
Facebook Is Currently Worth $24 Billion Less Than When It First Went Public - bavidar
http://techcrunch.com/2013/07/25/despite-gains-facebook-is-currently-worth-24-billion-less-than-when-it-first-went-public/
======
jamesaguilar
I was thinking about this, and was wondering if anyone on here who is a
financial nerd can comment. Is market cap really a good way to measure the
value of a company? My understanding is that market cap is (spot price *
outstanding shares). The problem is that the spot price is representative only
of what a single pair of investors believe their shares are worth.

It seems like a better valuation would be something like, "How much would you
have to spend to buy the company." Which at any given instant in time is much
higher than the spot price-share product, and also probably fluctuates much
more slowly.

~~~
tedsanders
That's a fair point, but yes, I think market cap is the best way to measure
the value of a company.

One problem with the "how much would you have to spend to buy the company" is
that it gives you a much larger answer than the "how much would you collect if
you sold the company," but it's hard to see why one measure should be
preferred over the other.

It's true that the spot price only measures the valuation at the margin, but
the margin is set by the consensus of the market participants (if anyone
disagrees with it, they are free to buy or sell until they agree). The price
at the margin of trading also reflects expectations of the company without any
change in management (which is one reason that trying to buy or sell a whole
company can cost much more or less than the spot price).

~~~
jamesaguilar
I guess what makes me so skeptical about this is the magnitude of change in
expectations that relatively minor news can bring. I would say that a rational
person should not, for example, value Google or Facebook 20% less or more more
because of a single quarter's performance. I feel like one of three things
must be the case:

    
    
        - A slight miss or hit of earnings expectations in a quarter 
          really can make a rational person change their valuation 
          of a company by 20%.
        - The market is irrational.
        - The spot price doesn't accurately represent the market.
    

It's harder for me to believe the first two than the last one.

~~~
jcnnghm
_A slight miss or hit of earnings expectations in a quarter really can make a
rational person change their valuation of a company by 20%._

Stock prices are generally considered to be the present value of all future
cash flows. In other words, growth prospects are priced in. Because of this,
missed earnings can seriously effect value because they can dramatically
change market beliefs about probable future cash flows and growth potential.
Smaller stocks and high P/E ratio stocks (broadly, growth companies) are
particularly vulnerable because the present value of future growth is a higher
part of the total value.

Edit: Forgot to mention, empirical data typically suggests that markets
initially under-react to earnings surprises.

------
tedsanders
>Aside from higher expenses and a lower operating margin, it’s hard to find a
metric by which Facebook is worse off than it was a year ago. And yet we the
market public value the firm at $24 billion less than on its first day.

How is this surprising? Growth is always priced in. Stock prices move because
expectations change, not because a company changes.

~~~
rtpg
Also, the simple point that it was simply grossly overvalued when it initially
went out. It's probably stabilized at a "more reasonable" price.

------
klaustopher
Damn ... They could have bought 24 more Instagrams with that :(

------
izendejas
Flagged and others should, also. I don't think we need to feed TC any more
clicks for worthless content.

Edit: if you need any more evidence to flag it, just witness the quality of
the comments this "article" inspired.

------
tedsanders
>Facebook has torched tens of billions of dollars of shareholder equity since
it first went public.

Not necessarily. Price movements in a stock are not necessarily caused by bad
decisions of the company. Stock prices can change for many reasons outside of
the company's control. By the article's logic, the Facebook torched a lot of
shareholder value on the day of its IPO. But that day, Facebook made very few
decisions, despite its price falling drastically. Rather than Facebook's bad
decisions, I'd argue that investor uncertainty was the driver of the price
movements.

------
josefresco
Headline implies Facebook lost value however the article indicated that the
value _we_ and investors assigned to Facebook was batshit crazy.

------
eliben
I'm trying to recall what innovations Facebook has introduced since the IPO
and can't think of anything except a failing skin for Androind. What am I
missing?

~~~
s3r3nity
Basic Google search:

Graph Search, Site Re-design on all platforms, Newsfeed algorithm changes that
increased engagement, Significant growth and mobile penetration in
international markets (now over 1.1+ BILLION people) -- i.e. making it easier
for people on dumb phones to access Facebook, messaging improvements and
stickers (which is HUGELY popular), ...etc.etc.

~~~
eliben
Honestly all of that doesn't sound remotely close to what I'd consider
"innovation". Well, except the graph search perhaps, although I'm not sure how
successful that came to be.

~~~
s3r3nity
Perhaps -- maybe it's not Apple style crazy innovation. However I'm intrigued
at tech that makes it easy for those in the developing world to access the
internet and connect with others in the social graph. And when you really
think about it only maybe Google and Facebook are pulling this off (maybe
Twitter, though I'm bearish on their capabilities on 'dumb phones' at the
moment.)

------
loceng
And within 3 years traffic will start to rapidly, and so will the stock.

~~~
hackinthebochs
Yes, if we all keep predicting that facebook's traffic will drop, _eventually_
we will be right. But that's not useful information, nor does it add anything
to the conversation.

~~~
loceng
I've said lots in the past before as to why. I was just making the end
concluding statement.

