Why oh Why is the headline about the stock price? Apple's price is $585ish right now. Apple is not 10 times more expensive than Facebook would be-- only a bit more than 5 times as expensive. Facebook's price range is around $86B.
It seems a lot of people want to buy a car for a "monthly payment they can afford" and car dealers have long sold people terrible terms and terribly overpriced cars by structuring the "monthly payment" lower so the person thinks the car is cheaper. Its amazing people fall for this.
Yet people react the same way to stock prices and NYT is putting the stock price in the headline?
How about "Rather than the $100B expected, Facebook is set to IPO at around $86B".
And more importantly-- and relevant to anyone who might want to buy the stock-- what's that work out to as a PE[1]? Doesn't appear anywhere in the NYT article that I could see.
So, is $86B expensive? Cheap? We don't know.
[1] On a trailing twelve months basis. I'm sure its in the prospectus, and anybody with financial literacy will look it up before buying the stock, but I still bet that a lot of people will say "$35? I can afford $35!" or "I've got $3,500 in my brokerage, I'll buy 100 shares! Can you imagine what those 100 shares will be worth when Facebook catches up to google and is priced at $350 a share?!" I don't think Facebook will be worth $860B+ in the next decade.
As the phrase goes, a fool and his money are soon parted. Along the same mindset are people who want to wait for a split to get in. I always chuckle a little inside when I hear that and then try to educate on why that's not necessarily a good thing.
Back to Facebook. I haven't looked at the financials, but regardless of what they are it's safe to say the share price will rise quickly due to the reason you stated, and that's of course why they did it.
A lot casual investors will see this as a way to fund their child's college education and jump in as soon as they can, no matter what the mark-up. Who knows, maybe this is the next MSFT or AAPL. We'll see where everything settles after the irrational exuberance of the IPO hits. I don't think this will be another GRPN or ZNGA. Even though they were both rather popular, neither of them had the number of eyes on them that Facebook does. This is set to be the most oversubscribed IPO in as long as I can remember.
Seriously, if you are young enough there is nothing easier and more compelling than leaving Facebook, and Facebook cares a lot about having young people. Why is it so easy to leave? Because youngster do not like their past, they do not like to see themselves as kids. It took a very long time for me to be able to look at a picture of my younger self without instinctive rejection. Only when you are on the "other side" of life that you value past pictures of your life.
Why was Instagram so successful? Some other may hvae said it but still, what strikes me the most is why so many people did use Instagram app to share pics instead of Facebook app. It can't be solely based on UI diffs. It is more because Facebook is perceived as an archive where everything goes if anyone is interested, a trashcan if you will.
I'll not bet a cent on FB. Moreover, we HN readers should not put all our eggs in the same bag, our work, interests, knowledge, passions are anchored to technologies, let's anchor our bank accounts to some other place.
>How about "Rather than the $100B expected, Facebook is set to IPO at around $86B".
I wonder what the people who bought FB shares in the secondary market at nearly $100B valuation are thinking right now. (Though I guess the stock is bound to pop on opening day)
"It seems a lot of people want to buy a car for a "monthly payment they can afford" and car dealers have long sold people terrible terms and terribly overpriced cars by structuring the "monthly payment" lower so the person thinks the car is cheaper. Its amazing people fall for this."
Because people actually know they're getting ripped off, but they need the car, and they can't afford anything above the "monthly payment" — not buying the car later, not paying a higher payment. To reap the rewards in x years you first have to survive them.
I imagine for the common man, "investing" is nothing more then betting on who will win the popularity contest. None of us will be able to invest in facebook, we're just buying the chips off of those that did.
This is an article on dealbook - everyone reading knows the difference between market cap and price per share and the market cap is in the first paragraph. Headlines include the price per share of stocks all the time, it doesn't mean the readers or writers are stupid.
Also, price earnings would be a pretty foolish approach to valuing Facebook - I wouldn't be so sure that you are so much more sophisticated than the imaginary bozos you are criticizing.
If you mean "How can I buy stock at $25 and sell it right away to the general public for $35 to $50 on the same day?" Then the answer is, "Sorry, you can't."
If you mean "How can I create a company that will allow me to sell a future interest in the company for way more than I put into it?" Well that answer is "Play the tech startup game."
During the Dot-Com bubble a company often had a 'friends and family' plan where if you had a family member working there or knew someone you could participate in some small way in the IPO. I know families that no longer talk to each other (even now over a decade later) because of that 'opportunity' so I'd approach it with caution if offered.
That would be approx. $94 per active user. I know there have been social networks which went over the counter at that price before, but looking at them now I would not touch this stock with a ten foot pole.
I certainly can't think of any way to extract that much money from my account. Ads?
I know that this reflects not the current status but future expectation, but I cannot imagine any way how Facebook can fulfill those expectations. They have nothing, which when taken away would make users hurt. Other social networks stand in line.
Definitely not buying FB at this price, but the only argument I can see justifying the price is as more a long term valuation of them as a tech company. In other words, in the same way the Google is clearly no longer "just" a search engine, FB has the talent and resources necessary to be more than a social network. That's definitely a gamble on valuation, but I can vaguely see someone justifying the price in that respect.
