

Peter Thiel Sells Majority Of His Facebook Shares In Deal Planned Pre-IPO - nikhilpandit
http://techcrunch.com/2012/08/20/peter-thiel-sells-majority-of-his-facebook-shares/

======
qq66
Would you expect him to do anything else? Invert the question: if you had $500
million cash, would you spend it all on Facebook stock? Or Google stock? Or
any one stock?

Even for company insiders who really believe in the future of their company,
it isn't prudent to hold more than a small fraction of a billion-dollar
fortune in one stock, from a purely rational perspective. Of course, the
public expects irrationally enthusiastic behavior from founders, which is the
only thing that leads to the gigantic fortunes amassed by the Gates/Ellisons
of the world.

~~~
cfront
Is this some sort of extreme cognitive dissonance?

Why can't people just accept that Facebook is a fad?

It does not mean the world is going to end. It's a fad, not a solid company.
We went through this before 12 years ago. Eventually the market figures it
out. Move on. That's what Thiel is doing.

More fads are around the corner. Investors will keep falling for the same old
tricks.

Gates and Ellison are very poor comparisons. Their software was not web-based
(=ad-based), their main market was the enterprise and they went to great
lengths to create long-term customer lock-in. They began in a different era,
and are nothing like Facebook, which is a photo-sharing website that relies on
display ads and game-playing "whales" to make money.

~~~
xpose2000
Facebook a fad? Think of it this way...

The social web is just as important as search on the web. The web will always
have search engines, and it will always have social networks. Google took over
where Excite and Altavista left off. Facebook took over where MySpace and
Friendster left off.

Google controls the majority of the social search market. Facebook controls
the majority of the social network market.

So you might be saying, that's nice, but Facebook can't monetize it's users!

Have you ever looked at Google search results lately and noticed that nearly
1/2 the screen above the fold could be ad space? Don't believe me? Search for
"iphone".

Yet we all think nothing of it. We've accepted it as users of Google.

Imagine if Facebook found a way to get it's users to ACCEPT ads. Start small,
like Google and gradually increase it over time to what it is now.

That doesn't sound far fetched does it?

~~~
spaghetti
The "social web" is no where near as important as search. Imagine removing
search from the net. Now imagine removing Facebook or other social networking
sites. The difference is staggering.

~~~
aeturnum
I think you should consider your own example more closely. "Search" is not
just Google, it would be all search engines (good luck finding that old
email). Similarly, removing social would not just remove Facebook, it would
also remove hacker news (certainly a social website) and all the other forums
you frequent.

Social websites, widely, are websites that allow users to connect to each
other. Even 4chan is social. Without search, we couldn't find anything on the
web, but without social we couldn't talk to anyone. I don't know which is
worse, but they would both be enormous losses.

~~~
chii
I think you are calling more things social than the word pre-supposes. If you
call 4chan "social", then you have the wrong definition - 4chan is a forum, a
place people discuss things.

Facebook, or "the social web" as its coined these days, is about the friend
graph (ditto with twitter - its about who you follow, and who follows you),
not about discussions.

Imho, the web will function perfectly well without facebook - each of the
features of facebook such as photosharing, event organizing etc, all have
ready replacements. Sure, the friend graph helps you connect easier/faster,
but taking it away isn't as detrimental as taking away search.

~~~
aeturnum
As I said in my post, I'd include forums in "social." Facebook has the graph,
but you could construct a weaker form of that graph using any of the popular
community-focused sites.

~~~
alexro
Not really. Facebook and other social sites nowadays all rely on one true
personal identity. On forums on the other hand you can be whatever, multiple
times, and have a discussion with yourself (even a meaningful one).

~~~
aeturnum
I have at least one friend with multiple Facebook accounts, which he has talk
to each other as a joke. Much like Facebook, most of the significant
interactions on forums happen between permanent, established accounts (4chan
could be the exception that proves the rule, as everything on it is arbitrary
and real projects are organized elsewhere).

Facebook wants to portray itself as a one-person-one-account service, but the
lack of extra accounts is largely because they've obsoleted most of the
reasons people would create multiple accounts.

------
aasarava
Everyone keeps focusing on Facebook as an ad platform, and pointing to the
difficulty in monetizing mobile via ads. But I'm betting Facebook is on the
brink of rolling out a digital wallet. They already act as an
authentication/identity service with hundreds of millions of users. If those
users linked their FB accounts to their bank accounts, they'd be able to buy
anything on any integrated website that they log into with FB Connect -- or
eventually in any store that wants to handle FB payments. With FB taking a
small cut of every transaction, I imagine PayPal and Stripe would be in
trouble, no? Mobile doesn't have to be about ads....

~~~
brk
Given their past approach to several privacy and sharing type issues, there is
no way in hell I'm buying anything with a Facebook wallet.

