Facebook's Face-plant

[neu5eeCh]

I'm taking vicarious satisfaction from the "plummeting" Facebook saga. Have to say, I think it was obscenely overpriced. It's hilarious that all the "best & brightest" are panicking because they can't short Facebook. Ha! The lawyers are already handing out cards. I honestly think it's only worth, maybe, a dollar or two a share... if that. If the whole "company" were worth a billion dollars, I'd be shocked.

This slow-motion train wreck is the best entertainment going right now. :popcorn:

[Paqman]

I honestly think it's only worth, maybe, a dollar or two a share... if that. If the whole "company" were worth a billion dollars, I'd be shocked.


I'm not really gripped up on the stock market and IPOs, but I was under the impression that the problem was that the price was bumped shortly before launch. It was originally valued in the low 30's per share, but was shoved up to $38 just before launch. It looks like the market is pretty unimpressed by this move, and that the low 30's valuation was probably correct.

Market cap of Facebook is still well north of $50billion, so it's got a long, long, long way to fall before it came near your $1billion value. Considering the obscene piles of money that Facebook make I can't see it going there.

[neu5eeCh]

I'm not really gripped up on the stock market and IPOs, but I was under the impression that the problem was that the price was bumped shortly before launch. It was originally valued in the low 30's per share, but was shoved up to $38 just before launch. It looks like the market is pretty unimpressed by this move, and that the low 30's valuation was probably correct.

Market cap of Facebook is still well north of $50billion, so it's got a long, long, long way to fall before it came near your $1billion value. Considering the obscene piles of money that Facebook make I can't see it going there.

Some stock analysts think Facebook should be priced around $10 dollars a share. As it is, the current P/E ratio is, again estimated by some, to be as high as 150. That's absurdly high for a company whose profits are "rapidly decelerating" (http://articles.businessinsider.com/2012-02-02/tech/31015874_1_facebook-ipo-stocks-valuations-matter/3).

[Paqman]

Some stock analysts think Facebook should be priced around $10 dollars a share. As it is, the current P/E ratio is, again estimated by some, to be as high as 150. That's absurdly high for a company whose profits are "rapidly decelerating" (http://articles.businessinsider.com/2012-02-02/tech/31015874_1_facebook-ipo-stocks-valuations-matter/3).

I've heard that too. That would still put their market cap at over $20 billion. Their profits can decline a lot before it becomes a problem, considering their margins at the moment are something like 50%. They could only "decelerate" really.

You may well want Facebook to fail, and that's fine. But I think you're somewhat premature to equate a slump in their share price with some kind of flaw in their business model. They sell a truckload of ads, and have a lot of cash. They're not going anywhere. We're just in a dotcom bubble right now, so seeing some silly valuations, but Facebook's underlying viability isn't in question IMO.

[neu5eeCh]

I've heard that too. That would still put their market cap at over $20 billion. Their profits can decline a lot before it becomes a problem, considering their margins at the moment are something like 50%. They could only "decelerate" really.

You may well want Facebook to fail, and that's fine. But I think you're somewhat premature to equate a slump in their share price with some kind of flaw in their business model. They sell a truckload of ads, and have a lot of cash. They're not going anywhere. We're just in a dotcom bubble right now, so seeing some silly valuations, but Facebook's underlying viability isn't in question IMO.

You may be right. On the other hand, remember AOL/Time Warner? AOL had everything that Facebook presently has (and lacks). My opinion of Zuckerberg is pretty low. He happened to be in the right place at the right time, but the "right time" is moving on and I don't think he has the brains to move with it. I think he's as absurdly over-rated as Facebook. Then again, he's a multi-billionaire and I'm not.

[Paqman]

You may be right. On the other hand, remember AOL/Time Warner?

Sure, and Yahoo, IBM, et al. I'm of the opinion that Microsoft are heading the same way. The thing is, a lot of these former behemoths are still around and still making money (even Yahoo). They're just not leading the pack any more.

