I admit to being a Facebook (NYSE: FB) bear for a long time. I never really saw the business model, or how it would be truly remunerative for the company.Facebook-Messenger

Well, that’s changed.

Revenue grew from $5.1 billion in fiscal year 2012 to $7.9 billion in FY13 and $12.5 billion in FY14. The revenue has translated first to operating income in very impressive fashion, from $538 million in FY12 to $5 billion in FY14 – a nearly tenfold increase. FY14 net income was $2.9 billion, almost double what it was in FY13.

Out of all this, operating cash flow has soared while capital expenditures have been stable, so FY14 saw free cash flow of $3.6 billion, up from $400 million in FY12. Facebook’s $11 billion in net cash gives it $4 per share in cash holdings.

Now the talk is about Facebook Messenger, and that Facebook is figuring out ways to monetize the platform. The company needs to do something, since right now most of its revenue is ad-driven. If the service loses popularity or if advertisers migrate their dollars elsewhere, Facebook is exposed. It needs to diversify.

I think the weakest idea is that the company would charge for a voice-to-text service, since so many already exist, and they are pretty good – and more importantly, free to use.

Another idea floating around is that Facebook could charge companies to embed Messenger in their online chat support. I also think that’s not going to work. Just about every chat support system I’ve used works just fine. Facebook has no real advantage.

However, using the platform as a way for businesses to communicate with customers makes sense. So if FedEx (NYSE: FDX) needs to tell you about a package, that’s how it could happen – through Messenger.

At its developer conference last week, other ideas came up which make more sense. First, the company is allowing developers to create apps that integrate with Messenger. That suggests that businesses may be able to accept payments through Messenger, which would provide a great new alternative to PayPal and Apple Pay.

Mark Zuckerberg is taking a deliberate approach toward monetization, and I can’t fault him for that. Now that the company is making real money, he can take his time figuring out what’s going to work.

Should investors buy in to Zuckerberg and Facebook? Right now, I have mixed feelings despite the obvious improvement in financials and widespread use of the platform.

Earnings per share is pegged to only grow 10% this year, but it’s expected to swell to 30% in FY16, with five-year annualized estimates at 31%. The net cash adjusted stock price is $79, which is 42 times FY15 estimates and 31 times FY16 estimates. These are not entirely unreasonable valuation levels.

I’m concerned about how advertising dollars get spread out over the next few years, and whether or not the company develops alternative revenue streams. I’m also concerned about the ability to maintain revenue growth. I don’t care for Zuckerberg’s politics, which is not a reason to disqualify Facebook as a standard investment, but it would be disqualifying criteria for my soon-to-launch Liberty Portfolio.

I think I feel better doing something like buying the stock and selling covered calls, or selling naked puts against the stock. That allows me to collect some premium while reducing the risk of holding the stock for the long term.

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