~~~
tedunangst
Which of the following companies paid an FTC fine for sharing user data,
Facebook or Google? Do you trust that company with your money? :)

------
jamesmcn
It is worth highlighting that this sale was via a Rule 10b5-1 trading plan.
That is, Thiel made the decision to sell prior to the IPO.

~~~
rootedbox
A facebook insider decided that facebook wasn't worth keeping his money in
prior to the IPO. That is highlightable..

~~~
prostoalex
He converted a $500,000 investment into more than $1,000,000,000, which is at
least 200,000% ROI. Would you recommend against diversification at this point?
Do you provide financial advisory services by any chance?

~~~
rootedbox
I am positive he is doing diversification but not with facebook as part of his
portfolio; as he sold pretty much all of his facebook stock. So once again.
Facebook insider chooses to sell most of his stock prior to IPO, and prior to
first quarter results. Very highlightable..

~~~
nazgulnarsil
he sold 80% of his stock IIRC.

------
dkrich
I think this is just thiel putting his money where his mouth is. Anybody who
has followed him knows it's no secret that he's spoken out against companies
solving small problems and has even implied facebook to be squarely in that
camp.

------
grandalf
I'm going to buy when it gets closer to $10 per share. Half the world uses
Facebook every day so let's not pretend it isn't an awesome business with
utterly massive potential.

~~~
joelrunyon
"awesome business" and "massive potential" aren't mutually exclusive events.
It can have massive potential, but never deliver and still be a terrible
business.

Sure, it's got a lot of upside if you can buy it at the right price, but up
till now, it hasn't shown advertisers (who make up the majority of their
revenue) that it can deliver customers as acceptable CPAs. Until that happens,
we'll still be waiting for facebook to be an "awesome business."

~~~
grandalf
I don't think CPAs are the right metric. Facebook is massively engaging. I
think TV is the most natural synergy b/c people socialize around it today but
only in one household.

Facebook should also launch a web search similar to Google just go capture
some market share in search-driven advertising.

Around the world, Facebook is the fastest loading website (it often beats
Google). Its infrastructure is ready to make a truly global play of some kind.

Expect something huge after the stock price stabilizes a bit.

~~~
bunderbunder
Perhaps CPA is not the right metric. But a bunch of hype that glosses over the
fact that Facebook doesn't really actually make very much money is not the
right metric, either.

~~~
chii
But i thought facebook's revenues are in the billions? Where is that money
coming from?

~~~
joelrunyon
A little over 3.5 billion. I think he was saying that the revenue considering
the company size and user base (almost 1 billion) is not very much.

~~~
bunderbunder
Yup. Especially considering their revenue has also been falling, that there
are concrete reasons to think that it will continue to do so, and that they're
operating in a notoriously brutal and fickle space. There's money there, but
not enough to cushion a fall.

------
ThomPete
Facebook have a problem that Google hasn't.

1\. Their social graph is great but it has one major flaw. It's very bad at
profiling intent.

They also have a problem they share with Google.

2\. They haven't found a way to make advertising work on mobile, an increasing
part of their visits.

Unless they find a way to solve those two areas they will not be able grow
their revenue without hurting their visitors.

~~~
r00fus
> 2\. They haven't found a way to make advertising work on mobile, an
> increasing part of their visits.

And herein is the problem: Apple - Apple is so against advertising that they
created their own iAd network to keep other companies out of the game (it
doesn't have to really be a success - just enough to keep devs off competing
ad networks).

As long as Apple is influential in the mobile world, Google and Facebook are
going to have a tough time with mobile ads... do consumers actually want ads?
Apple is betting no, and as far as they're concerned - screw the devs and
advertisers.

~~~
ThomPete
Hmm

Actually I think the problem is bigger than that.

Android is a more popular mobile OS than iOS by far and in fact googles reason
for approaching it that way is that they want a platform to serve ads on.

