
FB down 8% at opening - jcfrei
http://www.google.com/finance?q=NASDAQ:FB
======
krigath
Apple's P/E ratio is 13.12 [1]. Facebook's P/E ratio is 107.66 [2].

The P/E ratio[3] is: market price per share / annual earnings per share

This basically means that Apple makes as much profit as their are valued at in
13.12 years, whereas it would take Facebook 107.66 years to afford to buy
themselves.

That doesn't make any sense, and if we assume that their P/E ratio should be
roughly the same, their stock price should be around [4] 33.54/(107.66/13.12)
= 4.09 USD

Edit: Google's P/E ratio is 18.32, and if Facebook were to have the same P/E
ratio its stock price would have to be 5.71 USD [5].

[1] <http://www.google.com/finance?q=AAPL>

[2] <http://www.google.com/finance?q=NASDAQ:FB>

[3] <http://en.wikipedia.org/wiki/PE_ratio>

[4] <https://www.google.co.uk/search?q=33.54%2F(107.66%2F13.12)>

[5] <https://www.google.co.uk/search?q=33.54%2F(107.66%2F18.32)>

~~~
martincmartin
_... it would take Facebook 107.66 years to afford to buy themselves._

Only if their earnings were constant for the next 107.66 years. People expect
Facebook's earnings to continue to grow. Apple's earnings, by contrast, are
considered mature.

~~~
zerostar07
Should facebook be considered an upstart when it's been around for 8 years?

~~~
chucknthem
It's not about whether they can be considered an "upstart" it's about whether
speculators think they have the potential to make much more money than they
already do. Amazon for example has been around for 2 decades and have a PE
ratio of 179 because they've put nearly all their profits into investing in
new businesses that has a lot of potential to make more money down the road.

~~~
khyryk
Meanwhile, Facebook is investing in things like Instagram, lol.

~~~
zerostar07
... spending all their 2011 profits:
[http://adage.com/article/digital/facebook-files-ipo-
reveals-...](http://adage.com/article/digital/facebook-files-ipo-
reveals-1-billion-2011-profit/232484/)

------
AndrewDucker
Looks like FB priced it perfectly - they made the maximum money they could out
of it.

Was it not obvious in advance that FB was being priced such that the shares
would be either flat, or decrease? The original investors have made themselves
a fortune - and frankly anyone who invested heavily in a corporation at a P/E
of 100:1 didn't think about it well enough.

~~~
fleitz
Anyone who invested doesn't care that it's down 8% today. Facebook's investors
have always done extremely well, however, it appears that traders with a two
day sell window have done extremely poorly.

I don't think they priced it right, a $30 sell price could have created a 13%
bump today, a big gain on opening day can create demand from retail. It
changes the whole story, Facebook should know well enough the social effects
of perception, even though the fundamental story is the same. The idea is not
to cash out on IPO day, it's to create a story of growth and success and then
cash out a few days later as the growth has whipped investors into a frenzy.

It reminds me of my realtor who would put houses on the market extremely
underpriced generate huge amounts of interest. A bidding war would ensue
almost immediately amongst those emotionally attached to the 'great deal'.
After the bidding war the seller would have an offer 25 to 30% higher than
market. The internet equivalent is $300 ebay items listed for 99 cents.
Facebook fucked the IPO up by failing to generate interest through a success
story, it will recover though.

Honestly, if you're 'investing' for two days you're not interested in P/E but
rather technical analysis and market sentiment, both of which are poor right
now, as nothing fundamental about Facebook's business has changed in the last
week.

~~~
daniel_solano
I disagree. If I understand things correctly, the purpose of the IPO is to
raise capital for Facebook. As such, if they sell the stock for $30/share,
that's what they get. If the stock then goes up to $34/share, they don't get
the extra $4. That goes to whoever bought it from Facebook and resold it. In
effect, they would have raised 12% less than they could have.

On the other hand, if they sell the stock to the public at $38 and it drops
down to $34, it's someone else that's out the $4. Sure, it may create some
temporary negative publicity, but, as you stated, they will recover.

