It was trading at $32-$34 just a month ago in SecondMarket trading, so it's up about 11% in just the past month, even with the market in general down about 10%.
Will open trading at 110 P/E ratio, Google's currently at 18.8.
GM announces they are pulling $10M from Facebook advertising because it's completely ineffective.
Their latest quarterly results prior to their IPO show that revenue is plateauing, even though their IPO prices in a 30% revenue growth year-over-year for the next 5 years.
Most inside investment banks (Goldman e.g.) are dumping more than 50% of their shares.
GM is a ward of the U.S. Treasury, Ford never took a bailout. GM's bankrupt GMAC finance arm is another American state-run enterprise, the re-named Ally Bank.
Not sure what your point is. Are they or are they not a substantially weaker company than Ford? When comparing financials between the two one would be very hard-pressed to make a case as to why he believes that it is.
And btw, just because the Department of the Treasury has holdings in a company does not make it a "state-run enterprise." At least if you are going to make a sensational statement, try and ground some of it in reality.
It could very well be, but it could also be that Ford is just using this as a creative marketing opportunity, to piggyback on the GM and FB hype to get their name out.
It would be interesting to see if Ford continues with their current FB Ads investment or increases in future.
As far as I know, GM was never really directly quoted about Facebook ads, short of being characterized in the original WSJ piece as "deciding that paid ads on the site have little impact on consumers' car purchases" and "its marketing team began to question the effectiveness of the ads". My impression from following the ad scene is that it's as much about not being able to measure results than the ads being 'completely ineffective'. Big advertisers like GM are used to having robust analytics behind their buys, and Facebook doesn't (currently) let people tie their purchases in to the same technology (read as: tracking) ecosystem as most other display buys everywhere else on the web. Everyone not selling something on a click-and-buy-me basis is still feeling out the effectiveness. Maybe it's good, maybe it's not. But watch that 10M canceled buy become a 100M buy if the tables are turned and Facebook can figure out how to sell folks on the same advertising tracking their exposed to everywhere else.
Some investors will lose their money and job. There will be a dramatic aftermath, but that doesn't change the fact that FB has 16B more in it's warchest. I changed my opinion, this could be good for the industry. One big player more who can afford massive buyouts, i rather see this money in the ecosystem than in some retirement funds.
This is just my personal opinion and I'll be the first to admit that I'm conservative with my money. That said, I think that a bet on Facebook's growth might be overreaching.
1. Facebook's profits are declining (by 12%). Revenue is up 43%, but revenue isn't what counts - profits are. Likewise, 43% isn't such an amazing increase. By contrast, Apple's profits are up 117% and their revenue is up 73%. Apple's P/E ratio is around 13. Even if you consider Apple an outlier, Google's profits are up 14% with revenue up 29% and a P/E ratio of around 19. So, in terms of growth, it doesn't look like Facebook is there. They don't seem to show a stronger growth pattern than companies that are trading with much more favorable P/E ratios.
2. Facebook could be a fad. While I think Facebook has much better engineering chops than AOL, Friendster, or MySpace, it's definitely possible that they could suffer the same fate. In a certain light, Facebook is a club and sometimes the crowd up and moves somewhere else. I have to emphasize that I really respect Facebook's engineering and that such strength and willingness to confront hard problems will help them a lot. Still, I remember when everyone used AIM and now everyone I know uses GTalk.
3. Facebook hasn't found a way to monetize users well. I read some estimate that Google earns 10-20x more per user. Facebook is at 900M users. They aren't going to justify such a high price by adding users. They need to figure out how to monetize them. Now, they may very well do that. If you think they will, it might justify that price. If Facebook could get its monetization per user up to Google's level, they would certainly justify that price (shrinking that P/E ratio to 8 or maybe even better). However, that's a big "if" (at least for me). I think that people betting on Facebook are betting that they will be able to figure that problem out.
4. Their mobile app doesn't have ads. To stay in the same place, they need to be able to monetize mobile as well as they've monetized their site.