But so far they havne't managed to find a way to do it.

~~~
r00fus
I think monetization would require near-monopoly-level control for Google. How
much would adwords bring in if Google weren't the "default search"
destination?

If Google can basically kick Apple back into niche status (not there yet),
then they could extract monopoly rents on a defacto standard of ad-based apps
either using Google's mobile ad network, or a consortium of which they are the
sole influential player.

Perhaps that explains why they haven't tried to heavily monetize this yet -
that would pus more consumers into non-ad-based apps where Apple is strongest.

------
sytelus
The 10b5-1 is actually bit fuzzy on whether you can cancel trading plan. SEC
basically says that if you cancel the trade than you are not legally liable
because no transaction actually occurred and so one cannot claim that you
profited from insider trading. So in theory you can cancel the trading plan if
you like. However if SEC _feels_ that you cancelled only because of price drop
then they can come after you for ALL your future trading plans or may even re-
examine previous trades to see if you were trying to game the system.
Therefore executives are advised by to cancel only under extraordinary
circumstances.

So I think Thiel had lot of legal pressure, although technically not an
obligation, to sell as per his trading plan filing. He could have taken risk
but it's probably not worth it for another half-a-billion of profit if you are
already multi-billionaire and if you are already cultivating 1000X returns as
it is.

On the other hand it is surprising that he decided to sell _most_ of his stock
instead say only quarter or so. I would think Thiel as a long term investor in
FB from what I've read in the book "Facebook Effect". Thiel is one of the few
person that probably knows most upcoming plans and products in works and
problems at FB. A typical strategy for investors like Thiel is to cash out in
stages instead of dumping most stock at once like regular VCs do (10-25% each
quarter, for example). Considering his level of insider knowledge this only
means he did not expect FB stock going up at the time of trade filing in at
least 1 to 2 year horizon.

This is even more surprising because I keep thinking FB is going to come out
with something like AdSense any day now and almost instantly double its
revenues bringing stock back to $25-30. Obviously Thiel has calculated things
differently.

------
dj2stein9
The Facebook story is over. They got ahead in the social network game of
making communication over the Internet easier. They did this by making Email
obsolete. One centralized system where all users can send instant messages to
one another without remembering user logins, email addresses, or phone
numbers. This is the ONLY advantage Facebook has over its competitors. And I
guarantee their current advantages are going to be eroded away by more open
protocols. In the same way that Twitter's current advantage in microblogging
is also going to be eroded away.

If you get too far ahead of everyone else you become the target, and there are
simply so many startups and smart brains working against Facebook and Twitter
at this point that they simply will not be able to maintain their leads
indefinitely (which is what their market values are incorrectly predicting).

~~~
csallen
You're focusing only on features, and ignoring the fact that Facebook has more
active users on their site for more time per day and with a higher retention
rate than any other site in existence, and that network effects have created
an almost insurmountable barrier to entry.

~~~
dj2stein9
You know who currently has an even better advantage in social networks? Cell
phone carriers. If I take a look at my Facebook friendlist or feed, and
compare it to the last calls and messages made on my cellphone -- they don't
match up at all. That means, at least to me, Facebook's graph for me doesn't
relate at all to my real world social network, and so most of its value is
probably artificial.

Certainly no system ever built can match Facebook's penetration rate, but it
will probably always pale in comparison the real world social network. The
difference is mobile devices are going to map a lot better to the actual
network in ways that Facebook will be unable to capitalize on.

------
rdl
Selling before the end of the year saves him over a hundred million in capital
gains, too.

------
dutchbrit
Peter, if you are reading this, there's one question I'd love to ask. Why did
tou even buy Facebook shares in the first place? Just to say you owned a part
of Facebook? It was a clear failure from the beginning when they hit the
market, way overpriced - surely you must of known this too. And then comes why
other question. Why sell now, after loosing so much money? If you were willing
to take a gamble in the first place, you should of been prepared to stick with
it for a few years - it might go back up, but that's only if FB manage to get
their shit together.

~~~
benjaminwootton
Did you even skim read the article? He invested $500k as one of their earliest
investors, and turned that into $400 million. He sold when he did because of a
lock up period.

~~~
dutchbrit
Christ, I must of been asleep while reading that article! You're right.

------
001sky
The market is concluding FB is not likely $1 trillion company. The Q is order
of magnitude for FB $TEV.

A. $1000B ? No... B. $100B? Maybe C. $10B? Possible

I think Theil is obvi not betting on $1T.

Thus, after 8 yrs, time to go.

At ranges between B and C, holding a large position in a public stock that is
exhibiting true volatility (ie, something other than upward drift), is not
likely to please his LP investors.

Nor, similarly would it be advised for his own holdings.

Reading more into the tea-leaves (ie, operationally) might be fun, but I'm not
sure its adding explanatory power to what we are seeing here.