~~~
fleitz
Kinda, I'm assuming that a portion of the IPO stock was from entities that
owned the stock other than Facebook, eg. employees, early investors, etc.

If not those shareholders may also want to exit shortly after the IPO,
creating a success story for the IPO should increase demand creating a better
market for shareholders.

I do agree with you that in a market with rational agents and solely from the
POV of Facebook, Inc. that they did the best thing, but I think in a market
filled with irrational agents motivated primarily by price movements that it
creates the wrong story for the next 3 to 6 months in the overall social
context.

What they've created is dinner conversation about how Facebook is flopping and
has provided lots of ammunition to the nay-sayers, rather than 'proving' the
nay-sayers wrong.

I tend to see Facebook's business fundamentally as hype, people use it because
other people use it, not because of some intrinsic thing that makes it better
than any other social network. It's moat is it's userbase not it's technology.

It's like Coca-Cola, people drink Coke because other people drink coke, not
because it tastes better than Pepsi. It's the fundamental reason why New Coke
was a flop and Pepsi taste tests don't matter.

~~~
AndrewDucker
Mark Zuckerberg doesn't care about the Nay-Sayers. He's made it quite clear
that it's his company, and he'll run it how he likes. He just got a huge wodge
of money, and he can now spend it however he likes. A win all round, I'd say.

~~~
socratease
Unless it's your money he has taken. And you get no return on your investment.
Why does he need that huge wodge of money?

The attitude expressed in your comment is really disturbing.

~~~
esrauch
I really don't understand the investment here; it's a non-voting non-dividend
share right? I've asked a few people to explain this without satisfactory
answer; there is now absolutely no possible connection between the success of
the company and the value of these stocks (unless Zuck decides to sell at
least 7% of his 57% ownership, which seems like it will be approximately
never) except that all the owners decide their stock should be priced relative
to how well the company is doing and other people agree.

It seems like people are investing in what other people will be willing to buy
this otherwise useless stock at, and those people are only willing to do it
because of yet other people willing to buy it for the same reason. Is that not
correct? Seems like an extremely bizarre form of "investment", it's betting on
a horse, not owning a portion of a horse.

~~~
melvinmt
Zuckerberg doesn't own 57% of FB (that would have made him richer than Warren
Buffet), he 'only' has a majority vote.

------
throwaweee
The difference between Google and FB IPOs:

I remember having a discussion with another programmer friend of mine, after
the Google had had their IPO. At the time the friend was working in the
networking software area, and had not much clue on the Internet side.

The topic was Google vs. Microsoft. I was telling him that Google is going to
beat MS. His response was but Google is _just search_!

Anyway, the reason I mention this is that for GOOG IPO, some very smart Alexes
of the world were not cued into to the buzz. Apart from Internet enthusiasts
and professionals.

Now move forward Facebook IPO. The other day, my young, just-out-of-teens,
female cousin was announcing on FB, that she has pre-ordered some buy.

To cut the story short the _fools_ were already _in_ !

PS: Not to disrespect my cousin. Using the 'fools' word in the context of
those famous sayings regarding fools entering the market, just at the time of
the bubble

------
MisterBastahrd
To me, Facebook's social network is extremely overvalued. When I search on
Google, they are getting first party accounts of subject which interest me,
which turn out to be pretty good in the ad space. When I (or my friends) post
on Facebook, Facebook gets my demographics, but I am more likely to talk about
friends or family than try to find a product or a domain of knowledge.

Ads work better when I know a lot of specific things about you. As much as
people post on Facebook, I have a hard time believing that Facebook knows much
more about people than some locations and general demographics.

And this is why Google+ is so maddening. They have no clue how to build a
social network and they aren't even trying. The people who use it are mostly
techies who use it as their third social network after Facebook and Twitter.
Circles was a neat idea, but wasn't promoted sufficiently. The vast majority
of the time I personally use Google+, it's for the hangouts, which are great.
But even that part of the site is fragmented. There's hangouts (which has the
most features), and hangouts with extras (which doesn't, but you can name a
hangout and keep a static link).

