

Facebook Hits Record $75 Billion Valuation - olivercameron
http://techcrunch.com/2011/03/04/facebook-valuation-secondmarket

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michaelchisari
_Full disclosure: I have a horse in this race (Appleseed)._

I used to think that the problem was that Facebook wasn't worth what it was
valued at. Now, I'm starting to rethink that, but not in a positive direction.
I think maybe Facebook may be cursed by it's valuation.

Right now, Facebook is like a developer-oriented gravy train. They can work on
cool features, do redesigns on a whim, play with heavy scale, and there's
enough investment to keep it going in every which direction they want.

But profits aren't there, not on this level. And remember that, for as
indispensable as Facebook is, most people can survive without it, and the
achilles heel of social networks is that the trickle of users leaving can
quickly become a flood. Myspace found this out, and they were twice as
profitable, per user, as Facebook is (although they did have many problems
that Facebook hasn't, terrible engineers being one of them).

What I'm wondering is, will the valuation force Facebook to make the kind of
hard decisions they're putting off right now. Are ads lucrative enough to
appease the investors? If not, where do they go? Do they start heavy data
mining? Do they push the boundaries of privacy even further?

I'm starting to consider the fact that these astronomical valuations may end
up contributing to Facebook's eventual demise by setting expectations that
they cannot meet without fundamentally alienating their users.

We'll see.

~~~
rblion
The higher you get, the harder you fall. Their foundation is built upon false
assumptions of invincibility and permanence. People WILL leave when something
'cooler' and/or 'smarter' is created. Facebook is not exempt from this basic
fact of business. People are fickle and are converted with the right words,
images, and features.

Facebook has an Achilles heel that can't be overlooked, that is it's complete
dependence on people sharing as much as they can with as many people as
possible. That is going to eventually turn something that was once clean and
simple into something cluttered and complex. It's already happening...

Another major factor, they have hit their ceiling for media attention. They
have actually broken it and are now starting to get on some people's nerves.
It's only natural...it happened to Apple and Google too. Remember how innocent
and perfect they once seemed?

P.S. (I am not a "Facebook hater" or anti-Zuckerberg. I respect the founder
and his baby. This is just plain obvious to me.)

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olivercameron
At this valuation, Facebook is worth almost 1/4 the value of Apple, a company
which is now generating $75 billion a year in revenues. Facebook is reported
to have generated between $1.2 billion and $2 billion for 2010. To compete
with Apple's valuation, Facebook has to generate at least $18 billion a year.

Am I crazy or is something wrong here?

~~~
brudgers
Revenue is not a good comparison, e.g. Ford has much higher revenue than
Apple. Net retained earnings [profit] is what matters and that is unreported
because Facebook is a private company.

~~~
olivercameron
Apple made $16.64 billion profit in 2010, how much profit do you think, if
any, Facebook made on their $1-2 billion?

~~~
bane
well, since the valuation of FB is clearly a random smoke and mirrors
number...I'd say FB made between $300-400 billion on their $1-2 billion.

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dreamux
This secondary market is far from liquid, take the crazy valuations with a
grain of salt.

~~~
rhizome
Not only that, but these kinds of figures are always used in an attempt to
attach a folklore of value to something, in the service of creating an
expectation and therefore a "real" value once the IPO comes along or whatever.
They're laying the foundation now, and it's FB executives' job to maximize
value, after all. How could it possibly be worth any less than what they say?
Wouldn't that expose them to impossible-to-prove-anyway fiduciary
incompetence? It just has to be believable... _enough_.

~~~
bane
A big problem I have with these absolutely ridiculous numbers is the assertion
then that Zuck is a multi-billionaire. Unless he's figure out how to turn
investors dreams into a Scrooge McDuck vault full of money of course.

~~~
fingerprinter
If I understand it correctly, though, couldn't Zuck have just sold some of his
shares to an investor and gotten some money? Yes, not several billion, but
he's rolling in a couple hundred mill right now, I'm sure.

I remember reading how several investors bought into Twitter by buying $100
million from one of the founders...

~~~
rhizome
By the same token, he could have already sold _most_ of it. $70B is the
valuation established by those who have already bought shares, after all. It's
in their interest to convince the rest of us that they got a good deal. Heck,
if $70B is such an insane valuation, you'd have to be insane not to sell out
at that price.

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ojbyrne
I haven't really questioned facebook valuations in general, but the last month
or so is definitely feeling like pump and dump.

Hype around Second Market, the Goldman-Sachs deal - I get the feeling that
there's lots of people working very hard to find a larger set of fools to dump
the stock on. The SEC investigation of Second Market seems timely.

Combine that with the fact that facebook is less exciting as a product, the
APIs are a huge, buggy, expanding mess, and their market is looking saturated.

Techcrunch on the bandwagon kind of seals it.

------
bane
Next week, "Facebook Hits Record $1 trillion dollar Valuation
(techcrunch.com)"

Yay! let's make up numbers!

~~~
rhizome
TechCrunch:Facebook::FoxNews:Republicans

EDIT: and MSNBC:Dems, and...

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linuxhansl
This just confirms that for the layman trading stocks is nothing more than
legal gambling.

I personally work for a company whose P/E is > 200, while this is nice for me
at the moment, I realize that the value in this situation has _nothing_ to do
with performance.

Facebook will probably be slaughtered once they go public have to adhere to
reporting standards.

------
BarkMore
There will be some justification for the high valuations when Facebook enters
the display advertising space. Facebook will use like button log data and user
profile information for superior ad targeting. Their ad targeting might not be
very good now, but they are going to figure it out because that's where the
money is.

~~~
code_duck
Google has been at that for so much longer, though. While Facebook can mine my
profile, Google has years of AdSense data about the actual sites I visit and
what I do there, in addition to profile info from several different portions
of my Google account (assuming they use that, I don't actually know).

~~~
BarkMore
One of the reasons reasons that Facebook is implementing features for third
party sites (like buttons, the new comment system) is that Facebook wants to
collect the same type of data that Google collects with AdSense.

The profile data and the interactions between users on Facebook is much richer
than the interactions and profiles on Google. Facebook will eventually derive
more value from their data than Google does from theirs.

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imkevingao
shortage of supply, therefore demand goes up. Simple economics. Definitely not
a true value, you can call it bubble, or you can call it whatever you want.

I would just ignore it.

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r3demon
It's a growing bubble!

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josepher
This is insane.