5. People might become wary of Facebook. I hear a lot more ramblings about privacy and Facebook than privacy and Google. Maybe people feel more confident about Google being able to make money off of them through more traditional means. Maybe people have just felt Facebook trying to force them to be more open for their own ends several times before.
6. People are gunning for Facebook. Facebook has something that isn't making a ton of money, but people really want to be in that space. That's not great. Apple has a bunch of people that want in on mobile, but it's somewhat limited to major players - making a phone takes more than making Instagram in terms of time, money, and diversity of skills. Plus, Apple's making great money.
7. I think that Facebook isn't the best positioned for cool, new, useful things. I think that the mobile telecom industry is going to be flipped upside-down over the next half decade or so with LTE and then LTE Advanced. It's possible that a mandate for neutrality toward VoIP will come down. Google will be in a great position owning Android and GTalk. Apple has the iPhone and FaceTime. Even Microsoft has Windows Phone and Skype. Google and Apple are both working hard on mapping and other geo problems. While I like being kept up on random things in acquaintances lives, GMail and my phone know who I really interact with.
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To be fair, I do think that Amazon is overvalued. While their revenue has grown well, their margins and profits haven't. Frankly, unlike social networking, retail isn't going to be a single-source industry in the future. Amazon will continue to have to compete against other retailers and they may face better organized competition in the future. Plus, when a company can increase its revenue so much and not have its profits go up, it just seems like a business model that relies on such thin margins that an attempt to thicken them leads to great loss of business.
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Again, Facebook very well might justify that pri...
>To be fair, I do think that Amazon is overvalued. While their revenue has grown well, their margins and profits haven't.
Except Amazon is killing it in the cloud. I don't think looking at profit margins is fair when you have a company that is heavily invested in R&D in a known, growing market.
I think they're well aware that the cloud market is going to be dominated by one or two major players, and are investing quite heavily in an 'amazon land grab' to quote Joel Spolsky.
It won't matter if you have 50 retailers competing with amazon when the majority of them are running on EC2...
P/E is a crude tool sometimes, and it's important to know it's limits of utility. Amazon, for example, has more than 10x the revenue of Facebook and has been undertaking a great deal of expansion, hiring, and investment in recent years, which has kept it's earnings relatively depressed. More so, the future growth potential of Amazon is very straightforward. They will almost assuredly garner a larger portion of the retail goods market over the coming years, especially throughout Europe, Asia, and South America where they have only recently started making inroads. More so, their digital goods businesses (eBooks, MP3s, video on demand, PaaS hosting, etc.) are on track for a hefty amount of growth as well. More so, Amazon is an enormously diversified business. Betting that Amazon will continue to execute well in enough areas to continue to expand immensely and to bring in enough profit to warrant today's seemingly inflated P/E ratios is not actually that crazy of a bet. Amazon's market cap is only around $100 billion total, which is barely twice Amazon's annual revenue.
Now, compare that to Facebook where they already have more than 10% the population of the entire Earth as users and yet have less than $4 billion in annual revenues and yet are slated to IPO with the same market cap as Amazon. In order for that bet to make sense Facebook would need to grow its business by one or two orders of magnitude and dramatically change their profitability structure. In short, they would need to fundamentally transform their business. That's the bet that people are making when they buy facebook at a 110 P/E ratio and to me that seems a lot riskier than the Amazon bet.
P/E is about predicted growth. There's little reason to invest in non-dividend stocks unless you expect the company to grow in value, so predicted growth is a much better metric than current profit.
As your post's parent points out, Amazon have depressed earnings due to a heavy investment in expansion. Plus, Amazon's growth strategy (go international and sell more digital goods) is both obvious and working well for them (based on YoY revenue).
Facebook have already-declining revenue and only speculative growth strategies, as they have peaked out the "obtaining users and selling impressions" strategy and they haven't proven that they have a method for converting mobile users to revenue.