Meh. The state of social networking is very much up in the air right now.
Seems to me that there's a lot of value being wasted by not appreciating what
people actually want, and turning that into value.

------
TomGullen
Why anyone would buy FB at over 100 P/E is beyond me. The general sentiment of
the buyers is that "Facebook COULD earn a lot of money". When has that sort of
line ever worked for startups? If a startup says something like that, everyone
asks "Well why haven't you yet then?"

Small businesses/startups on Dragon's Den get laughed out the room when they
try and broker a price based in part on the 'potential' of their business. Why
is it different for Facebook?

~~~
gruseom
Amazon, of course. They were widely laughed at too. I remember the favorite
joke of the people who used to ridicule them: "we lose money on every
transaction and make it up in volume".

~~~
rosenweiss
If you look at their latest numbers, you will see that the joke was not far
from the truth. Once the growth phase is over, reality bites in, hard.

------
nostromo
I wonder what recently hired employees have for their strike price.

It must feel terrible to be underwater the day after IPO, if that's the case
for anyone. I was at Amazon after the dot com bubble burst, and it was very
hard for managers (who mostly had already done very well) to keep morale up
amongst the later hires.

Of course, the people who stayed are all doing quite well now -- but it took a
decade of patience.

~~~
teej
Facebook hasn't issued stock options since 2007. They now issue restricted
stock units (RSUs) which don't have a strike price. You cannot be underwater
with RSUs.

------
billions
Investors that felt privileged to own FB weeks pre-IPO thought the stock would
go viral because everyone was talking about it. Fortunately, FB users and
TDAmeritrade users are completely different demographics and even small time
investors know not to confuse social clout for economics.

------
nicholassmith
As a side note (and yes, they could be unrelated) but Zynga has lost around
7.40% of it's value this morning:
[http://www.google.co.uk/finance?client=ob&q=NASDAQ:ZNGA](http://www.google.co.uk/finance?client=ob&q=NASDAQ:ZNGA)

~~~
aliston
Zynga's lock up period ends next month too... kinda sucks for employees with
options.

------
ollerac
Facebook is a story stock [1] if I ever saw one. According to the WSJ it's the
most traded IPO of all time. I imagine a lot of people who use FB but know
nothing about stocks are buying and selling it. I expect it'll take a while
before people start to settle into similar expectations about how it's going
to perform in the long run.

Everyone's looking at Mark Zuckerberg right now. If his team continues to
execute at the pace of a startup the stock will go higher. However, if he
starts to show signs that the pressure is getting to him (think Google's
failed attempts at social or Nflx's Qwikster snafu or the past 10 years at
msft) the stock will fall.

[1] <http://www.investopedia.com/terms/s/storystock.asp>

------
creativityhurts
It's somewhere at -13.35% right now. I don't think that's unexpected at all
given the valuation.

------
dh
Guess Morgan Stanley cannot support the high price past the first day

~~~
brazzy
No suprise, because their support came in the form of a Greenshoe Option,
which is an instrument specifically tailored towards the first day.

------
edvinasbartkus
Is it really unexpected? <http://www.businessinsider.com/facebook-stock-
drop-2012-5>

~~~
nikcub
No. I am a FB bull yet I took a bet on Friday that the S&P would outperform FB
over next 12 months.

------
nicholassmith
Looks like NASDAQ fixed their platform glitches then.

------
Monotoko
Hmm... it's interesting to watch. I know a friend who put almost his life
savings into this, I told him it was crazy and I told him this would happen
listing reasons. But he seemed sure it would climb...

------
calc
Looks like somebody (Morgan Stanley again?) keeps trying to create a floor
around $34, and every time it goes under that it goes into freefall.

The technicals don't look good either.

