active 8 10 billion accounts on 7.5 billion people so even your baby of 2 months and your 89 year old grandmother has an account practically so there is a lot of things we cannot know Facebook is not really disclosing it but something to keep in mind I have a Facebook group stock market for modern value investors and of every 10 persons that require access to the group 5 are fake accounts business accounts scams so it's a really really difficult environment for Facebook to control then there is something even more important and that is engagement I found this good article Facebook is dying Wall Street doesn't just doesn't realize it yet it's just we're just discussing the risks nothing to fear here but this is very very important comparing Facebook to Myspace if you look the change in engagement on the platform on Facebook in this case it is declining and when engagement on a platform like this declines it is signaling it is dying okay Facebook has Instagram but given what they are doing there all the scams that are going there the more knowledge I have about Facebook Instagram I see okay they have this platform Facebook is dying Instagram is picking up stories ads everything is going mobile on Instagram but it will get over saturated and then it will slowly die again something else will take its place and therefore I think in the next few years Facebook will have to invent something new to transfer the mass of people so those platforms those social networks I don't know whether there is a mode for the long term or they're simply built up and then they slowly die something else comes in there are no really switching costs you have picks they're trying to do everything they can to do that but it's just very very interesting to see how this evolves and as a long-term investor that's the those are the risks I have to focus on but when it comes to risks risk is a function of price these are all nice stories upward downward risk reward growth Oculus Instagram shopping everything is a nice story but it all boils down to price so the price is 204 as I'm filming this and 206 after hours yesterday I'm filming this before the market opens and I'm looking at the 38% gain on my two purchases over the last year which is very very good and I'm looking at the risk reward I would say at 200 Facebook can go to 300 on a good wave of good news slower deceleration than expected in growth Facebook can go to 300 but if we have a recession if there is more scrutiny regulatory environment costs fines and the growth is delayed libra coin has been delayed from the plans Oculus delayed developments are delayed because it as you get bigger it gets tougher and tougher then we might see also Facebook go to 100 so the risk is up 30% down 50% I think I can find better for my portfolio if I go to my earnings model simple earnings model depending on the growth rate 25% over the next five years 10% from year 5 to year 10 the present value sum is 158 so it's best that mark for me which would be okay this is a good investment for me if I lower the growth from 25% over the next five years to 20% the present value sum is 127 even if I'm happy with a 10% discount rate and 20% growth over the next five years the present value is still just 183 so 200 simply risk is a function of price I manage my risk in my portfolio I'm looking at the upside at the downside at the business yield at the business quality and the issues long term the strength long term yes Facebook might be a great winner but I have to compare it to my other nine positions in the portfolio and I simply have better opportunities better businesses with lower risk similar rewards so it's just that that forced me or leads me to sell Facebook nothing else I still believe Facebook will be a good investment it will give 10% returns long term for investors which is extremely good for 99.9% of investors but it's just that I have found better and that's the reason why I am selling this position putting the money aside thank you for the gains I'm always happy and grateful for every gain that I get on the stock market and then we just simply go more research next steps finding the risk and reward and balancing that in the portfolio thank you for watching looking forward to your comments and I'll see you in the next video are you holding buying or selling Facebook and do you have better options share them in the comments below thank you