Profit is highly variable for a tech company. I pointed out the reasons why Amazon's profits are comparatively low at this moment and why their growth potential is strong. It's weird for facebook to have a market cap which represents 2,800% of their total annual revenue, compared to 5x and 2x annual revenue for Apple and Amazon.
Amazon has a recent track record of adding new kinds of product & service offerings that (1) people actually want, and (2) pay for. What Facebook offers today for 99% of its users is about the same as it was 4 years ago. And they just give it away to those 99% for free. IIRC advertising and Zynga (another company, not them really) is where Facebook makes most of their money, and there's a lot of anecdotal evidence that Facebook ads don't work and don't get people to buy things. In contrast, Amazon monetizes almost every thing they've developed and invested in, people are throwing money at them, and they're more innovative. And Jeff Bezos is still alive and in charge, whereas Steve Jobs is dead. So yes, I'd expect a much better, more "expectations of future awesomeness" kind of P/E from Amazon than Facebook.
And it's much easier to start from scratch and build a functional replacement for Facebook (see Instragram, etc.) than it would be to replace Amazon's offerings. See the recent probably fear-based-buy of Instagram for $1B, etc. Zuck knows this. Zuck has way more things to fear than Bezos.
$18.4 billion dollars is a LOT of cash (to compare, Google raised $2.7 bn with their IPO). They can buy 18 SpaceX's, 2.3 Twitters or, you know, 18 more Instagrams. Their future is minted.
I completely agree. When the perceived value of a company whose only asset is a clever idea and some hype is bigger than that of a established company with a real business model (say, Philips) you know you are treading into make-wish territory.
But nooo, say that to most people in the industry and they'll chew your head off for being narrow-minded and oblivious to how 'the economics of startups' works.
Oh, you will be down-voted times and times again for even posting things like that. It's self-preservation, since a large percentage of current start-ups rely on similarly ad-driven pie-in-the-sky schemes where the best and only possible exit is a sale to Facebook or another large entity with more money than sense.
Agreed. One is literally rocket science (ok, engineering) and if things go wrong, people die. The other is something I could code up this weekend, and if things go wrong, a tweet is mistweeted or delayed, oh noes.
These "poor" people have earned their cash-out time. Hopefully, it triggers a new VC monsoon in Silicon Valley so that newcomers can finally afford those > $1M houses. :)
Check out this redfin graph of San Mateo county $ per square foot. Everyone's taking their house off the market and/or jacking up the price in anticipation.
Google isn't more diverse. Of Google's $37.9 billion in revenue for 2001, $36.5 billion of that came from advertising.
Fancy self-driving cars aside, Google is wholly dependent on the success of its ad targeting mechanism. Beat them out for that (and Facebook could potentially do so), and they're done for.
And a year or two from now Facebook sends out a message to it's (then) 1.2 billion users, "Welcome to Facebook Marketplace, where you can find whatever you need, ask your friends for advice, and even make your purchase with Facebook Credits."
Then Facebook has intent to buy wrapped up.
The landscape of tomorrow is not the landscape of today.
I believed that the time Goldman Sachs winged into the Game (long before the IPO) it would kill Facebook slowly.
I can't believe that a valuation for FB can be that high without political corruption.
So $18.4 billion for a Social-Network with ~1 billion users, whose only income is using/selling AD-impact valuation Data.
(And in the future an AppCenter where users can buy FB credits to play Games.)
I think Google and Amazon have more Data to predict and raise AD-impacts than FB will ever have.
+The FB code has already been stolen. Every other stock would fall hard, but not FB.
It's the opposite: not wall st. screwing SV but SV screwing Wall St. on this one. Facebook is giving itself a super-high valuation, as high as they can get away with, because that way they get as much money from the initial stock sale as possible (rather than seeing Goldman flip their IPO'd stock for a pretty profit to Goldman rather than to Facebook).
Since Facebook is the first SV company with a mega-IPO to be truly in tune with Wall St's tricks (LinkedIn totally blew it) there is indeed a good chance their stock price could head south after IPO. On the other hand the hype keeps things going so who knows...
