

Buffett Says Social-Networking Sites Overpriced Ahead of Public Offerings - smallwords
http://www.bloomberg.com/news/2011-03-25/most-networking-site-companies-will-be-overpriced-buffett-says.html

======
po
I'm going to file this in the "no shit" drawer. Buffet is notoriously
conservative and his shareholders (I'm one) understand that. I think the more
people are talking about a given company, the less likely Buffet is to invest
in it.

That's not to say that those companies will fail, he's just not going to be
the one betting on it. Many highly risky bets will pay off but he will not be
sad that he missed it.

~~~
gte910h
The less like a insurance company or business model that's 200+ years old, the
less likely buffet is to invest in it. He seems to specialize in troubled
traditional businesses which are mainly missing capital investment and
insurance

~~~
silverbax88
That's not really accurate. Warren just only invests in companies with strong
(provable) profit models at cheap prices. It doesn't matter what it is, it
matters whether he (or you, or I, or anyone) can look at the numbers without
guessing and see profit.

Before the housing bubble burst, those mortgage-backed securities were being
shopped to Buffet. Buffet said he wouldn't buy them because they were bundled
millions of loans and he had no way of knowing what the health of those loans
actually was. Not rocket science. Not new age, high tech or too young for him.
Just no different than anyone should even be with their money.

Would you buy a car for $25K if you did not know what year the car was, what
model, what it looked like or what condition? But that is essentially what
they were asking Buffet to do. And he didn't...but several people did.

~~~
gte910h
Passing on random financial instruments (which AIG _Was_ a counterparty to
quite a few of) is not the same thing as commenting on a social networking
site or choosing to not invest in something tech related.

Saying something is overvalued is buffet speak for saying "not cheap enough to
be troubled" which is when he traditionally invests in things.

He buys lots of family businesses upon death events, and some heavy industry
suffering capital issues. Generally speaking, this precludes young firms from
crossing his radar even. "Suffering capital issues" is similarly something you
will rarely see in todays tech environment.

Because a person is good at something doesn't mean he does everything
perfectly. There are lots of great investments out there Buffet is not going
to go anywhere near, that are conservative even. He definitely has a profile
far more constrained than "proven business model"

He's a good businessmen, no doubt about it, but because he dislikes something
does not mean it's not a good bet, it just means it doesn't clearly fit into
his "Nothing a little money can't fix" investment profile.

------
SeanDav
It's pretty clear Social Networking sites are overvalued. Facebook has a
valuation of around 65 billion $ on revenues of around 2 billion $. Microsoft
has less than 4 times the valuation of Facebook and more than 30 times the
revenue.

I think he is stating the bleeding obvious!

~~~
Zakuzaa
Word on the street is it's 85 billion $ now.

------
danielayele
I actually agree that prices may be inflated/overhyped but the lack of
specificity in Buffett's statement kind of irks me. He doesn't even define
what a social network is (Facebook, Zynga, and Groupon are all remarkably
different companies and not everyone would consider all of them to be social
networks).

He's a brilliant investor but at the end of the day statements made without
any indication of real analysis or research should be taken with a grain of
salt...even from the Oracle of Omaha.

~~~
Umalu
Buffett: "One of the things we try very hard to do at Berkshire, is to stay
within what I call our circle of competence."[1] It would surprise me greatly
if the social network sphere is within Buffett's circle of competence, and it
would surprise me even more if he thought it was, and so I would interpret his
comments about it accordingly.

[1] [http://seekingalpha.com/article/148662-circle-of-
competence-...](http://seekingalpha.com/article/148662-circle-of-competence-
what-buffett-really-meant)

------
donnyg107
Also, Buffet is not some old fashioned, technology ignorant day trader. He
claims he doesn't know much about technology companies, but he was still the
first one to predict the internet bubble and is well involved in the modern
markets. I think he's just speaking relative to his knowledge of other
industries. No one doing as much market research every day as he does "only
knows about industries 100 years old."

------
donnyg107
This makes some sense. We often rate social networking sites demand-side, by
how much potential people see in them rather than how much they're actually
worth. The fact that the still growing Groupon is worth over 6 times as much
as the well established and influential Twitter is a perfect indication of
this. Worth is still somewhat based on assets and popularity, and we shouldn't
push the price of companies up by such huge factors simple because they ARE
growing and haven't established a reliable estimation of worth yet. Startups
are a venture market, where the real money is made before sudden explosions in
popularity, but we shouldn't grossly over rate them just because they aren't
already well established, and the explosion hasn't happened yet. Especially
because if the explosion does happen, and the company is worth at or less than
its estimated, demand-side, potential worth, nobody's making money anyway,
because the stock price won't have increased much. In other industries its
called poor evaluation to treat EVERY up and coming business like its going to
explode, why should startups be so different? Because SOME people have made
tons of money? If were all "chasing the american dream" in our investments and
will settle for no less, than that's acceptable. But if were trying to invest
intelligently, its unjustifiable that every up and coming startup is grossly
over rated in price. Unless Groupon actually has around 22 billion dollars in
assets, then they do not have a justifiable price. Otherwise, we need to
listen to the Oracle of Omaha and wise up. Startups are still an industry, and
we need to get used to that to avoid bubbles like this. Maybe venture capital
is so hard to break into because you ACTUALLY need to look for companies that
aren't popular yet, rather than just decide to invest in the companies you use
every day. The strong investments are made before the company is well known,
not before it has an accurate price.

~~~
natnat
Groupon is worth a whole lot more than Twitter because it has a realistic way
to make boatloads of money. Twitter is influential, but that doesn't mean its
stock is worth a lot of money. As far as I can tell, Twitter's business plan
is something along the lines of, "advertising or something?". Groupon takes
50% of the money from each groupon sold.