No company stays on top forever. IBM once made more money than all other IT companies put together and looked unassailable, but now they just plod along in the background. Microsoft have also lost their grip on the edge and are sliding into mediocrity as they fail to get into successive new markets. Times change, and the hungry new players usurp the old guard. Right now the big boys are Apple, Google, Amazon and (like it or not) Facebook. In 10 years time that'll probably be different.

[Bandit]

I dont get the hype with facebook. Sure I use it, but its just a social networking tool. I just dont see how something like this can make someone so rich. Famous per haps, but rich? IDK. In that retrospect Linus should be a multi-trilianer then.

So whats happening with the stock, I heard they went public with it. Is it nose diving? Wheres it at this morning. Think it was about 38USD when it opened didnt it?

[Paqman]

I just dont see how something like this can make someone so rich. Famous per haps, but rich? IDK. In that retrospect Linus should be a multi-trilianer then.

You can sell a lot of ads on a website that has hundreds of millions of users. You can't sell ads on a kernel.

I believe Linus Torvalds did do quite nicely through Red Hat stock, which he was given as a gift.



So whats happening with the stock, I heard they went public with it. Is it nose diving? Wheres it at this morning. Think it was about 38USD when it opened didnt it?

Yep, opened in high 30's, now skulking around low 30's. Lets hope our pension funds didn't buy in at $38.

[neu5eeCh]

Sure, and Yahoo, IBM, et al. I'm of the opinion that Microsoft are heading the same way. The thing is, a lot of these former behemoths are still around and still making money (even Yahoo). They're just not leading the pack any more.

I would argue that the difference is that Facebook has been over-valued from the get-go. Unless Zuckerberg gets out of the way, I'm willing to bet that Facebook will go down in history as one of the most over-hyped boondoggles in the history of IPOs. The stock is going to go nowhere. Zuckerberg is no Jobs or Bill Gates. I remember when everyone worshiped at the feet of Alan Greenspan. He was the genius who could do no wrong. Now he's going down as a clueless dud.

At present, they've got nothing but ad-revenue. It could all evaporate tomorrow and all Facebook would be left with is a privacy contract the size of Britannica and a bunch of used servers.

But hey, if you want to accuse me of arm-chair quarterbacking: Guilty as charged. I'm just shootin' my mouth off.:popcorn:

[Bandit]

Yep, opened in high 30's, now skulking around low 30's. Lets hope our pension funds didn't buy in at $38.
Isnt it normally for stocks to drop 4 or 5 bucks after a week or two after being released. That way to get those who believe the hype, then to get those other investors?

I dont follow the market anymore. Since the economic collapse I have invested my money into shotguns and canned food.

[BlinkinCat]

I dont follow the market anymore. Since the economic collapse I have invested my money into shotguns and canned food.

lol - I'm finding this thread very entertaining - :P

[neu5eeCh]

Since the economic collapse I have invested my money into shotguns and canned food.

Fool.

I, on the other hand, have invested in ammunition and can openers.

[Paqman]

I would argue that the difference is that Facebook has been over-valued from the get-go.

That certainly seems to be the view the market is taking! :lolflag:

[Mikeb85]

I'm taking vicarious satisfaction from the "plummeting" Facebook saga. Have to say, I think it was obscenely overpriced. It's hilarious that all the "best & brightest" are panicking because they can't short Facebook. Ha! The lawyers are already handing out cards. I honestly think it's only worth, maybe, a dollar or two a share... if that. If the whole "company" were worth a billion dollars, I'd be shocked.

This slow-motion train wreck is the best entertainment going right now. :popcorn:

Facebook is also up nearly 3% right now, and the rest of the market is plummeting. But yes, Facebook's IPO price was incredibly over-valued, and IMO, FB still is...

This isn't a problem with Facebook though, there's an endemic problem with the stock market and IPOs. An IPO used to be a way to raise capital to grow a business, now it seems to simply be a way for the private investors to cash in, without a plan to return capital to those who buy into the IPO.

While I wouldn't buy Facebook at the current price, it does have 1 thing going for it. More people spend more time on Facebook than any other internet site. People use Google, but people live on Facebook - and all those eyes can potentially be turned into revenue. It would definitely be an intriguing stock to buy if the shares were valued a little more reasonably...

[haqking]

Forget about Fakebook.