------
fear91
Down to -10.50% That was... fast

~~~
twp
Now -12.5%... will trading cease if it drops 13% as Zygna did on Friday?

~~~
nikcub
trading doesn't cease just because a stock drops. they ceased on Zynga because
the bots got out of hand and caused a flash crash. these safety measures have
been in place since the big flash crash of a few years ago. FB looks more like
an orderly sell off

~~~
sanxiyn
Two years ago.

<http://en.wikipedia.org/wiki/2010_Flash_Crash>

------
veyron
I literally tried to submit this exact thing about an hour ago and it
prevented me from posting a duplicate. I had to dig out
<http://news.ycombinator.com/item?id=4002633> to post it. What exactly is the
rule regarding duplicates?

~~~
koenigdavidmj
When you post a duplicate, it ignores your post and instead upvotes the other
post.

For a few weeks, anyway.

~~~
veyron
I posted the link half an hour before this post. Why did this post go through?
My post, same url, was considered a duplicate of a post from last friday.

------
verelo
I looked at the market cap of linkedin ($9B) and then compared it to Facebook
(~$92B). I know the two companies are different, but i feel that 10x value is
a little out of wack...just my opinion. I wouldnt buy yet.

~~~
ollerac
Facebook has over 900 million active users as of May 2012. [1]

LinkedIn has maybe 23 million active users. [2]

[1] <http://en.wikipedia.org/wiki/Facebook> [2]
[http://www.quora.com/LinkedIn/How-many-active-users-does-
Lin...](http://www.quora.com/LinkedIn/How-many-active-users-does-Linkedin-
have)

~~~
CamperBob2
LinkedIn users actually have money, though.

------
nanospider
This is unfortunate. Yes the company maximized their IPO take. But at the end
of the day the ones who got screwed were the retail investors who bought into
the media hype. This will hurt tech IPOs in general.

------
dangero
I feel like I'm reading a global warming deniers thread and the evidence
provided is the current temperature outside.

Time will tell. What happened today doesn't actually mean anything in the long
run.

------
baq
call me when it's around $10 with P/E at a reasonable level.

~~~
tedunangst
Why would the price matter if the P/E is reasonable?

~~~
jwoah12
I think he's implying that if the price drops to $10, the PE would be at a
reasonable level.

~~~
baq
exactly - and that's assuming their profits keep growing.

~~~
tedunangst
I'm just used to seeing it phrased "at $x the p/e would be...". Not a big
deal, but HN has dialed the financial illiteracy up to 11 recently.

------
nikcub
for a moment it appeared to have a lot of support at $34 but it just blew
straight through that. down 14%.

------
MaysonL
Interesting that while Facebook tanks [-11 %], Apple pops [more than 5%]. Any
connection?

~~~
debacle
Unlikely.

------
outside1234
the interesting thing to watch will be 1) is it correct to price your IPO to
reap maximum gain for the company or 2) is there enough positive PR benefit in
leaving some value on the table to under price it and have it pop slightly.

~~~
richardw
I'd go with 1. The only people you help with 2 are the bankers and whoever
they deem to be worthy of stock at the IPO. I'd rather help the investors who
have been with the company for years.

------
brh_jr
I don't know if it was possible, but something told me to short that stock on
Friday. Oh well. I think this will be a disaster in the immediate future

~~~
gfodor
No, it wasn't possible.

------
bcl
Really? Do we need this on HN? If you want to watch the FB price bounce around
go do it on Google Finance or wherever.

~~~
creativityhurts
It's not only about the bouncing price itself but it's interesting for some of
us to observe the evolution of the biggest "startup" out there after its IPO.

------
jstalin
Down 20% from its peak on Friday. Oopsie!

------
ralfd
At what point should we buy?

~~~
nextparadigms
At $5.

~~~
WiseWeasel
I think $5 would be a steal and $7 would be reasonable; I doubt we'd get the
chance to pick it up for any less than $10, however.

------
adventureful
Google IPO'd with very similar financials, at a $23 billion valuation.

The value placed on FB was absurd to the extreme.