Ads are Facebook's and Google's primary source of revenue. I wonder if there will ever be a market for ad-free, subscription-based search or social sites.
Insider trades are always based on stronger information than you have and they are never random. There is always a purpose when they are selling. Why are insiders selling pre-IPO?
A lot of folks would rather have $1M of real money than $10M+ of maybe-someday-maybe money. That's one lesson you can take away from past bubbles and missed sell opportunities. Especially for those who don't have FU-level wealth.
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[ 4.4 ms ] story [ 109 ms ] threadWill open trading at 110 P/E ratio, Google's currently at 18.8.
GM announces they are pulling $10M from Facebook advertising because it's completely ineffective.
Their latest quarterly results prior to their IPO show that revenue is plateauing, even though their IPO prices in a 30% revenue growth year-over-year for the next 5 years.
Most inside investment banks (Goldman e.g.) are dumping more than 50% of their shares.
Other than that...great investment opportunity.
Don't forget Ford following up and claiming their FB ads are working fine. http://www.autoblog.com/2012/05/17/ford-and-gm-in-twitterfig...
And btw, just because the Department of the Treasury has holdings in a company does not make it a "state-run enterprise." At least if you are going to make a sensational statement, try and ground some of it in reality.
...what could possibly go wrong??
Khan Academy on P/E Ratios (great joke 4 minutes in): http://www.youtube.com/watch?v=V-rko8jgJ9o
Well, for some reference, here's another company that currently trades at an excess of 100 P/E.
Amazon, trading at 179.33 P/E.
Is Amazon egregiously overpriced? Or are bets on its growth justified?
1. Facebook's profits are declining (by 12%). Revenue is up 43%, but revenue isn't what counts - profits are. Likewise, 43% isn't such an amazing increase. By contrast, Apple's profits are up 117% and their revenue is up 73%. Apple's P/E ratio is around 13. Even if you consider Apple an outlier, Google's profits are up 14% with revenue up 29% and a P/E ratio of around 19. So, in terms of growth, it doesn't look like Facebook is there. They don't seem to show a stronger growth pattern than companies that are trading with much more favorable P/E ratios.
2. Facebook could be a fad. While I think Facebook has much better engineering chops than AOL, Friendster, or MySpace, it's definitely possible that they could suffer the same fate. In a certain light, Facebook is a club and sometimes the crowd up and moves somewhere else. I have to emphasize that I really respect Facebook's engineering and that such strength and willingness to confront hard problems will help them a lot. Still, I remember when everyone used AIM and now everyone I know uses GTalk.
3. Facebook hasn't found a way to monetize users well. I read some estimate that Google earns 10-20x more per user. Facebook is at 900M users. They aren't going to justify such a high price by adding users. They need to figure out how to monetize them. Now, they may very well do that. If you think they will, it might justify that price. If Facebook could get its monetization per user up to Google's level, they would certainly justify that price (shrinking that P/E ratio to 8 or maybe even better). However, that's a big "if" (at least for me). I think that people betting on Facebook are betting that they will be able to figure that problem out.
4. Their mobile app doesn't have ads. To stay in the same place, they need to be able to monetize mobile as well as they've monetized their site.
5. People might become wary of Facebook. I hear a lot more ramblings about privacy and Facebook than privacy and Google. Maybe people feel more confident about Google being able to make money off of them through more traditional means. Maybe people have just felt Facebook trying to force them to be more open for their own ends several times before.
6. People are gunning for Facebook. Facebook has something that isn't making a ton of money, but people really want to be in that space. That's not great. Apple has a bunch of people that want in on mobile, but it's somewhat limited to major players - making a phone takes more than making Instagram in terms of time, money, and diversity of skills. Plus, Apple's making great money.