Buy bitcoins ;-)

[neu5eeCh]

People use Google, but people live on Facebook - and all those eyes can potentially be turned into revenue. It would definitely be an intriguing stock to buy if the shares were valued a little more reasonably...

True, but then you get this:

Reuters:

Facebook Inc and banks including Morgan Stanley were sued by the social networking leader's shareholders... The defendants, who also include Facebook Chief Executive Officer Mark Zuckerberg, were accused of concealing from investors during the IPO marketing process "a severe and pronounced reduction" in revenue growth forecasts, resulting from increased use of its app or website through mobile devices.

Facebook has got nothing but eyes; and that's the problem. If those eyes start to wander, then what? It's only worth what its servers are worth. I don't think the same can be said for Apple, Google, or MS.

[dekker]

True, but then you get this:

It's only worth what its servers are worth. I don't think the same can be said for Apple, Google, or MS. Google will run into many problems soon due to its abuse of monopoly status, just like MS did.

[Mikeb85]

Facebook has got nothing but eyes; and that's the problem. If those eyes start to wander, then what? It's only worth what its servers are worth. I don't think the same can be said for Apple, Google, or MS.

Which is why it's intriguing at a lower share price. It could flop and never make any money, or it could be bigger than Google.

I don't have money in it, so I'd steer more towards flop, but at 5 dollars or so I'd buy some shares to find out...

As for Apple, they've gone nearly bankrupt once, it's not unthinkable for it to happen again, Microsoft is failing at just about everything they do, and Google is going to make it because they're inventing new things (cars that drive themselves, Android powered glasses), and thinking about different ways to make money (buying Motorola).

[BlinkinCat]

Google will run into many problems soon due to its abuse of monopoly status, just like MS did.


Google is going to make it because they're inventing new things (cars that drive themselves, Android powered glasses), and thinking about different ways to make money (buying Motorola).

hm.....:confused:

[Mikeb85]

Google will run into many problems soon due to its abuse of monopoly status, just like MS did.

Google isn't really a monopoly though, they just have a very, very big share of a certain market, because of users' choices. You can have an Android phone, and never use a single Google service. Google doesn't corral you into any of their services, people use them because most are free and they're very useful.

But yes, Google will have to keep an eye on the regulators, as they definitely do put on the impression of being a monopoly...

[mips]

Facebook is not worth the bandwidth that is wasted on it.

[vasa1]

Google isn't really a monopoly though, they just have a very, very big share of a certain market, because of users' choices. You can have an Android phone, and never use a single Google service. Google doesn't corral you into any of their services, people use them because most are free and they're very useful.

But yes, Google will have to keep an eye on the regulators, as they definitely do put on the impression of being a monopoly...

That's an essential point. All that is needed is a better product. Sine that's not easy to do, cry to the regulator.

[vasa1]

While on monopolies: http://www.h-online.com/open/features/Monopoly-madness-1579382.html

[Bandit]

Fool.

I, on the other hand, have invested in ammunition and can openers.

Arghh!! I knew there was something I forgot! :lolflag:



Facebook is not worth the bandwidth that is wasted on it.

While I would like to agree, it seems to be an effective tool for friends across the globe to keep up with each other and makes it easy to keep in contact. Being prior US NAVY I have friends still in service and others that moved on and abroad. With Facebook its like where still close even though we are thousands of miles apart.

[MisterGaribaldi]

Hmm...

It is interesting to see how casually we all might dismiss a social medium like Facebook, but consider that it's provided -- not exclusively, of course -- a significant infrastructure for people around the world to get together, to chat, to interact, and to mutually benefit. I'm personally a member of a couple international groups and a couple much more domestic and/or local ones, and I'm sure I'm not even fully aware how much it has enhanced my life.

This isn't something I would throw away so casually.

That all being said, VTPoet and several of the rest of you are right: how FB's IPO was handled -- or whether they should even have gone down this road -- was questionable at best. And yes, it does concern me that this has become a public company whose feature set, range of capabilities, and individual monitoring are now at least in part subject to the whims of shareholders.