~~~
debacle
Google had half of the revenue, but was asking for 1/5th of the valuation.

In short, they were prudent.

~~~
nikcub
Google got a list price that was 50-100% less than their target price. They
tried to play the banks and got played back.

FB did the exact opposite.

~~~
jan_g
So, if I understand you correctly, the owners' goal is to set the IPO price as
high as possible and then to hell with the future stock price? I was always
under the impression that the owners' goal is long-term growth of stock value,
but of course I'm not an economist ...

~~~
glesica
The owner(s) of the company _only_ gets paid at the IPO. That's the _only_
time he gets money from the stock market (unless and until the company issues
more stock later).

So of course he wants the IPO price to be as high as possible, because that's
the money he gets to put in his piggy bank.

In fact, the real goal of a public company is _not_ to increase the stock
price, but to maximize the value of the stock to shareholders. In some cases,
this means maintaining a flat stock price but paying healthy dividends (in
other words, giving some of the profits to the shareholders). This was
actually the dominant model for many years (link below, take a look at the
growth rate during the '70s and '80s).

The somewhat more recent trend toward increasing share prices is just another
way of maximizing shareholder value. In this case, it is done by increasing
the market value of the stock being held by the shareholders.

It is quite common for companies today to pay no dividends. Since the
shareholders don't get a piece of the profits, the only way to make money on
the stock is to buy low and sell high (or buy low and hold for awhile, perhaps
until retirement, and then sell, however you want to look at it).

So there really isn't any intrinsic reason for a company to seek a higher
stock price. The point is to maximize _value_ , which doesn't always equate to
price.

Of course that isn't going to cheer up people who hoped to buy FB on Friday
and flip it for a huge profit this week after the "bump". But risk is the
whole reason there's money to be made. Sometimes you win, sometimes you don't.

[http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...](http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1337630400000&chddm=4050760&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0)

~~~
jan_g
Ok, I'm obviously over-simplifying the situation, but I have hard time
believing that stock price doesn't matter. If nothing else, then downward
trend would generate lots of negative press and customers might turn away from
the company's products/services. Imagine if Google's stock price would decline
significantly in the period of next year or two - wouldn't that spell doom and
gloom in people's eyes?

Disclaimer: I have never invested in any company, never bought any stock, so
you may call me naive.

~~~
glesica
That's true, to a point. If Google's stock price fell off a cliff tomorrow it
would be all over the news and their customers (advertisers) might have some
questions. But there are two things to keep in mind:

1) If their stock price fell off a cliff, there's got to be a reason. It could
be basically anything, but it has to exist and be well-known (maybe Larry Page
had a breakdown, shaved his head and tried to run down some reporters,
whatever). The event that caused stockholders to sell (thus crashing the
stock) probably would have been enough to cause Google's customers to ask
questions, the stock price is then just incidental. It's a "chicken and egg"
problem in some sense.

2) Stock price _really_ doesn't have any impact on the everyday functioning of
an otherwise-healthy company. Stock price is a reflection of the buying and
selling happening on the stock market, so fluctuations in price _can_ actually
have nothing to do with the current health of the company in question. Maybe
tomorrow a report comes out that indicates search-based advertising will start
to decline next year and will be half what is today in 2020. This would likely
lead to a decrease in Google's stock price. But it probably wouldn't lead to
many companies dumping Adsense, at least not yet. A report about the future
affects the stock price, but it doesn't necessarily affect the customers
_today_.

Stock prices are abstract and largely disconnected from the actual company. So
while a good CEO will pay attention to the stock price, it just isn't all that
important for _most_ (especially mature) companies. Building a healthy
business is the important part.

------
saket123
Just to add LinkedIn is trading at 617 P/E.
<https://www.google.com/finance?q=NYSE:LNKD>

~~~
chucknelson
Haha, this should be the response to every "really, invest in a company at
100+ P/E?!" comment.

------
stdclass
-13,37% nice!

