Facebook By mauiboy (Read 489 times)

[mauiboy]

Apparently facebook has been valued at $60bn not long after selling shares which actually valued it at $50bn. Lets think about this for a second, this company doesn't actually make anything and all it sells is adverts (albeit heavily targetted ads) and its only real asset is intangible (look at what happened to myspace, bought for a conservative $500m and then tanked, and twitter isn't exactly making a fortune) which is it has a very large audience with known demographics to target ads at (like google only more so).
Lets take a look at what $60bn would buy you
2 Costco's -or
1.4 Ebays or
1 General Motors or
1 Ford or
1.4 Nissans or
half of Intel or
nearly 5 Nvidias (makers of graphics cards for computers) or
30% ish of google or
Just under half of BP.
(figures are based on todays market caps for normal shares)

Virtually all of these turned a sensible profit in 2010. Some of them made billions in 2010. Ford for example made $6.6 billion AFTER reducing its debt by $20bn. In contrast the rumours are facebook made a profit in 2009 'in the tens of millions'. Analysts estimate facebooks revenue for 2010 at between 1.2 and 2.0 bn $, Ford pulled in $120bn in 2010. Google pulled in $30bn in revenue and made (i think) about $8.5bn in rainy day money.

This isn't a bash against Facebook, they obviously have something very right. They managed to capture an audience and turn that into a profit. But the valuation seems extremely high for a company that doesn't even make something tangible and is at risk of having everybody wander off to the next big thing like happened with myspace. When Ford tanked they get a $24bn mortgage against their factories and turned themselves around, what would Facebook mortgage? Google is already starting to slow under its own weight, making mistakes and upsetting people (although it is a huge success story) and is highly dependant on advertising revenues which the tv networks have shown suffer badly at times.

It just seems to be we are far too interested in making a fast buck off hype rather than putting in some hard work and making something. $60bn is such a huge sum of money, Depending on whose numbers you believe, $60bn would design, build, launch and run the International Space Station, it could also provide the funds needed for the first commercially operational, full scale, fusion power station (again depending on whose figures you use). You know, useful stuff

Just elect me please, things would change! It just shocked me that such a high valuation could be realised by such a relatively insignificant (in the real scheme of things) proposition. (fwiw I am not suggesting it is a good or a bad investment).

[kz1000st]

How is Ebay or Amazon any different than Facebook? They're both just clearing houses for merchandise for other people. It's the culture we live in that people can sell stock for air space and make a fortune doing it.

[LUKE]

Facebook is the source of many divorce going on nowadays......wives catch their husbands communicating with their highschool sweethearts....and the quarrel begins...
...i prefer Craig'slist... no strings attached..lol

[mauiboy]

Facebook sells targeted advertising.

Ebay is a marketplace that also owns paypal.

Amazon is also a marketplace but they also (quietly?) pioneered that cloud computing thing we all hear about If you don't follow 'tech' news you may not realise how intrusive and/or innovative these companies have become, especially amazon. If I mentioned AAWS or S3 or EC2 most people wouldn't have a clue what they did or their relationship to Amazon. Theyre great stories of a company innovating for its own need then commercialising those innovations. Amazon is a website, it runs on servers, it needs to be working to make money and it needs to work fast. They built a system where (in laymans terms) they had servers all over the world that could provide a fast a reliable, redundant service, resilient to local faults and issues. Part of this was how the 'thinking' was done by the machines and part on how the 'remembering' was done. They realised that they could make a shiny heap of coins selling this to others, they did and its turned into a huge industry. Also check out
en.wikipedia.org/wiki/Amazon.com
go down and check out the websites and services sections near the bottom Amazon at least does pretty well!
Fleabay does pretty well also, theyre a story of the perfect storm. A great idea, well capitalised, well executed, well positioned and they 'owned the chain'. They swamped google with adverts, go search for any product and if its on ebay the ebay listing should show high up the rankings if not also in the sponsored ad's, they also own reviewing sites (where they get their reviews written for free), the place where you buy the stuffs and they payment system you buy it with so basically they get their coin from everyone and their income scales with costs. There is no seamonkeys economics involved. On the surface sure they are mostly just electronic mallmarts but both did well for good reasons.

Facebook has something a whole bunch of people want to use (at least for now, myspace was also popular once, many moons ago, before it became 'uncool'). The issue is in turning that into a pile of cash. Not just a little pile, but a scruge mcduck swimming pool of gold coins kind. I think amazon made just over a billion usd net income, and ebay around the 2bn mark last year, thats a pretty respectable income. That means in theory, using the same metrics facebook needs to be pulling in about 2.5-3bn of net income give or take.
Twitter is hugely popular, but has only recently managed to start making any kind of profit (and is doing ok from what figures have been leaked).
en.wikipedia.org/wiki/Twitter
The problem with offering a free service is you need to make the money somehow. Amazon makes a profit, they make it from the items they sell, they have no 'free users' taking up resources but making no money. Ebay makes money from the seller for the listings and the buyer if they use paypal. They have awesome business models Facebook makes nothing from adverts unless somebody clicks on an advert (like google in some respects, although googles edge is that people are looking for something when they visit whereas a FB user isn't in the same mindset) or from alternative revenue streams (similar to how twitter makes money from large companies, selling metrics and advanced services).
It's not that I cannot see FB making money, its just it seems that based on myspace, it is at risk of people going elsewhere and declining in popularity, and in having to support a huge number of users who may not make them any money. If you have a FB account would you pay for it? I suspect the answer would be no, do you tend to click on ad's on websites?
On the flipside I have seen quite a few photographers switch from google advertising to facebook as they could target their ads better.
It just seemed to me that this was a HUGE pile of money and part of it may have been investors wanting to buy into the 'popularity' at any cost, perhaps they missed the boat on investing in google / amazon / fleabay ?

I think your comment about air is spot on It will be interesting to see if / when they do an IPO what the market cap is when the shares aren't hugely restricted in availability.

[mcalli]

I don't think I will ever invest in this type of business. IT is air. Too many of them have been up,then goes down as someone else comes along and becomes the fad, then up, down, up down. Watch, eventually facebook will go down and someone new will come along. The other investments listed above are a lot more stable.

[turtle8]

Let's not forget, when you share information about yourself on Facebook (especially when you use third party apps) other people and companies can see that information. I am in the direct marketing business and email address and demographic information is valuable data companies would love to get their hands on.

[mauiboy]

That targetted info is gold, I know from fellow photogs targeting brides they can ensure their ads are seen by the folks they want to reach (conversion rates are another matter though!).

The problem is that facebook has been in trouble several times over the information it shares, people think google is creepy, facebooks attitude to privacy is worse. They do have something valuable, I just find it crazy that they would put it on a par value wise with Ford (who admittedly managed to nearly tank themselves during an economic boom which takes a special kind of stupid) who sold 120bn of product, paid off 20bn of debt and made nearly 7bn in beer money in a year. Somebody needs to take the guys in Cambridge shirts and red suspenders out and explain some realities to them, if my 401k were investing in this I would want then entrails adorning my mantle