3 Reasons to buy Facebook now

It was another ugly week for Facebook (Nasdaq: FB), as fears of lock-up expirations and general disdain for the once-ballyhooed IPO continue to weigh on the stock.

The stock has shed nearly half of its value since going public at US$38, but so much more has been lost. Facebook's credibility is taking its share of body blows, and it's hard to find too many analysts willing to promote bullish arguments for the smacked-down social-networking website operator.

Well, I'm going to give the bullishness a shot.

1. Does anyone remember when Google was a US$52 billion company?
There are plenty of similarities between the IPOs of Facebook and Google (Nasdaq: GOOG). Both companies ran into regulatory stumbling blocks on the way to going public. Both dot-coms had to settle for a lower IPO price than they were originally gunning for. They both went out of their way to get individual investors in on the freshly minted shares.

However, Google started out with a market cap of US$23 billion and was at US$52 billion two months later. Facebook started at US$104 billion and three months later is a US$52 billion company.

Google took a couple of months to climb up to US$52 billion — Facebook had to climb down to get there — but let's take a look at both companies when they were US$52 billion creatures.

Facebook is now trading for 30 times next year's earnings. Where was Big G as a US$52 billion company? Well, Google went on to earn US$1.5 billion on US$6.1 billion in revenue the year after it went public. Facebook? Analysts are expecting a profit of US$1.7 billion on US$6.4 billion in revenue. The numbers are fairly similar. But Google went on to quadruple its market cap seven years later. Facebook probably won't fare that well. Google wasn't so expensive in retrospect — was it?

2. Indexing to the rescue
The Wall Street Journal ran a story over the weekend, detailing the inevitable indexing of Facebook.

Even at half of its IPO price, it would be a shock if Facebook isn't added to the Nasdaq 100. It could happen as early as next month, but the more likely timeframe is December, when the exchange adjusts its lineup. Don't let the fisticuffs that flew between Facebook and Nasdaq (Nasdaq: NDAQ) over the sloppy IPO cloud your judgment. Nasdaq defines its popular metric as a gauge including "100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalisation." So this is pretty much a sure thing.

The S&P 500 isn't a lock to add the world's largest social-networking website to its more widely followed club of equities, but that, too, could happen — probably shortly after the Nasdaq 100 inclusion.

As big as Facebook is, having the US$35.5 billion in assets across Nasdaq 100 index funds and ETFs — and eventually the US$514 billion in assets for S&P 500 trackers — buying corresponding chunks of Facebook will help. At the very least, it will make the lockup expirations easier to swallow as institutions gobble up gobs of the public float.

3. Sponsored Stories is a game-changer in mobile
A big knock on Facebook earlier this year was its inability to cash in on the smartphone migration. As a desktop application, Facebook can run ads on the right side of the pages it serves up. But the display area is too narrow to populate with money-making advertisements on smartphone screens.

Sponsored Stories has changed that. A company can now pay Facebook to make events more prominent in someone's news feed — in other words, if someone checks into a specific restaurant or "likes" a particular musical artist.

The approach is working, too. Facebook revealed in its latest conference call that Sponsored Stories is on a US$1 million-a-day run rate, and it's now generating US$500,000 in ad revenue a day from mobile usage.

And it will get bigger. There's a viral component to the product. Active Facebook users have probably been seeing when one of their friends likes a certain company. The Sponsored Stories customer pays to have the act featured on mobile and desktop news feeds, and the ad also reminds all of the other friends that have "liked" that fan page in the past.

As a possible sign of things to come, now Wal-Mart's (NYSE: WMT) a Sponsored Stories customer. Expect to see this happen across categories.

You may have also heard that the US is in an election year. You might have seen Barack Obama pop up as a Sponsored Stories entry. It's only a matter of time before Mitt Romney's camp follows suit.

Sponsored Stories turns a potential weakness at Facebook into a strength.