Then again, I *never* have put anything on FB I wouldn't mind the rest of the world knowing, and I've done everything I can to keep what I have publicly shared as private as possible so it's not an easy matter for the casual passer-by on the Internet to find me, or find out anything about me. I crave my privacy and anonymity.

[trivialpackets]

So now that they've gone IPO, if we can stage a world-wide Facebook boycott, then the price will drop to the point that we can all invest, then end the boycott...PROFIT! I'll get started. ;)

[BlinkinCat]

So now that they've gone IPO, if we can stage a world-wide Facebook boycott, then the price will drop to the point that we can all invest, then end the boycott...PROFIT! I'll get started. ;)

You've got to be in it first to boycott it - ;)

Edit: Maybe that is not the case - :P

[trivialpackets]

But...you don't have to be in it to lead the boycott!

[KiwiNZ]

To invest in something that is a star only until the next "best thing" arrives is either very brave or very stupid.
To those who took a punt and lost... That is the breaks, ya took a punt and got bitten, don't waste more on lawyers learn from your mistake and move on.

[xedi]

So now that they've gone IPO, if we can stage a world-wide Facebook boycott, then the price will drop to the point that we can all invest, then end the boycott...PROFIT! I'll get started. ;)

ROFL, that is genius!

We would have to be careful not to boycott facebook so much that it vanishes completely, though, and we would have to motivate for people to get back to facebook again, too.

[JDShu]

Facebook doesn't have a good monetization strategy... yet. Very similar to Canonical, actually. Cool product, needs a way to figure out how to make money.

[Paqman]

Facebook doesn't have a good monetization strategy... yet. Very similar to Canonical, actually. Cool product, needs a way to figure out how to make money.

They're making enormous, gigantic piles of money, and have been for years:

http://beta.fool.com/apinkasovitch/2012/02/02/analysing-facebooks-financial-statements/1573/

[neu5eeCh]

They're making enormous, gigantic piles of money, and have been for years:

http://beta.fool.com/apinkasovitch/2012/02/02/analysing-facebooks-financial-statements/1573/

Yeah... but... quoting from your linked article (from February):


"However, there is a few major differences between Facebook and these other highly publicized IPOs – Facebook has been profitable since 2009 and has seen its net income rise to $1 billion. Groupon, on their other hand, despite its stellar growth had an operating loss of $214 million during the 9 month period leading up to its offering"

And that is precisely the problem. According to everything I've read, the writer of the article is dead wrong. Facebook is, in fact, just like Groupon. The company is being sued precisely because the company didn't disclose a marked decline in revenue prior to its offering.

[Mikeb85]

To invest in something that is a star only until the next "best thing" arrives is either very brave or very stupid.
To those who took a punt and lost... That is the breaks, ya took a punt and got bitten, don't waste more on lawyers learn from your mistake and move on.

Avoiding responsibility for one's own actions seems to be the way the world is going. Countries want to be bailed out for spending too much, investors want to sue to recover their losses, etc...

Alot of people bought the Facebook IPO shares at 38 and dumped them at the open (~40 dollars), made a decent one day profit, and alot shorted the stock at 40, down to ~32, and made even more money. It's only the sheep who bought the hype and didn't do their due diligence that lost money.

[dekker]

That's an essential point. All that is needed is a better product. Sine that's not easy to do, cry to the regulator.

It has a big defacto monopoly on search results, dosnt matter how its gained, the effect is all that matters. I like google search but Google's way of operating by putting links to its own services above others is the key issue and the way some of its contracts with developers exclude other search engines is also under review. Do no evil went out the door years ago when google like facebook now realised they had to find a way to make money.

[sffvba[e0rt]

I might like the way Facebook and even Google handle certain things about privacy etc. but no denying how useful I have found them over the last few years.

I can't see FB going down. There are to many people using and new people coming every day, plus the costs of running it cannot be that high can it?

Only way it will bust is if it becomes irrelevant due to not adapting to what users want etc. and some other platform (Diaspora, G+ etc.) can give them that.


404

[JDShu]

It has a big defacto monopoly on search results, dosnt matter how its gained, the effect is all that matters. I like google search but Google's way of operating by putting links to its own services above others is the key issue and the way some of its contracts with developers exclude other search engines is also under review. Do no evil went out the door years ago when google like facebook now realised they had to find a way to make money.

