

Still Too Pricey - lmg643
http://online.barrons.com/article/SB50001424053111904706204578002652028814658.html

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xpose2000
I am tiring of these articles.

I like how some firms decide to throw in P/E comparisons to Apple and Google
(Two seasoned juggernaut companies.) . Yet LinkedIn is also a social network,
has an absurd P/E ratio over 100, but that's okay.

"Anyone who owns Facebook should be exceptionally troubled that they're still
trying to 'figure out' mobile monetization and had to lay out $1 billion for
Instagram because some start-up had figured out mobile pictures better than
Facebook," says one institutional investor.

These are what the experts have to say? He hardly sounds like an expert to me.
Tell me a company who excels at mobile monetization.

I wonder if Wallstreet fully grasps what Facebook is all about and how it fits
into the grand scheme of things. Perhaps looking at traditional markers for
evaluating a company like Facebook isn't working?

They fail to realize that Facebook is the most traffic'd website in the world.
(According to Alexa: <http://www.alexa.com/topsites>).

Somehow $15 doesn't sound right.

~~~
matwood
_I wonder if Wallstreet fully grasps what Facebook is all about and how it
fits into the grand scheme of things. Perhaps looking at traditional markers
for evaluating a company like Facebook isn't working? They fail to realize
that Facebook is the most traffic'd website in the world. (According to
Alexa:<http://www.alexa.com/topsites>). Somehow $15 doesn't sound right._

Too young to remember the dotcom boom? If I gave everyone in the world a $1
every time they visited my site I could also have the most traffic'd site in
the world, but that wouldn't make my site worth any money.

Of course FB isn't like that, but the point is that traffic is worthless until
you can monetize it. IMHO, their biggest problem is monetizing their users
without running them away.

~~~
dasil003
> _If I gave everyone in the world a $1 every time they visited my site I
> could also have the most traffic'd site in the world, but that wouldn't make
> my site worth any money._

Sorry to quibble, but no you couldn't. If you had 7B dollars and you literally
made this offer to every person in the world, you still would not get
Facebook's traffic.

And in any case, Facebook has a lot more than traffic. Just because their
monetization is lackluster so far doesn't mean they don't have a ton of
interesting directions to go in. All this hand-wringing and analysts
attempting to project a realistic valuation for Facebook is just anguish and
sour grapes over being hoodwinked by the hype generated by a bunch of greedy
investment bankers.

However if you take all the IPO hoopla out of the equation, and you see that
Facebook is still growing, still evolving, and has a lot of unique assets that
could propel in the company in new directions. I wouldn't bet against Facebook
just because some cranky financial experts want me to believe they know where
Facebook is headed. They don't know. Nobody knows.

~~~
spinchange
>I wouldn't bet against Facebook just because some cranky financial experts
want me to believe they know where Facebook is headed. They don't know. Nobody
knows.

The last two sentences are precisely why analysts are "cranky" and
institutional ownership of this stock is so faint.

A reasonable investor makes an investment decision based on the info they have
and the prospect of discounted future cash flows. At this point it is clear
not even Facebook management really knows where they're headed. Just where the
money is. How does a reasonable investor value that? I wouldn't bet on
facebook at any price just because they have critical mass on a free social
network today.

Edit: What I meant by the last statement was that valuation matters. Obviously
there is a price at which Facebook stock is fair or even undervalued.

------
antr
$15 / share is a fair valuation given Facebook's cash flow profile and top-
line decelerating growth.

Said back on 19th May (the day after FB's IPO):

 _"asset managers [do is] look at Free Cash Flow to Equity, not Net Income. On
a FCF to Equity valuation, FB IPOed at +220x. Even at a generous P/E or FCF/E
ratio of 25x, Facebook's Free Cash Flow needs to go from $450m to $4,000m in
the next 24-36 months. Do you think that is possible? After looking at their
infrastructure needs I think not."_
<http://news.ycombinator.com/item?id=4002988>

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ericdykstra
Instead of writing an opinion piece that will likely influence a few people,
why doesn't this guy use his exemplary knowledge of Facebook and the stock
market for profit? Why not keep this information to himself and short $fb or
sell the information to an institutional investor?

My guess is that his "knowledge" is worth more as an article that he got paid
$25 for writing than it is in actual practice.

~~~
gaius
You can divide "Wall Street" into two camps, buy-side and sell-side. Sell-side
makes its money on commissions on trades. They publish a lot of analysis as a
loss-leader to attract new trading business. The buy-side makes its money by
owning stuff that appreciates in value. When you hear any sort of stock
advice, first figure out which side it's coming from, then you can put it in
context.

