One example of a strong tech company

By Sarah Cunningham-Scharf | June 30, 2016 | Last updated on June 30, 2016
2 min read

When investing in the tech space, it can be risky to focus on growing companies that may face big competition in coming years.

Instead, look at companies that are consistently growing and profitable, and that have good market positions, says Mark Lin, a vice-president and portfolio manager at CIBC Asset Management.

One example is Facebook, which “has matured to the extent that not only it became a market leader, but it solidly occupies a growing space and commands a leading market position. At the same time, we can see the free cash flow [and] the operating profits continue coming at a high rate.”

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Lin doesn’t anticipate that will change in the next few years. “Facebook currently has 1.6 billion active users and the world has about 7 billion people,” he adds. “Facebook couldn’t really enter China, which has 1.4 billion inhabitants, so let’s say the addressable market is about 5 billion; you can see this is still a long way to go for Facebook.”

He also says Facebook’s advantage doesn’t end there. “One of the acquisitions Facebook made, WhatsApp, also has over one billion active users. And Facebook’s own messenger service, which was carved out from Facebook platform directly, also has already reached one billion active users.”

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As well, Facebook acquired Instagram in 2012 for $1 billion. “It now has almost reached 400 million user[s]. And you can see all the platforms that Facebook is commanding not only continue to grow, but [are] maturing.”

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Sarah Cunningham-Scharf