Put another way, Facebook is expecting to be able to create $94 of cash for each of its current active users over the future to eternity, discounted by an appropriate factor. That doesn't seem outlandish: it's $0.80/mo per user of value over 10 years. If they add users, it's less. If they add/extend their product offerings/partnerships/etc., the numbers seem a lot more achievable.
That said, I'm not buying the IPO because it seems fully valued already.
There is no way each of their users can possibly be worth that price. They've done a good job at hyping up the company, but from an investment standpoint, it's dead meat. They really need to pull a rabbit out of their hat at this point -- some feature that would make 10%+ of their "consumers" to pay money for a product they offer.
I suppose (judging by the comments here and in previous threads) everyone on HN w/ a brokerage account will be shorting FB's stock as soon as it comes out, then?
It's a pretty safe bet that it's being overvalued, but I fear the hype of FB stock amongst the common man is going to keep the price artificially high for a little longer than it would normally. Might not be until the release of the first or second quarter results that people see what a farce it is.
33 comments
[ 3.9 ms ] story [ 79.4 ms ] threadIt seems a lot of people want to buy a car for a "monthly payment they can afford" and car dealers have long sold people terrible terms and terribly overpriced cars by structuring the "monthly payment" lower so the person thinks the car is cheaper. Its amazing people fall for this.
Yet people react the same way to stock prices and NYT is putting the stock price in the headline?
How about "Rather than the $100B expected, Facebook is set to IPO at around $86B".
And more importantly-- and relevant to anyone who might want to buy the stock-- what's that work out to as a PE[1]? Doesn't appear anywhere in the NYT article that I could see.
So, is $86B expensive? Cheap? We don't know.
[1] On a trailing twelve months basis. I'm sure its in the prospectus, and anybody with financial literacy will look it up before buying the stock, but I still bet that a lot of people will say "$35? I can afford $35!" or "I've got $3,500 in my brokerage, I'll buy 100 shares! Can you imagine what those 100 shares will be worth when Facebook catches up to google and is priced at $350 a share?!" I don't think Facebook will be worth $860B+ in the next decade.
I would imagine the majority of people who own Facebook shares know exactly how many shares they own and not an exact percentage of the company.
Back to Facebook. I haven't looked at the financials, but regardless of what they are it's safe to say the share price will rise quickly due to the reason you stated, and that's of course why they did it.
A lot casual investors will see this as a way to fund their child's college education and jump in as soon as they can, no matter what the mark-up. Who knows, maybe this is the next MSFT or AAPL. We'll see where everything settles after the irrational exuberance of the IPO hits. I don't think this will be another GRPN or ZNGA. Even though they were both rather popular, neither of them had the number of eyes on them that Facebook does. This is set to be the most oversubscribed IPO in as long as I can remember.
Or the next bubble?
Seriously, if you are young enough there is nothing easier and more compelling than leaving Facebook, and Facebook cares a lot about having young people. Why is it so easy to leave? Because youngster do not like their past, they do not like to see themselves as kids. It took a very long time for me to be able to look at a picture of my younger self without instinctive rejection. Only when you are on the "other side" of life that you value past pictures of your life.
Why was Instagram so successful? Some other may hvae said it but still, what strikes me the most is why so many people did use Instagram app to share pics instead of Facebook app. It can't be solely based on UI diffs. It is more because Facebook is perceived as an archive where everything goes if anyone is interested, a trashcan if you will.
I'll not bet a cent on FB. Moreover, we HN readers should not put all our eggs in the same bag, our work, interests, knowledge, passions are anchored to technologies, let's anchor our bank accounts to some other place.
I wonder what the people who bought FB shares in the secondary market at nearly $100B valuation are thinking right now. (Though I guess the stock is bound to pop on opening day)
That should tell you everything you need to know about the buyers.
It's gonna be a sheep shearing.
Because people actually know they're getting ripped off, but they need the car, and they can't afford anything above the "monthly payment" — not buying the car later, not paying a higher payment. To reap the rewards in x years you first have to survive them.
Of course, this doesn't apply to the IPO anymore.
I imagine for the common man, "investing" is nothing more then betting on who will win the popularity contest. None of us will be able to invest in facebook, we're just buying the chips off of those that did.
More financials are available from the updated S-1: http://sec.gov/Archives/edgar/data/1326801/00011931251220819...
And it looks like Q1 2012 net income was actually lower than Q1 2011. Oops!
Also, Google's IPO P/E was ~80, and shortly after IPO the P/E shot up to 160, so again I don't think you're giving Facebook a fair assessment.
http://en.wikipedia.org/wiki/OpenIPO
If you mean "How can I create a company that will allow me to sell a future interest in the company for way more than I put into it?" Well that answer is "Play the tech startup game."
During the Dot-Com bubble a company often had a 'friends and family' plan where if you had a family member working there or knew someone you could participate in some small way in the IPO. I know families that no longer talk to each other (even now over a decade later) because of that 'opportunity' so I'd approach it with caution if offered.
That said, I'm not buying the IPO because it seems fully valued already.
It's a pretty safe bet that it's being overvalued, but I fear the hype of FB stock amongst the common man is going to keep the price artificially high for a little longer than it would normally. Might not be until the release of the first or second quarter results that people see what a farce it is.
“The market can stay irrational longer than you can stay solvent.”
...so shorting it is still risky.