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walru
They don't even make a firm stance in saying that it's worth $15/share. With
decelerating growth and the fact they can't figure out how to monetize mobile
I have no idea where they figure FB is worth that much. A 47x multiple on
these guys is a joke.

This recent rally is akin to a dead cat bounce. Nothing in the market goes
straight up or straight down. We'll be seeing sub-$15 soon.. Consider it a
x-mas present.

Actually while we're on the topic.. the Dow is getting close to 14,000 again;
our high from 2008. Don't be surprised to see a double top on the markets and
then a sharp retrace afterward.

~~~
s_henry_paulson
Actually I think their recent approach to monetizing the mobile market is
quite clever.

<http://techcrunch.com/2012/09/18/facebook-mobile-ad-network/>

~~~
spaghetti
It would be awesome if mobile developers could put targeted ads in their apps.
I've tried Admob and Apple's iAds and there's literally no targeting. Two
apps, one that focuses exclusively on pizza and another app that focuses
exclusively on beer will show the same totally irrelevant ad for, say, some
game app or "free text messages!".

~~~
mgkimsal
how much of that may be due to not having enough relevant inventory? there's
definitely a chicken/egg problem involved in targeted ad serving, but you'd
have thought someone (apple?) might have been able to crack that nut by now.

~~~
spaghetti
In my particular case I don't think there was an inventory limitation issue.
Reason is websites with Adsense addressing the same niche were serving
extremely relevant and targeted ads while my Android app with Admob just gets
junk. The obvious question is how does the Admob banner know about the app's
contents? On the Admob site there's a note saying that the app's description
will be used to target ads. However this doesn't seem to work or I'm
misunderstanding. Either way my ads still suck.

------
lmg643
Somehow this link got renamed (not by me). The _cover_ of Barron's says
"Facebook is Worth $15".

See for yourself: [http://barrons.wsj.net/public/resources/images/ON-
AY643_cove...](http://barrons.wsj.net/public/resources/images/ON-
AY643_cover0_KS_20120922014840.jpg)

------
antidoh
Facebook could expand or replace their customer base.

Currently their major (only?) customers are companies paying Facebook to place
ads in front of people who don't want to see them and may in fact try hard not
to see them.

Although ads has worked for radio and television, it seems shaky to me. It
reminds me of the early days of television and radio, where shows on TV were
largely plays adopted to TV, because that's what people did with the preceding
medium, and news programming was an announcer reading the newspaper, because
the newspaper was where news came from prior to radio and TV.

Ads worked for the preceding media, but that's no reason not to innovate
monetization on the web.

Facebook could, instead or in addition, charge money to its users for access
to Facebook. They could sell their mobile app. They could ... well, they're
smarter than me, they can do their own innovation. :)

If your uses don't commit to use by spending money, then they're essentially
transient, waiting for the next free thing. Make Facebook a service that
people don't complain about at every changed policy and implementation, make
it so good that people will pay to use it, and I'll be impressed. (Not to take
away at all from the accomplishment so far.)

~~~
joe_the_user
If Facebook charged for basic use, their user base would plummet quickly,
which would make that use not very valuable.

If Facebook was smart enough to think of effective new ways to make money that
we haven't thought of, they'd be doing them now.

~~~
rhizome
Is Ask.com still doing private-label corporate stuff?

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SagelyGuru
P/E ratio is never irrelevant. I said soon after the IPO that FB will go down
to $10 and I have not seen anything yet to change my mind.

~~~
tallanvor
$10 is the price point I've been expecting as well.

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RockyMcNuts
If you're into this sort of thing, Aswath Damodaran teaches a valuation class
at NYU which is online now, and he arrived at an FB valuation of $24.

[http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteq...](http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteqfall12.htm)

[http://aswathdamodaran.blogspot.com/2012/08/facebook-face-
pl...](http://aswathdamodaran.blogspot.com/2012/08/facebook-face-plant-time-
to-friend.html)

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kosei
It will also be incredibly difficult for Facebook to monetize its games, which
still represent a sizable portion of their .com revenue. No game company will
be willing to give them a cut of their mobile revenue when Apple is already
taking a 30% take. That should be especially concerning to investors.

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dreamr
I am tiring of people struggling to try to monetize all web traffic. It seems
like some people just cannot accept that there may be noncommercial elements
of the web and that those elements might be extremely popular. They might even
be the most popular elements of the entire web. Imagine that.

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therandomguy
If someone knew it is overpriced and it will go down further they could make
millions by shorting. I'm happy for the author's future riches.

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antidaily
Just a stock I have no interest of owning.