Crocs, Inc., the company that makes those awful rubber shoes, has a higher
market cap than The New York Times Company. That doesn't mean NYT is less
important than Crocs, but it does mean that it is not as good at turning a
profit.

------
seanalltogether
The main question is how will these companies grow?

When google went public everyone thought it was overvalued, because the
perception at the time was they were top of their game, and had nowhere to go.
Of course they proved everyone wrong and became so much more then they were.
Google is a great example of a software company using a public offering to
help expand the company.

So the the question is, which of these companies can become more than what
they currently are. What does Facebook need cash to accomplish? Can Groupon
push in to every continent? Can Twitter become more than a microblogging
service?

~~~
silverbax88
Considering that Google doesn't pay a dividend and has only had around 25%
revenue growth in comparison to Apple (71%). I would say they haven't proven
anyone wrong yet. People have bought up Google and sent the stock price
soaring, so it was a money maker for people who speculated on whether people
would keep buying it. But stock market pricing and underlying stock value as
it relates to the company are often wildly disconnected. There are companies
which dwarf Google in profits, revenue and dividend whose stock price is in
the 20s or 30s.

~~~
gte910h
I honestly wish captial gains taxes were greatly raised and taxes on dividends
greatly lowered.

Price speculation in the stock market feels to much like gambling.

------
jdp23
More good fodder for bubble discussions. Assume for a moment that he's right,
that “Most of them will be overpriced” and “Some will be huge winners, which
will make up for the rest.” This is also an accurate description of the dot-
com and telecom bubbles. And this leaves the poster children like Facebook,
Groupon, Quora, and now Color.xxx in a very vulnerable position: to sustain
their mega-valuations they have to show that they can sustain being so so so
much better than everybody else.

------
egiva
I'm no expert on W.Buffet, but I've read a lot about his life and investment
principles. He owns companies like Sees Candy, and although I love a good ol'
box of Sees around the holidays (and I admire their company), I can't help but
associate my Grandmother with their products!

What I'm trying to say is that Buffet is, for me, is a generational investor -
the best of his generation or even (arguably) the 20th Century, but definitely
of my Grandmother's generation. He's remained incredibly relevant to a large
extent based on his investment principles, looking for value bets and
investing (or rather, buying) for the long run.

I, for one don't think that Facebook is overvalued at all, if you think about
it's revenue potential, but Buffet invests in undervalued companies, not over-
promised ones that have yet to reach their potential. Facebook's egg hasn't
hatched yet in a way that justifies their evaluation, but it's easy to
reconcile Buffet's investment principles with more speculative investors that
see Facebook as a safe bet.

Finally - it's not hard to image a few different models that could outpace or
even replace Facebook's main product proposition (providing a common, social
"space"). So not many investments remain secure over a very long term. That's
the brilliance of Buffet.

------
donnyg107
Also, Buffet is not some old fashioned, technology ignorant day trader. He
claims he doesn't know much about technology companies, but he was still the
first one to predict the internet bubble and is well involved in the current
markets. No one doing as much market research every day as he does "only knows
about industries 100 years old."

------
tshauck
If I'm not wrong he had to get out of his Goldman preferred shares earlier
than he wanted... wonder if his comments are a backhanded dig at Goldman.

------
deffibaugh
I think Groupon actually deserves high valuations. They actually have a clear
and simple way to turn a profit. They also have a tremendous amount of
business relationships that are hard to replace.

~~~
tptacek
I like Groupon too, but the Burlington Northern is going to be a significant
player in freight shipping 50 years from now with a high degree of certainty.
How sure are you about Groupon?

~~~
deffibaugh
I definitely don't think they deserve the valuations they are receiving. I
just think that they are much more worthy of being a public company than
either Facebook or LinkedIn are. People are always going to want to save
money, that demand isn't going away. People change social networking services
like shoes.

~~~
tptacek
I felt the same way about Facebook until I read Spolsky's "every time they
figure out how to make 10 cents from their customers they get to fill swimming
pools with money" comment. Facebook has also become defensible, in a way that
almost provides an argument against Buffett: it's not a question of "which
social network will take all the chips" (let me answer that for you:
Facebook), but whether the social space is going to have a large value.

------
mindfulbee
I think social networking has a viable market waiting to be launched. Imagine
Facebook being Web 1.0. I think Facebook 2.0 is out there waiting to be
hatched.

~~~
garzuaga
I believe social networking is here to stay. Advertising dollars follow where
the audience is. Off line advertising is losing ad dollars year over year to
follow where the people are. Today, they're online. Imagine in 10 years...

Facebook in particular, the largest player in the social networking arena by
far, has a huge opportunity before their eyes. Wait for them to start
executing on them. I "only" see 2 big ones: advertising and search. Yeah, I
know, many people are talking about it. But that's true. FB knows everything
about most of their users (600mm people), so how long until they create a
competing Adsense service? Not far I think. That's a $10bn a year, at least,
for FB in the next 5 years or less. Search is another opportunity that's so
huge I can't even think of the size of that market.

~~~
notintokyo
I remember reading they have an AdSense competitor in the works, but that
initial tests showed it wasn't a good enough competitor yet to be released.

I don't know if it would be $10B though, even AdSense isn't quite there for
Google yet. Assuming they could lure a big chunk of AdSense publishers away, I
suppose it could be several billion though.

Maybe they'll release it just before IPO to show their true promise. Name
predictions... FB AdConnect?

------
yumraj
Looking at some of those valuations, all I can say is that it doesn't take a
Warren Buffet to realize that they are overpriced.

------
zoowar
Duh