High market share is a necessary but insufficient condition for a company to be a monopoly. Also, I assume you're talking SPYW, where if you think about it, people were going to criticize Google no matter what they did.

[Paqman]

And that is precisely the problem. According to everything I've read, the writer of the article is dead wrong. Facebook is, in fact, just like Groupon. The company is being sued precisely because the company didn't disclose a marked decline in revenue prior to its offering.

How much of a decline? It would have to be immense for Facebook to (in fact) be losing money like Groupon is. Given that going public involves having your accounts combed through very closely that level of deception seems pretty unlikely.

Incidentally, it looks like Facebook shares have stabilised at around $32 (http://www.google.co.uk/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1337889600000&chddm=1954&chls=IntervalBasedLine&q=NASDAQ:FB&ntsp=0), and have been doing alright the last day or two (better than the NASDAQ anyway). That puts the company valued at a smidge under $70 billion dollars (for now anyway).

[neu5eeCh]

...and alot shorted the stock at 40, down to ~32, and made even more money. ...

Actually, no. Shareholders weren't (and perhaps still aren't) permitted to short Facebook. Don't ask me why.

[neu5eeCh]

How much of a decline? It would have to be immense for Facebook to (in fact) be losing money like Groupon is. Given that going public involves having your accounts combed through very closely that level of deception seems pretty unlikely.

Incidentally, it looks like Facebook shares have stabilised at around $32 (http://www.google.co.uk/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1337889600000&chddm=1954&chls=IntervalBasedLine&q=NASDAQ:FB&ntsp=0), and have been doing alright the last day or two (better than the NASDAQ anyway). That puts the company valued at a smidge under $70 billion dollars (for now anyway).

From here (http://www.techzone360.com/topics/techzone/articles/2012/04/24/287421-facebook-reports-revenue-profit-declines-q1.htm):


The social network booked revenues of $1.058 billion, up 46 percent annually, but down 6 percent from the previous quarter. Facebook also saw its profit shrink to $205 million, down 12 percent sequentially.
The numbers raise legitimate concerns because Facebook actually increased its user base during the period in question, meaning the company's average revenue-per-user is gradually slipping.
"It was a faster slowdown than we would have guessed," Brian Wieser, an analyst with Pivotal Research Group, told Reuters (http://www.reuters.com/article/2012/04/24/us-facebook-idUSBRE83M1AZ20120424). "No matter how you slice it, for a company that is perceived as growing so rapidly, to slow so much on whatever basis - sequentially or annually - it will be somewhat concerning to investors if faced with a lofty valuation."


Apparently, a number of investors consider it a serious enough decline that they've filed lawsuits (on the basis that the IPO should have been much less had the decline been known).

[Mikeb85]

Actually, no. Shareholders weren't (and perhaps still aren't) permitted to short Facebook. Don't ask me why.

It's not a question of being 'allowed', it's a question of finding shares to borrow. For retail investors, borrowing shares of a stock like Groupon or Facebook can be difficult, not all brokers will have the shares or allow them to be borrowed. The fact Facebook plunged like it did indicates short selling - no one would sell for such a loss a day after an IPO...

[neu5eeCh]

It's not a question of being 'allowed', it's a question of finding shares to borrow. For retail investors, borrowing shares of a stock like Groupon or Facebook can be difficult, not all brokers will have the shares or allow them to be borrowed. The fact Facebook plunged like it did indicates short selling - no one would sell for such a loss a day after an IPO...

Hi Mike, that's not my understanding. My understanding is that NASDAQ is not permitting shortselling on the Facebook IPO. I don't know if this is limited to Facebook or IPOs in general. Apparently, though, the shortsellers are lining up (http://business.financialpost.com/2012/05/23/short-sellers-gear-up-to-place-bets-against-facebook/) like vultures at the corpse.

