
FB stock priced at $38/share on Thursday, raises $18.4 billion - jasondc
http://online.wsj.com/article/SB10001424052702303448404577409923406193162.html
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bluedevil2k
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.

Other than that...great investment opportunity.

~~~
hkmurakami
_> Will open trading at 110 P/E ratio, Google's currently at 18.8._

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?

~~~
zred
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.

\--

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 price. If they're able to greatly
increase their monetization per user, that P/E ratio could drop fast. However,
currently people are speculating that social doesn't lend to good
monetization. We're also seeing that investors are willing to throw money at
this with no monetization strategy (ala Instagram) and that means that
Facebook isn't going to be on easy street with the space to itself.

Frankly, it isn't always about whether a company will justify a price. It's
sometimes about having other options. Apple is trading at a P/E ratio of 13.
If we assume that companies hit an equilibrium around 15 for slow-growth
companies, Apple could get 15% earnings growth per year and return a little
more than 15% per year in the stock market to get to that 15 P/E ratio. By
contrast, if Facebook increases earnings 50% per year for 5 years, their P/E
ratio would be 17 assuming absolutely no increase in Facebook's share price.
To kind of put that growth in perspective, if Facebook's user base grew at
that rate for 5 years, everyone on earth would be on Facebook.

So, Facebook has to figure out how to increase monetization per user by a good
deal, fend off challenges from very smart people, make sure user apathy
doesn't happen and that people don't go somewhere else, and make sure that it
can adapt to mobile and other cool new things. I'm not saying they won't. I
just think that there are places I could put my money that are smoother
sailing. Facebook hasn't given me a plan of how they expect to increase their
earnings: Zuck has even said that earnings aren't really their concern. In
some ways, he's more interested in running a good site that people like - and
that's good for me as a Facebook user. However, if earnings don't hockey-
stick, that would leave me in an unfortunate position as an investor. Facebook
is sustainable in that they're a profitable business. That doesn't mean the
share price won't tank at some point if people begin to believe that Facebook
will merely remain sustainable rather than hockey-sticking. Zuck is exiting
this IPO with $1B in cash. It doesn't matter if Facebook tanks from here on
out and he might be happy to see it remain more popular rather than more
profitable. I think a lot of companies can operate that way - Patagonia does -
but I don't think that's the ethos of those getting in on this IPO (even if it
may be Zuck's).

I'm indifferent toward being proven wrong - I'd rather risk less and this is
just an opinion. I respect Facebook's engineering and they've done a much
better job than those who have come before as well as open-sourcing some great
stuff. Facebook just hasn't shown me a plan for increasing profits. Without
that, I wouldn't bet on that happening - and that's what people are betting
on. Likewise, while Amazon has shown me how they intend to continue getting
more popular, they haven't shown me increasing profitability. Again, Bezos is
interested in creating a great customer experience that I appreciate as a
customer. For the most part, I appreciate Facebook - it's reliability,
consistency, speed. But that isn't the only thing I'm looking for in an
investment - certainly not an investment with such a high P/E ratio. If
Amazon's P/E ratio were 8, I would care less about a plan to increase profits
- being able to keep them relatively level would be good enough. The same
applies to Facebook. And I'm not saying that it won't happen. I just don't yet
see how and I don't think Facebook does either - I think they're hopeful that
they will figure it out later. They definitely could. I just prefer something
more concrete.

~~~
runT1ME
>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...

------
TomGullen
At $100b valuation it's worth 50% what Google is. This seems ludicrous, Google
is far more diverse and actually has a working ad revenue model!

I'd rather have 1 Google share than 2 Facebook shares for sure.

~~~
waterlesscloud
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.

~~~
vladd
> Beat them out for that (and Facebook could potentially do so)

Google searches have purchasing intent, see
<http://cdixon.org/2012/05/15/facebooks-business-model/> .

~~~
waterlesscloud
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.

------
X4
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.

~~~
redwood
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...

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melvinmt
$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.

~~~
jlgreco
> _"18 SpaceX's, 2.3 Twitters"_

This industry is so messed up...

~~~
dguaraglia
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.

~~~
EternalFury
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.

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389401a
Insiders are selling.

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.

~~~
mkramlich
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.

~~~
389401a
But these insiders most certainly do have FU-level wealth, and they are
selling, pre-IPO.

------
leif
TIL Visa didn't go public until 2008.

------
EternalFury
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. :)

~~~
narrator
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.

<http://www.redfin.com/county/343/CA/San-Mateo-County>

~~~
EternalFury
Greed knows no bound, clearly. This being said, my rent got jacked up $300 a
month. I must leave this place before I start paying to work here.

------
beagle3
Anyone know how the tax situation is handled for employees?

Is there a tax event + lockup for anyone, or do all employees own their shares
outright as RSUs with prior 83(b) elections?

------
cpeterso
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.