7. I think that Facebook isn't the best positioned for cool, new, useful things. I think that the mobile telecom industry is going to be flipped upside-down over the next half decade or so with LTE and then LTE Advanced. It's possible that a mandate for neutrality toward VoIP will come down. Google will be in a great position owning Android and GTalk. Apple has the iPhone and FaceTime. Even Microsoft has Windows Phone and Skype. Google and Apple are both working hard on mapping and other geo problems. While I like being kept up on random things in acquaintances lives, GMail and my phone know who I really interact with.
--
To be fair, I do think that Amazon is overvalued. While their revenue has grown well, their margins and profits haven't. Frankly, unlike social networking, retail isn't going to be a single-source industry in the future. Amazon will continue to have to compete against other retailers and they may face better organized competition in the future. Plus, when a company can increase its revenue so much and not have its profits go up, it just seems like a business model that relies on such thin margins that an attempt to thicken them leads to great loss of business.
--
Again, Facebook very well might justify that pri...
Except Amazon is killing it in the cloud. I don't think looking at profit margins is fair when you have a company that is heavily invested in R&D in a known, growing market.
I think they're well aware that the cloud market is going to be dominated by one or two major players, and are investing quite heavily in an 'amazon land grab' to quote Joel Spolsky.
It won't matter if you have 50 retailers competing with amazon when the majority of them are running on EC2...
Now, compare that to Facebook where they already have more than 10% the population of the entire Earth as users and yet have less than $4 billion in annual revenues and yet are slated to IPO with the same market cap as Amazon. In order for that bet to make sense Facebook would need to grow its business by one or two orders of magnitude and dramatically change their profitability structure. In short, they would need to fundamentally transform their business. That's the bet that people are making when they buy facebook at a 110 P/E ratio and to me that seems a lot riskier than the Amazon bet.
As your post's parent points out, Amazon have depressed earnings due to a heavy investment in expansion. Plus, Amazon's growth strategy (go international and sell more digital goods) is both obvious and working well for them (based on YoY revenue).
Facebook have already-declining revenue and only speculative growth strategies, as they have peaked out the "obtaining users and selling impressions" strategy and they haven't proven that they have a method for converting mobile users to revenue.
And it's much easier to start from scratch and build a functional replacement for Facebook (see Instragram, etc.) than it would be to replace Amazon's offerings. See the recent probably fear-based-buy of Instagram for $1B, etc. Zuck knows this. Zuck has way more things to fear than Bezos.
This industry is so messed up...
But nooo, say that to most people in the industry and they'll chew your head off for being narrow-minded and oblivious to how 'the economics of startups' works.
http://www.redfin.com/county/343/CA/San-Mateo-County
Is there a tax event + lockup for anyone, or do all employees own their shares outright as RSUs with prior 83(b) elections?
I'd rather have 1 Google share than 2 Facebook shares for sure.
GOOG: $623.05 FB: $38
1 Google: 203.13 billions (market cap in http://www.google.com/finance?q=GOOG )
2 Facebooks: 2 * 104 billions = 208 billions
Fancy self-driving cars aside, Google is wholly dependent on the success of its ad targeting mechanism. Beat them out for that (and Facebook could potentially do so), and they're done for.
Google searches have purchasing intent, see http://cdixon.org/2012/05/15/facebooks-business-model/ .
Then Facebook has intent to buy wrapped up.
The landscape of tomorrow is not the landscape of today.
I can't believe that a valuation for FB can be that high without political corruption.
So $18.4 billion for a Social-Network with ~1 billion users, whose only income is using/selling AD-impact valuation Data. (And in the future an AppCenter where users can buy FB credits to play Games.)
I think Google and Amazon have more Data to predict and raise AD-impacts than FB will ever have.
+The FB code has already been stolen. Every other stock would fall hard, but not FB.
Since Facebook is the first SV company with a mega-IPO to be truly in tune with Wall St's tricks (LinkedIn totally blew it) there is indeed a good chance their stock price could head south after IPO. On the other hand the hype keeps things going so who knows...
Insider trades are always based on stronger information than you have and they are never random. There is always a purpose when they are selling. Why are insiders selling pre-IPO?
There's a Marketwatch article in the queue.