[Mikeb85]

Hi Mike, that's not my understanding. My understanding is that NASDAQ is not permitting shortselling on the Facebook IPO. I don't know if this is limited to Facebook or IPOs in general. Apparently, though, the shortsellers are lining up (http://business.financialpost.com/2012/05/23/short-sellers-gear-up-to-place-bets-against-facebook/) like vultures at the corpse.

Read the bottom of that article, a hedge fund manager told the reporter he shorted Facebook on Friday and Monday...

While some stock markets do have special rules for IPOs, US markets don't.

[neu5eeCh]

Read the bottom of that article, a hedge fund manager told the reporter he shorted Facebook on Friday and Monday...

While some stock markets do have special rules for IPOs, US markets don't.

Yeah, I saw that; but it seems to be "unofficial".

The article also states: "Wednesday marks the first day that Facebook’s securities are officially on loan due to the three-day settlement rule for U.S. securities. "

[Mikeb85]

Yeah, I saw that; but it seems to be "unofficial".

The article also states: "Wednesday marks the first day that Facebook’s securities are officially on loan due to the three-day settlement rule for U.S. securities. "

It's normal to buy a stock, then sell it before the settlement date, I do it all the time. That's why we have brokers, lenders, etc... Just as you can sell a stock before it's settled, you can lend it too.

[Mikeb85]

Anyhow, the price movement indicates there WAS short selling, official or not. Any trader can see that...

[neu5eeCh]

Anyhow, the price movement indicates there WAS short selling, official or not. Any trader can see that...

How do you make that connection? Do you mean that stocks only move when they're shorted? I mean, I think we've both made our points. The stock was unofficially shorted, as you pointed out, but not (as more than one article has pointed out), by the general institutional investor. But I'm curious what you mean by this last assertion?

[Mikeb85]

How do you make that connection? Do you mean that stocks only move when they're shorted? I mean, I think we've both made our points. The stock was unofficially shorted, as you pointed out, but not (as more than one article has pointed out), by the general institutional investor. But I'm curious what you mean by this last assertion?

Normally, after an IPO, the price moves upwards based solely on the fact that there is more demand for shares than supply. And the price generally doesn't go below the IPO price for quite some time, as investors aren't likely to dump their stocks for a loss so quickly.

Even Groupon, which every short seller on earth wanted to short (and which is worth half it's IPO price right now), still went up 30% the first day (and at one point was up much more).

The fact there was so much selling pressure below the IPO price so soon indicates there was alot of short selling. Not to mention, Facebook's recent rally (when the rest of the market was doing very badly), could also indicate that some of those short sellers were covering their bets, as they would have made a tidy profit in a very short amount of time.

And no, price movements don't normally occur because of short selling, but occasionally there are tell-tale signs. And because IPOs trade according to a completely different set of rules, it becomes all the more apparent here.

[neu5eeCh]

Not to beat a dead horse, but Drouthat wrote a good editorial (http://www.nytimes.com/2012/05/27/opinion/sunday/douthat-the-facebook-illusion.html?_r=1&hp) (or so I think) on the Facebook's of the world.



As The New Yorker’s John Cassidy pointed out in one of the more perceptive prelaunch pieces, the problem is not that Facebook doesn’t make money (http://www.newyorker.com/online/blogs/johncassidy/2012/05/facebook-the-ultimate-dotcom.html). It’s that it doesn’t make that much money, and doesn’t have an obvious way to make that much more of it, because (like so many online concerns) it hasn’t figured out how to effectively monetize its million upon millions of users. The result is a company that’s successful, certainly, but whose balance sheet is much less impressive than its ubiquitous online presence would suggest.

[neu5eeCh]

Just in: Facebook stock dives again (http://www.huffingtonpost.com/2012/05/31/facebook-stock-continues-_n_1560017.html).

Heh. Give it another few weeks and it will eventually hit my price target of $2 a share. I think, at that point, I would consider buying.:popcorn:

[Mikeb85]

Just in: Facebook stock dives again (http://www.huffingtonpost.com/2012/05/31/facebook-stock-continues-_n_1560017.html).

Heh. Give it another few weeks and it will eventually hit my price target of $2 a share. I think, at that point, I would consider buying.:popcorn:

It was up 5 percent today... It'll go lower, but not as low as you think.