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Will Libra Tip the Scales for Facebook or Financial Services?

We don't see the cryptocurrency having much effect at this point.

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 Facebook (FB) announced this week that it, along with various investors, will launch a new cryptocurrency, Libra, in 2020. It will make its own digital wallet, Calibra, available next year as well. While these may strengthen the company’s network effect moat source because Facebook’s 2.4 billion users, as well as its apps like WhatsApp and Messenger, could be more effectively monetized, neither the cryptocurrency nor the digital wallet will meaningfully drive the overall top or bottom lines during the next few years, in our view. We are maintaining our $200 fair value estimate and recommend waiting for a wider margin of safety before investing in this wide-moat and high-uncertainty brand.

Facebook and other members of the Libra Association (which will monitor the development of Libra and technically align and maintain nodes and open-source platforms) plan to launch Libra early in 2020. According to the white paper published by the association, the currency is likely to be less volatile than other cryptocurrencies such as Bitcoin, because Libra will be backed by bank deposits and short-term government securities held in the Libra Reserve, managed by the association. While the association currently has 28 founding members, this is likely to rise to 100 by early 2020. Investments made by the 28 founding members include at least $10 million each; some may become node operators for the currency’s blockchain. Each member is limited to one vote or 1% of total votes. Current members include Mastercard (MA), Visa (V), Uber (UBER), Lyft (LYFT), Spotify (SPOT), Andreessen Horowitz, Coinbase, Booking Holdings (BKNG), and Women’s World Banking. Facebook hopes its digital wallet, Calibra, will be able to be used anywhere and also by non-Facebook users.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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